Abnormally low tenders: when a cheap price gets you rejected, and how to defend it

The cheapest tender does not always win. If your price looks too low to be real, the buyer is obliged to ask you to explain it and is entitled to reject your tender if the explanation does not convince. Bidders meet this rule twice: once when their own aggressive price is challenged, and once when a competitor wins with a price that cannot possibly cover the work.

This guide covers both sides.

The rule

Article 69 of Directive 2014/24/EU says that when a tender appears to be abnormally low in relation to the works, supplies or services, the buyer shall require the bidder to explain the price. The buyer then assesses the explanation and may reject the tender only where the evidence does not satisfactorily account for the low level. Two cases are stronger:

• If the price is low because the bidder is breaching environmental, social or labour law obligations (Article 18(2)), the buyer must reject it.
• If the price is low because of state aid, the buyer may reject the tender only after consulting the bidder and only if the aid cannot be shown to be lawful. In practice this case is rare outside a few sectors.

The word "appears" matters. The directive does not define a threshold. National law and buyers do, in several ways.

What triggers the question

Three mechanisms are common across the EU:

1. A formula in national law. Spain and Italy, among others, write one into the law: a tender is treated as abnormal when it falls a stated percentage below the average of the other tenders, or below the estimate, with rules that change when there are few bidders. The formula is in the procurement documents or the national law the documents cite.
2. A threshold set by the buyer. Some procurement documents state their own test, for example "any price more than 20 percent below the estimate".
3. Judgement. Where nothing is written, the evaluation committee decides what looks implausible. A price well below every competitor and the estimate will be questioned; a price that is simply the lowest will not.

Learn the test before you price. If a national presumption kicks in at 20 percent below the average, a 22 percent discount buys you a written justification exercise and a rejection risk; a 19 percent discount does not. The pricing guide covers how to place yourself deliberately.

What the buyer will ask, and what counts as an answer

The request is usually a letter with a deadline of a few days. It may ask generally for a justification, or point to specific parts of the price. The directive lists the kinds of explanation the buyer must consider:

• The economics of your method. A manufacturing process, a service delivery model or a construction method that is genuinely cheaper than what competitors use.
• Technical solutions or exceptionally favourable conditions available to you: an existing local base, equipment already amortised, materials bought under a long-term contract.
• Originality of what you propose.
• Compliance with the obligations in Article 18(2): environmental, social and labour law, including collective agreements. This is the one the buyer must check.
• Compliance of your subcontractors with the same obligations.
• State aid, if any.

What does not count: "we want the reference", "we accept a low margin", "our competitors are overpriced". These may all be true and none of them explains how the work will be delivered for the money.

Writing an explanation that survives

A good justification is a cost breakdown with evidence, not a letter of intent. Structure it as the buyer will read it:

1. Restate the scope as you understood it from the documents, so the buyer can see that you are not pricing a smaller job.
2. Break the price into its components: labour by role and hours, materials, subcontractors, equipment, overheads, margin. Reconcile the total to the tender price exactly.
3. Prove the rates. Payslips or collective agreement scales for labour, supplier quotes for materials, ownership records for equipment. If your labour rate is below the sector agreement, expect rejection; if it is at the agreement and your hours are lower because of method, explain the method.
4. Name the favourable condition and evidence it: the depot 3 km from the site, the framework price with your supplier, the software already built for another client.
5. Show the margin. A small positive margin is credible. A zero or negative margin needs a business reason the buyer can accept, and many evaluation committees will not accept one.
6. Answer every specific point the buyer raised, in their order, with a heading each.

Keep the tone factual. The committee is looking for a reason to keep you in, because rejecting a low tender also means paying more; give them one.

A worked example of a presumption

Spain's default rule for price-only procedures, which many procurement documents adopt and adapt, works from the number of bidders. With a single tender, it is presumed abnormal if it is more than 25 percent below the estimate. With two, if one is more than 20 percent below the other. With three or more, if it is more than 10 percent below the arithmetic average of all tenders, after first setting aside any tender that is itself more than 10 percent above that average (with exactly three tenders, only the highest).

Five bidders offer 940, 900, 880, 860 and 700 thousand euros. The average is 856. Nothing is more than 10 percent above it, so nothing is set aside. Ten percent below 856 is 770: the 700 tender is presumed abnormal and its bidder will receive the letter. The 860 tender, only 12 percent below the estimate of 980, is not questioned at all.

Two lessons. The test is usually relative to the other bids, not to the estimate, so you cannot compute it in advance with certainty; you can only estimate where the field will land from the award history and stay above the likely line. And a single very low competitor pulls the average down for everyone, which is why aggressive bidders occasionally drag a second, otherwise safe bidder into the justification procedure with them.

When a competitor's price is impossible

The rule cuts both ways. If you lose to a price that cannot cover the statutory minimum wage for the hours the contract needs, you have grounds to act:

• Before the award, write to the buyer pointing out, with numbers, why the price cannot be compliant, and ask that Article 69 be applied. Buyers are obliged to investigate; a reasoned request makes it hard not to.
• After the award, the standstill period exists for exactly this. The challenging a decision guide explains the deadlines. A review body will ask whether the buyer actually examined the low price; a buyer that waved it through without asking is exposed.

Build your case from public data. The buyer's estimate, the number of hours implied by the specification and the applicable wage scales are all public; the award notice gives you the winning price. If the arithmetic does not work, say so in writing.

Three habits that keep you out of trouble

• Know the national presumption for every country you bid in, and keep your price just above it unless you have a justification ready before you submit.
• Prepare the breakdown before the request comes. If you can build the justification in an afternoon from files you already have, a low price is a choice. If you would have to invent it, the price was wrong.
• Never go below the collective agreement. It is the one line the buyer cannot cross with you, whatever the explanation.

A low price is a legitimate weapon in public procurement. The rule against abnormally low tenders does not forbid it; it asks you to prove it. Bidders who can prove it win the work. Bidders who cannot lose it twice: once at evaluation and again in the market's memory.