AN ANALYSIS OF ABNORMALLY LOW TENDERS AND THEIR IMPACT ON THE INDIA MARKET | Volume III Issue III | Author: Shruti Mandhotra

Abstract

Public Procurement represents almost 30% of India’s gross domestic product which is the most driving reasons of all for any country especially a developing country like India to understand how deadly the consequences of unsound strategic bidding can be if appropriate steps are not taken on time.

An abnormally low tender as defined in the Procurement Regulations means to be a bid or proposal which in combination with other elements of the bid appear to be so low that it raises the material concern of the borrower against the bidder or the proposers capability to perform the contract at the offered price. Largely there are two broadly classifies risks that arise from an abnormally low tender that can prove to be a concern for the buyers in future. First of all that the bidder has undervalued the pricing regime of the contract and this is the reason for his ALT. The second important categorization here is when the bidder intentionally bids a price that is below the cost in order to win the contract and foreclose the rivals and carries out all of this with an intention of increasing its prices to such an uncompetitive level in order to recoup its losses in the coming future i.e. the concept of ‘when the price is too good to be true.’

The author in this paper tries to analyze the need for a proper framework governing ALT in the Indian market so as to avoid any disruptive anti-competitive practices. It is the aim of the author to also understand in the due course of the paper as to how competition law is impacted with submission of an ALT.

Keywords: Abnormally low tenders, procurement, public procurement, anti-competitive, competition law.

an insight into abnormally low tenders

understanding the public procurement policy

Governments all over the globe spend a huge chunk of their budget in procurement of goods, works and other related services in order to discharge their duties and responsibilities towards the citizens who’ve assigned them with such a responsibility. Therefore, various ministries and attached subordinate offices carry the work of such procurement activities. Now when such a system of procurement exists there sure should be a prevalent regulatory framework in place that governs such a vital process. Likewise, India has Procurement Guidelines, 2017[1]/2019[2] then the European Union (EU) has a Directive of 2014[3] on public procurement in place and United States of America (USA) similarly has Federal procurement regulation[4] that is governed by Title 10 and 41 of the United States Code. These regulatory frameworks exist to ensure a uniform, efficient, cost effective, fair and systematic treatment of suppliers.

In India the Constitution of India[5] provides that only those contracts have a legally binding effect on the government and have to be executed in a written manner by the officers who’ve been specifically authorized to do so.[6]It is to say that the grundnormof India gives empowersboth the governments at the State and Central level to be able to contract in goods and services under the name of the President of India or as specified by the governor of the state who also has autonomous capabilities in directing in matters related to public spending.[7]Law of the land also provides for certain fundamental rights like Article 19[8] which provides for right to carry on a profession which has a direct impact on public procurement. Then we have certain other statues like the Sales of Goods Act, 1930 and the Indian Contract Act, 1872 which are the major legislations governing the sale/purchase of goods in general.[9] As we know there is no specific/exclusive law governing the public procurement however the statutes mentioned above and certain mercantile legislations such as Information Technology Act, 2000; Arbitration and Conciliation Act, 1996 and Competition Act, 2002. Therefore, in India a public procurement procedure must adhere to the following frameworks which govern the relation between a procurer and the supplier and the following rules flow down via a contract and a tender award: (i) state specific legislation on transparency in procurement; (ii) General Financial Rules and Manual for procurement of Goods, 2017; (iii) Concerned ministries publishing manuals relating to the specific sectorial procurement rules.[10]

The Apex court of India over the period of years have recognized that even though the government has recognized that it should have freedom to contract the following should be adhered to:[11]

1. Utmost transparency should be ensured amidst all eligible persons who have the opportunity to participate in the auction of the contracts of the states that are granted by the public auction/tenders;
2. The appearance of public justice must not just be done but should also be visible;

• All these public acts must be done for the interest of public and should also inspire the general confidence of the public;

1. State shouldn’t grant contracts on the basis of private negotiations.

what is an abnormally low tender?

An abnormally low tender[12] or an abnormally low bid or proposal as defined in the Procurement Regulations means to be a bid or proposal which in combination with other elements of the bid appear to be so low that it raises the material concern of the borrower against the bidder or the proposers capability to perform the contract at the offered price.[13]Or in a simpler sense it can be understood as an offer quoted by the proposer which happens to be way too low. So low as to not being capable of being able to provide a minimalistic or   normal levels of profits and this is ambiguous and incapable of being understood on the grounds of choice of manner of construction, technical solutions, originality of the work or the favorable conditions of the tenderer.[14]Similarly under the Indian jurisdiction there isn’t any definition of abnormally low tenders per se. However, it is discussed and identified through a variety of situationswhich raise concerns for the contracting authorities whether the bid that has been submitted would render the bidder capable of performing the contract at the same price or if it would be economically sustainable.[15]The procuring entities in such a case may go ahead and seek written clarifications form the bidder seeking the detailed price analysis of the quoted bid and seek additional information pertaining to the scope of the bid, its allocation related to risks and responsibilities, schedule and any such other additional requirements in the biding document.[16] Even after evaluation of the price in case the procuring entity concludes in its findings that the bidder had substantially failed in convincing the authority or displaying his capability to perform or execute the contract at the pricepitched by him initially then the procuring entity is at liberty to reject the bid or proposal.[17] Despite everything it is advised to the departments not to quote such abnormally low or normative bids that are below estimated costs and would automatically raise a red flag when seen by the contracting authorities.

How a bid can appear to be abnormally low can be observed through the following examples[18]:

• A situation wherein it is so low that it does not provide for the margin of profit;
• When it is seen in comparison with all other substantially responsive bids;
• In those situations where quoting of such a low price cannot be explained through:
• A technical solution chosen;
• An economy of the selected constructions method.
• Wherein when it is seemed on a comparative basis with that of the borrower’s cost estimation quoted for the contract then there seems no comparison with the market prices.

An abnormally low bid may prima facie appear to be representing a good value which would be capable of fetching a lucrative result in the totality of costing, certain contractual delays and lastly it can also be due to a contract collapsing.Or simply it can be said that accepting of an abnormally low tender withholds the potential of putting the contract in jeopardy as the contractors who submit such abnormally low tenders most likely wouldn’t be capable of performing their contract at the price quoted or they simply can be assumed to have made errors in the submission of the bid and eventually they’d be unable to complete the work at such a price.[19] This just further enhances the burden of the public authorities where they would have to spend additional time and money in order to manage a poorly performing contractor or in order to find a new contractor for completing his job. Under certain circumstances wherein the tender is so low then it is suspected that there might be some reasons for suspection of certain misunderstanding that may have arisen that such a tender was based on incorrect assumptions or also that the tender isn’t serious enough to deliver in accordance to the specifications made out by him in the tender.[20]Usually in such scenarios the Contracting authorities are most likely to face difficulties while reaching at a conclusionbecause it is difficult to have an impartial andobjective examination of these low bids because of certain material concerns such as an assessment of the quality of the concerned product coupled with the services being offered. On many occasions even the quoted price holds the potential of being a determining factors of to whom the procurement contract would be awarded. However, too low tenders are mostly likely to result in the bidder’s inability to execute the tender or deliver the bid of supremely lower quality.[21]

Contracting authorities have majorly two concerns first; would the bid ultimately lead to higher costs and or the performance issues would be one of the concerns during the life of the contract. Secondly; to check the status quo the parties on the tender process and whether they can or would challenge the tender process if the tender was to be given to such a bidder who might have submitted an abnormally low bid.[22]It is always that the contracting authorities are in a position of awarding the contract either on the basis of the most economically advantageous offer after considering the criteria linked to the subject matter or on the basis of the lowest price.[23]

 

Risks that a contracting authority undergoes:[24]

1. The costs of re-tendering;
2. Non-performance by the tenderer who bid the lowest price;

• Huge overall costs;

1. Legal costs associated with procurement challenge;
2. Missing out on the chance of opting a better overall tender package.

In public procurement procedures following are the major reasons for the birth of an abnormally low tender:[25]

1. underestimation of risks: This originates from a famous concept of ‘winners curse’ which is basically submission of an abnormally low tender by the bidder which is most likely because of the reason that the bidder erred in estimating the scaleof risks attached with the execution of the contract.For instance, a company ‘L’ had submitted a tender to the contracting authority after meeting with all the compliance requirements. However ‘L’ was too confident while calculation of the tendering price and about the execution of it. Henceforth, increasing the suspicion of the fact that ‘L’ might not be able to perform the contract in the required manner or may sluggishly complete it with multiple delays or cheap product quality.
2. subsidy: The bidder might at times quote an abnormally low tender owing to the receipt of subsidy provided by the economic operator. It is said that the companies receiving subsidies should be allowed to participate in such public procurement procedures. However, their tender shall also be rejected in case they quote an abnormal low bid using the state aid to their unfair advantage. Say, Company B is backed by the government in terms of receiving financial support from the government being a start-up company. Then is such a case B is automatically in a position wherein they can offer a lower price in comparison to their competitors who might not have access to such a subsidy.

• misunderstanding: At times the bidder might quote a lower bid owing to his incapability of understanding or interpreting the requirements provided by the contracting authorities. For instance, a company who submitted an abnormally low bid[26] did so because it was not able to understand the scope of the procurement in its entirety and as a consequence it failed to include all the mandatory requirements. So, the companies who would have submitted the bid complying with all the requirements of the contracting authority would have a substantially different bid.

1. deliberate strategy of an economic operator: quoting an abnormally low tender[27]can also be a voluntary act or a thought after strategy of an economic operator. For example, Company X submitted an abnormally low bid and the reason behind doing so is for havingtheir staff continue with their employment in an orderly fashion. On the other hand, company Y quoted a lower bid with an ulterior aim of driving its competitors out of the market. And then company Z submits a lower bid on the basis of an assumption that in future it might be capable of agreeing to the amendments to the contract and get an increased remuneration through negotiation with the contracting authority during performance of the contract.
2. non-compliance with social, labor and environmental laws: At times companies tend to ignore or fail to adhere to the binding legal requirements of a state which is why owing to the non-compliance of all required measures they end up quoting an abnormally low tender.[28]For instance, Company K has not been paying wages as per the norms of the Law or is failing to comply with the labor conditions then they get an unfair competitive advantage. Hence, the abnormally low bid.

risks associated with an abnormally low tender:

A contracting authority might be unaware of risks that might accompany an abnormally low tender. Not only is it hazardous for the contracting authority to choose such a bid but it is also harmful for the greater public interest for the following enumerated reasons:[29]

1. quality risk:when the bidder submits such a low bid then he is ought to reach towards the cost one way or another. Most likely he is ought to provide goods and services at a price lower than they should be offered keeping in line with the termsand conditions of the contract.[30]
2. default risk: as an obvious consequence an abnormally low tender entails a huge risk of default. This is especially bound to happen in a case where the bidder has not considered all the aspects of the procurement and has not considered all the risks that would come with it. As a result of the misunderstanding on the part of the economic operator he renders himself incapable of fulfilling the contract or in the worst case scenario might become insolvent.Hence, because of all of this chaos the contracting authority might have to re-tender the services owing to the failure of the economic operator to deliver. This just increases the burden of the contracting authority manifold.[31]
3. environmental, social and labor obligations being avoided:as explained in one of the reasons above as well this avoidance might also enhance the risk associated with choosing an abnormally low tender. For instance, the economic operator might try to evade tax or minimum wages.
4. increase in prices or additional charges: after obtaining the contract the bidder might seek for additional costs and even might request for additional or an increased remuneration while finishing up the project. Now that the contract has reached the stage of performance for obvious reasons the ball lies in the court of the economic operator. The economic operator might end up demanding some sort of additional payment that wasn’t even a part of the contract and might coerce his way through it by threats of opting out just to get the contracting authorities to agree with him.[32]

stages of identification and treatment of an abnormally low tender:

The below mentioned steps have been elaborated in the World Bank report:[33]

1. Identify: wherein the borrower identifies the potential abnormal low bids in comparison of the available prices in the market or through a cost estimate process.
2. Clarify: the borrower seeks clarification from the bidder regarding his proposal.
3. Justify: the bidder is expected to prepare a justification explaining the reasoning of their pricing based on the request of the borrower.
4. Verify:the justification submitted by the borrower is analyzed to understand if it is an abnormally low bid or not.
5. Decide: to conclude the process the borrower after careful due diligence decides whether or not he shall be accepting the bid of the bidder in its entirety.

interface between competition law and abnormally low tenders

Competition acts as a fundamental driving force of the economic innovation as well as efficiency which helps the nation to achieve another pedestal of consumer welfare whereby they offer goods and services to the public entities which help them closely relating to their preferences which produces further beneficial consequences.[34]In public procurement the competition helps the government in attaining value for their money.[35]One pertinent thing to be noted here is that in a public procurement market competition does not tend to emerge naturally it might need to be promoted and ensured through a proper framework of rules and enforcement.[36]Competitive public procurement is a universally accepted objective however; it is a little less clear as to how to recognize a situation of effective competition in such markets.[37]Status quo suggests that in the given market climate[38] especially in the cut throat competition between the economic operators who tend to submit lower priced bids for securing the contract usually end up retaining the employment and also maintain their presence felt in the market. Quoting of such lower prices can potentially conclude with the contracting authorities extracting unfair benefits out of it.[39]Though it is said that at times there might be an economic reason or a specific business reason for an economic operator having quoted an abnormally low bid, for instance, in case of an economic recession, demand from the market shall reduce as a consequence the competition for public contracts shall increase.[40] Another reason for an abnormal low bid can be the expensive warehousing and also goods with a short shelf life or the bidder might have products produced since earlier only and might just be consuming the bidder’s storage space therefore, putting him in a position to make an abnormally low bid.[41] So, these reasons mentioned above can be understood as some of the explanations as to why a bidder might submit a tender that shall

inevitably prove of loss to his company.[42] In case an abnormally low bid can be seen as an independent loss.However, there are bound to exist certain perks that a supplier might values supremely then there exists is no valid/rational ground on the basis of which any contracting authority should reject such an abnormally low bid.[43]Hence, it can be simply put as: whether a bid has the potential to be abnormally low and be held subject to rejection is a little difficult of decision for the contracting authority to make.[44]

As mentioned earlier as well failure to deliver the contract in accordance with what was mentioned earlier by the contracting authority obliges it to go the entire procedure again inevitably increasing the cost of the entire process for not just the contracting authorities but also the tax payers.[45]In order to assure that the abnormally low tenders do not act as a hindrance for other bids being evaluated in the spirit of fair and transparent competition in comparison to others and also that the most economically advantageous tender should win, the contracting authorities get the opportunity to reject any such abnormal low bid.[46]

 

interface between competition and procurement

Competition concerns in the genre of procurement are just like any other economic market focusing primarily on the possibility of horizontal agreements between the competitors meanwhile looking out for any kinds of abuse of dominant position as well. Public procurement is one of the key economic activates carried out by the government which also accounts for a huge chunk of Gross Domestic product across the globe. In India the government procurement constitutes approximately 30% of its gross domestic product.[47]Also, effective procurement avoids mismanagement and also avoids wastage of public funds.[48]Competition law and public procurement intersect on these two parameters: (i) proactively dealing with any kind of distortions created by public institution actions or regulation in the competition; (ii) dealing with anti-competitive practices in the arena of public tenders.[49]The risks that are accompanied with the process of public procurement can be cut down after a careful analysis of a variety of auction features accompanied by their effect on the likelihood of collusion.[50]Even though collusive practices may keep occurring during any procurement process is it private or public certain aspects especially of public procurement are in particular vulnerable to distortion via anticompetitive conduct.[51]

 how does abnormally low tenders impact the competition in the market

Largely there are two broadly classifies risks that arise from an abnormally low tender that can prove to be a concern for the buyers in future. First of all that the bidder has undervalued the pricing regime of the contract and this is the reason for his abnormal low bid.[52] And when the economic operator shall realize the mistake and wish to pull out from the contract and or renegotiate the contract or shall end up applying additional costs upon the buyer that he initially hadn’t included in his bid. For instance, the underlying issue that concerns the procurers most is that the low pricing is equivalent of poor product quality that in some way isn’t adequately captured within the quality criteria against which the bid is assessed i.e. the concept of ‘you get what you paid for.’[53]The second important categorization here is when the bidder intentionally bids a price that is below the cost in order to win the contract and foreclose the rivals and carries out all of this with an intention of increasing its prices to such an uncompetitive level in order to recoup its losses in the coming future i.e. the concept of ‘when the price is too good to be true.’[54]In the second scenario mostly such lower bids usually affects the competitors first, driving them out of the particular market. In the second wave it’s mostly the consumers who are affected.[55] Usually after having enjoyed a period of temporarily lower prices such firms increase the prices and couple it with deteriorated supply. Along with certain exception in play the literature on such abnormal low bids and predatorypricing presumes for the multinational corporations practice their so called inherent strategy

to successfully move the minor entrants permanently off the market.[56]

However, recently the outlook towards the low bids and predatory pricing has witnessed a paradigm shift where it is observed that certain smaller firms are also highly competitively driven and such kind of innovative products appear to have a tendency to be prone to such successful attacks of predatory pricing.[57] Also, such costing and other anti-competitive practices are likely to send wrong waves to the recent entrants and deter entry into certain markets.[58] Therefore, for a bidder’s strategy of low pricing would impact the market in which manner basically depends upon the objectives of the respective firm. It can be summarized as something that might appeal as irrational to one from a profit-maximizing perspective might be rational to others when objectives are taken into consideration.[59]

Competition plays a pivotal role in public procurement processes and that can be seen from the following aspects:[60]

• Apart from the immediate effect of loss of public money of the anti-competitive practices, there exists a deeper result on the overall efficiency in the domestic market. It is said that the public procurement is bound to have a long term impact on the competition as public procurement happens to one of the vital features of the industrial sector. This in turn gets reflected in the level of competition in the upcoming tenders.[61]
• There are short term effects in the market amidst the potential suppliers; are basically the effects it likely to create and the intensity of the competition amidst the suppliers in any particular tender is just the only possible evident effect, nonetheless it is not the only effect.

a comparative approach through an international lens

India has in the recent past witnessed an increase in the volume of public procurement opportunities in India. These come coupled with the scale and magnitude of government projects which tend to hold a great amount of economic potential for both domestic and the cross border companies.[62] This recent shift in paradigm has several factors driving the force. To begin with the government is pushing towards modernizing the extent of infrastructure and equipment that as an obvious outcome is resulting in a larger magnitude of procurement opportunities. Then the foreign investors are also being granted better access to the breadth of Indian market as compared to earlier.[63]  However, India has no direct legislation governing the procurement procedures and since this paper specifically talks about abnormally low bids then in India let alone legislation the current rules in practice do not even define the concept neither the Indian courts have till date dealt or explained the concept in detail. And this is problematic for a country which is expanding its procurement operations. Not only should the concept be defined but it should also be understood in depth so as to avoid any negative impacts that it is capable of creating on the market. For the same this chapter focuses on seeing what global powers such as the United States, European Union and other international bodies have to say about the concept and specifically how they deal with abnormally low bids in their respective jurisdictions.

European union

Across the European Union (EU) many procurement decisions are based on the concept of lowest price that is a permitted award criterion and happens to fall within the concept of ‘most economically advantageous tender’.[64]But it is not the same, lowest price isn’t always assumed or considered to be the best value for money in the long run. On the basis of this and securing the interest of the parties the Directive of 2014: Public Sector Directive[65] was introduced that acknowledges the fact that the contracting authorities should award the public contract on the basis of most economically advantageous tender. The Directive also constitutes a special provision for the usage of cost of life-cycle and the other cost effective approaches that encourage the contracting authorities to go ahead and consider beyond just the first few purchase costs and keep into consideration the account the qualitative issues while evaluating the tenders.[66]

The Directive[67] entails provisions which deal with tenders that indicate an abnormal low bids. The rules mentioned under the Directive enable the contracting authorities from avoiding the negative consequences of accepting tenders which appear extremely advantageous however, in reality aren’t viable.[68]Article 55 (2) of Directive[69] read along with Regulation 30(6) till (9)[70] provide for the contracting authority not to reject an abnormal low bid without giving the tenderer a fair opportunity[71]to explain the detailing of the costs and prices if his tender.[72]The Directive in its entirety refers to those tenders that ‘appear to be’ abnormally low. Irrespective of that, the directive does not define what exactly an abnormally low tender is nor there is much direction from European Court of Justice or other courts. Therefore, the possible things can be looked out for:[73]

• Any such abnormal low bid that is submitted in whole or in part which stands to be even below what the contracting authorities were expecting on the basis of the market knowledge and costings;
• Fearful assumption of facing greater risk than anticipated;
• Significant variations as compared to the other bids.

The EU Courts have made it clear that in case of public procurement obliging the contract authority to verify the details and reason of their abnormal low bid after the hearing of the parties and needs to regard all its constituent elements before rejecting it is one of the most fundamental requirements.[74] In fact the Court of Justice of European Union (CJEU) has also very clearly laid down that a positive and unavoidable requirement mentioned under Article 55 of the 2004 Directive that a contracting authority is neither obliged nor mandated by anyone to request the bidder for clarifying his stance on the abnormally low tender.[75]In orderto be sure that the contracting authorities aren’t expressly rejecting all abnormal low bids being submitted therefore they’ve been obliged to first identify suspect tenders and then scrutinize themfollowing the inter partesprocedure[76] set out by the Directive which indicates that the contracting authorities are directed to send out a request to the concerned bidder and give them a fair chance to fully and effectively prove as to how genuine their tender is.[77]

To conclude in EU the contracting authorities are under a duty to reject any abnormally low bids but only after they have complied with the inter partesprocedure that is governed through the Directive.[78] Until and unless the contracting authority can give a valid reasoning and sufficiently justify their decision not to do so on the basis of the overriding legitimate reasons and it can be done so only till the time there is no discriminatory or competition distorting effects derived after the acceptance of the abnormally low tender.[79]The Directive directly sets out rules where in case the contracting authorities are permitted to reject the abnormal low bids exclusively on the basis of the reception of an illegal state aid.[80]

united states

Unlike regulations of other countries around the globe the US Federal Acquisition Regulation goes ahead to establish how the price analysis is to be done for assessing the sustainability of the bid.[81] The federal agencies also seek variety of information that ranges from certified costs in comparison with historical acquisition prices with similar items and expert technical advice, government estimates and market analyses. Also in 2013 during a bid protest decision the government accountability office has clarified that awarding of fixed priced contracts while the agencies are required to evaluate the reasonableness of the price and of a proposalwhether too high and they need not necessarily carry out  a price realism analysis whether the price is too low.[82]

united nations through UNCITRAL[83] has a little to say about governing the abnormally low bids. Model law highlights that a procuring entity if feels appropriate considering the circumstances can reject a submission when seen in its entirety along with the combination of other constituent elements of submission that are also abnormally low while taking into consideration the subject matter of the procurement and finally raises questions in the eyes of the procuring entity regarding the capability of the supplier who laid down the submission to execute the procurement contract but provided that the procuring entity has ensured the following course of actions:

• Procuring entity has taken into account all and any information provided by the contractor following his request and the information including the submission but continues on the basis of all such information to hold concerns;
• Also the procuring entity has made a request in writing to the contractor seeking the details of the submission that gives rise to concerns regarding the ability of the supplier to perform the procurement contract.[84]

world trade organization has a firm belief regarding abnormally low bids and it lays down it as:[85]Tenders those conform to the essential requirements of the tender notice or the documentation and are from a supplier who complies with the conditions for participation that can be considered as an award. Those entities which have an obligation to award contract awards whether to the tenderer who determined carefully to be fully capable of undertaking the contract and whose tender is either the lowest or he had submitted the tender which seemed most advantageous in terms of the specific pre- decided evaluation criteria in the notices or the tender documentation. Any entity which has received a tender abnormally low in comparison to the other tenders require with the tenderer to ensure that it can comply with the conditions of the participation and be capable of fulfilling the terms of contract.[86]

 India

The status quo clearly tells us that India has no legislation or a framework of rules and regulations that define what an abnormally low tender is. Only the Procurement guidelines[87] suggest at the treatment of an abnormal low tender. However, this treatment is also not exhaustive instead isleft ambiguous and not explained in greater detail. Even the Indian Courts have laid down no specific criteria of deducing an abnormally low bid.[88] For that matter India does not even have a comprehensive central legislation that exclusively governs the public procurement in India. Instead of this the public procurement framework consists of a system for intersecting administrative guidelines even sector specific manuals and certain state specific legislation.[89]Rules and directives on the subject matter are majorly contained in the General Financial Rules, 2005 and also the Delegation of Financial Powers Rules (DFPR).[90] Also certain other legislations governing the same are: Contract Act,[91] The Sales of Goods Act,[92] the law of Arbitration,[93] Right to Information Act[94] and lastly Limitation Act.[95]The only thing provided in the procurement guidelines in the name of guideline is that an abnormally bid usually raises the concerns in the eyes of contracting authority regarding the potential of the economic operator to be able to execute the project at the quoted prices in the given time frame and on pre agreed conditions. The guidelines also are crystal on the fact that the procuring entity is not supposed to reject the tender without seeking a written explanation from the bidder explaining his reasoning of the pricing.[96] Now the prima facie issue arising with this definition per say is that it does not lay down the exceptions that might be the reason for such low bids or the greater possibility of bidder offering such lower prices because of the illegal state aid[97] that they have received. Most importantly the anti-competitive effects[98] that might arise owing to the phenomenon of abnormally low bids[99] isn’t paid attention to and in the coming times with India’s procurement activities increasing this might pose a challenge in front of the authorities.

conclusion

Public Procurement represents almost 30% of India’s gross domestic product which is the most driving reasons of all for any country especially a developing country like India to understand how deadly the consequences of unsound strategic bidding can be if appropriate steps are not taken on time. As seen over time it usually is the bigger companies who tend to risk and go ahead with unsound bidding practices. This is why it becomes important for one to understand the intricacies accompanies with such practices and prevent them within time so as to avoid its distorted effects in the longer run. It might be a possibility that at first the prices dip lower in the market for such contracting authorities however, in the coming time it might just be the scenario wherein these larger companies tend to spread their wings in the market by obtaininghuge chunks of market shares and eventually lead to having least number of players in certain sectors of the market. Also it is vital that these departments apply competition law during such public procurement processes proactively. Currently it can be observed that that the cooperation amidst the competition authorities and such contracting authorities which shall enable an effective detection of any possible infringement or an anti-competitive activity. Up till now it must be clear that the Indian Legislation majorly lack at defining what an abnormally low tender is, how one is identified and how it possibly needs to be dealt with after identification. Looking at the International scenario there are a few learnings that can be adopted and certain mistakes from which India as a nation can learn and avoid committing those too.

Dealing with the aspect on how as to how to identify an abnormally low tender considering the environment of Indian markets and the nature of public contracting authorities just like the European Union[100] has. Although in the personal opinion of the author it is not the Directive which has played a major role in understanding of the concept rather the Courts of EU which have clarified the position of law pertaining to abnormally low tenders through various precedents.[101]Some of the following steps can be considered while identifying a bid as an abnormally low bid or not:

• A comparative analysis of the submitted bid with all the other submitted bids and then the contracting authority can assess the deviation in prices either through mean prices or through the extent of the differential amount between both the tenders.
• A comparative analysis can also be made against the object of procurement.
• The Contracting authority if deems fit can also assess the bid quoted by the bidder against their own prices i.e. the process they estimated prior to the entire procedure. Through this the contracting authority can assess the proportion of deviation amidst both the prices.

It does not have to be an exhaustive list of events instead just like UNCITRAL Model law on Arbitration[102] does for the interpretation of the word ‘commercial’[103]. Duringthe interpretation of the phrase the Courts globally have tried adopting a wider and a liberal construction so that they do not get deviated from the object and purpose of the law. The purpose of drawing this analogy is to put a conscious burden on the Indian legislature to understand the need of having a functional definition of the phrase abnormally low tenders along with ways to identify the same considering the impact that they have on competition in the market. There are certain rules and manual which are sector wise bifurcated for instance,railway, procurement guidelines for goods, works etcetera. And they also not deal with abnormal low bids in depth and provide for a specific method for the identification of abnormally low tenders. And the contracting authorities make continuous assessments that vary case to case taking into consideration the specific circumstances.

Public procurement happens to be an essential element of any healthy economy. This goes to indicate towards the fact that an effective public procurement policy would be one which has all the inevitable elements for having a prolonged term economic growth, best value public services, business competitiveness etcetera. Hence, it cannot be emphasized anymore as to how crucial is the role of public procurement to a developing nation’s economy henceforth, making the entire process to be done in a correct manner aninevitable requirement. Also with India having a rapid increase in its public procurement process it is likely for  us to face a higher proportion of unsound bidding practices which not only need to be detected at the earliest possible but also need to be done away with. For which the contracting authorities need to work with in coherence with the competition laws and also India needs a centralized legislation for Public Procurement process with abnormally low bids being dealt with specifically.

[1]Government of India, Ministry of Finance-Department of Expenditure, Manual for Procurement of Goods, 2017.

[2]Government of India, Ministry of Finance-Department of Expenditure Manual for Procurement of Works, 2019.

[3]Directive 2014/24/EU on Public Procurement.

[4]Federal Acquisition Regulation, 1947.

[5]INDIA CONST. art. 299.

[6]Government of India, Ministry of Finance-Department of Expenditure, supra note 1.

[7]Prashant Mara & Davina Deshpande, India: Public Procurement 2019, mondaq(May 8, 2020),

https://www.mondaq.com/india/government-contracts-procurement-ppp/930884/public-procurement-2019#:~:text=India’s%20regulatory%20and%20institutional%20framework,transparent%20and%20non%2Darbitrary%20manner.

[8]INDIA CONST. art.19, cl. (1) (g).

[9]Government of India, Ministry of Finance-Department of Expenditure, supra note 1.

[10]Prashant Mara & Davina Deshpande, supra note 7.

[11]Id.

[12] S Arrowsmith, The Law of Public and Utilities Procurement, 531-539, (2nd edn 2005);

 P Trepte, Public Procurement in the EU: A Practitioner’s Guide, 59-60 and 474-7,Oxford, Oxford University Press,( 2nd edn.2007).

[13]The World Bank, Abnormally low bids and proposals, Guide to the identification and treatment of Abnormally Low Bids and Proposals, July 2016.

http://pubdocs.worldbank.org/en/780841478724671583/Guidance-on-ALB-FINAL.pdf

[14]Jose Luis Fuentes Bargues&Maria Carmen Gonzalez Cruz et al., Abnormally Low Tenders in Non pricing Criteria: the Need for Control, Universal Journal of Management, (2016). 

[15] Scottish Government Riaghaltasna h-Alba, Construction procurement handbook, (2019).

[16]Government of India, Ministry of Finance-Department of Expenditure, supra note 1 at ⁋ 7.5.7.

[17]No.F.12/17/2019-PPD, Office memorandum, Predatory Pricing/Abnormally Low Bids- Reg (2020).

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[18]The World Bank, supra note 13.

[19]Id.

[20] André GuardadoLundqvist, Unsound strategic bidding and the competition perspective, Faculty of law- Lund University.

https://core.ac.uk/download/pdf/289937363.pdf

[21]RosénAndersson,Eva Maj Muhlenbock, Olof Hallberg & Johanna Naslund,  Lagen om offentligupphandling – Enkommentar, p. 42., NorstedtsJuridik AB(3^rd Ed,. 2016).

[22]Jeremy Glover, EU Procurement: abnormally low and non-compliant tenders, Fenwick Elliott.

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[23]Id.

[24]Id.

[25]SIGMA, Abnormally Low Tenders (Brief 35-Public Procurement), (2016).

http://www.sigmaweb.org/publications/Public-Procurement-Policy-Brief-35-200117.pdf

[26] GS Ølykke, Submission of Low Price Tenders by Public Tenderers—Exemplified by Public Procurement of Railway Services in Denmark’, 253,  UB Neergaard et al (eds), Integrating Welfare Functions into EU Law—From Rome to Lisbon (Copenhagen, DJØF, 2009).

[27] GS Ølykke, Abnormally Low Tenders—with an Emphasis on Public Tenderers (Copenhagen, DJØF, 2010).

[28]Asian Development Bank,  Abnormally Low Bids, Guidance note on procurement,( June 2018).

https://www.adb.org/sites/default/files/abnormally-low-bids.pdf

[29] SIGMA, supra note 25.

[30]OECD, Directorate for financial and enterprise affairs competition committee, 2017.

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WP2(2017)1&docLanguage=En

[31]Asian Development Bank, supra note 28.

[32]SIGMA, supra note 25.

[33]The World Bank, supra note 13.

[34] OECD, Recommendation of the OECD Council on Fighting Bid Rigging in Public Procurement, Paris, (2012).

http://www.oecd.org/daf/competition/RecommendationOnFightingBidRigging2012.pdf

[35] United Nations Conference on Trade and Development (UNCTAD), Competition Policy and Public Procurement,Geneva,(2012).

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[36] OECD, supra note 30.

[37]Id.

[38]SIGMA, supra note 25.

[39]Id.

[40] André GuardadoLundqvist,supra note 20.

[41]Id.

[42]Lundvall and Pedersen, Osundstrategiskanbudsgivningioffentligupphandling, Konkurrensverket, p. 27, (2011).

https://www.konkurrensverket.se/globalassets/aktuellt/nyheter/osund-strategisk-anbudsgivning-i-offentlig-upphandling.pdf

[43] André GuardadoLundqvist, supra note 20.

[44]Lundvall and Pedersen, supra note 42 at 28-29.

[45]Gunnar AlexanderssonochHultén, Orimligtlåga bud vid upphandlingar, p. 7, EkonomiskDebatt 2003.

http://www.nationalekonomi.se/sites/default/files/legacy/31-7-gash.pdf

[46] Lundvall and Pedersen,supra note 42 at.29.

[47]CCI, Public Procurement and CompetitionLaw.

https://www.cci.gov.in/sites/default/files/presentation_document/p4.pdf?download=1

[48] OECD, Public Procurement: the role of competition authorities in promoting competition, Series Roundtables on Competition Policy, No. 71, OECD, Paris, (2007).

http://www.oecd.org/dataoecd/25/48/39891049.pdf

[49]Rita Paukste, Competition law and public procurement- an easy catch for competition enforcers? lexxion, (2019).

Competition law and public procurement – an easy catch for competition enforcers?

[50] OECD, Competition and Procurement,2011.

[51] OECD, Competition and Procurement,2011.

http://www.oecd.org/daf/competition/sectors/48315205.pdf

[52] OECD, supra note 30.

[53]Id.

[54]Id.

[55]Gunnar Alexandersson and StaffanHultén, The problem of Predatory Bidding in Competitive Tenders, 2003.

http://idei.fr/sites/default/files/medias/doc/conf/rai/papers_2003/alexandersson.pdf

[56] Robin Lindsey and Douglas S. West, Predatory pricing in differentiated products retail markets, International Journal of Industrial Organization, 551-592, vol 21,(2003).

https://www.researchgate.net/publication/222644341_Predatory_pricing_in_differentiated_products_retail_markets

[57]Grout, Recent Developments in the Definition of Abusive Pricing in European Competition Policy”, CMPO Working Paper Series, no 00/23, (2000).

[58] Roberts, J, ”A Signaling Model of Predatory Pricing”, Oxford Economic Papers, 38, 75-93,(1986).

[59] Kate, A T and G Niels, ”On the Rationality of Predatory Pricing: the Debate Between Chicago and Post-Chicago”, Antitrust Bulletin, vol 47,1-24, (2002)

[60] CCI, Provsions relating to Public procurement.

https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/pp.pdf

[61]Kagel, J H and D Levin, “The Winner’s Curse and Public Information in Common Value Auctions”, The American Economic Review, vol 76, 894-920, (1986)

[62]Procurement Rules and Trends in India: Public Procurement Laws and Regulations 2020, iclg, (2020).

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[63]Id.

[64]SIGMA, supra note 25.

[65] Directive, supra note 3.

[66]SIGMA, supra note 25.

[67] Directive, supra note 3.

[68]SIGMA, supra note 25.

[69] Directive, supra note 3.

[70]Public Contracts Regulations 2006.

[71]David Gollancz, UK: Too Good To Be True ? Abnormally Low Tenders In Public Procurement, mondaq, (2013).

https://www.mondaq.com/uk/government-contracts-procurement-ppp/257812/too-good-to-be-true-abnormally-low-tenders-in-public-procurement

[72]Article 69(1) Directive 2014/24/EU on Public Procurement.

[73] Fenwick Elliott, supra note 22.

[74] Case T-495/04 Belfass [2008] ECR II-781 ¶98; C-285/99 and C-286/99 Lombardini;  Mantovani [2001] ECR I-9233 ¶51.

[75]Case C-599/10 SAG ELV Slovensko [2012] nyr ¶34.

[76]Dr Albert Sanchez Graells, Rejection of abnormally low and non-compliant tenders in EU public procurement: A comparative view on selected jurisdictions, European Procurement Law Series, Vol 6, Forthcoming, (2013).

http://ssrn.com/abstract=2248590

[77]Case C-599/10 SAG ELV Slovensko [2012] nyr ¶31.

[78]Article 55 of Directive 2004/18.

[79]Dr Albert Sanchez Graells, supra note 76.

[80]Id.

[81]The World Bank, supra note 13.

[82]Id.

[83]UNCITRAL’ Model Law on Public Procurement (2011).

[84]The World Bank, supra note 13.

[85] Article XIII: 4

[86]The World Bank, supra note 13.

[87]Government of India, Ministry of Finance-Department of Expenditure, supra note 1 at ⁋ 7.5.7.

[88]South Delhi Municipal Corporation v. Ravinder Kumar and Ors.(2015) S.C. (c) 8314.

[89]ICLG, supra note 62.

[90]Government Procurement Law and Policy.

https://www.loc.gov/law/help/govt-procurement-law/india.php

[91] Contract Act, No. 9 of 1872. 

[92]Sale of Goods Act,  No. 3 of 1930.

[93]The Arbitration and Conciliation Act, No. 36 of 1996.

[94]Right to Information Act No. 22 of 2005. 

[95]The Limitation Act, No. 36 of 1963.

[96]Government of India, Ministry of Finance-Department of Expenditure, supra note 1 at ⁋ 7.5.7.

[97]Ølykke, GrithSkovgaard. “The Notice on the Notion of State Aid and Public Procurement Law.” European State Aid Law Quarterly, vol. 15, no. 4., 508–526, (2016) . 

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[98]OECD, supra note 30 at 4.

[99]CompetitionPolicy and Public Procurement, Intergovernmental Group of Experts on Competition Law and Policy Geneva, 9‐11 July 2012.

https://unctad.org/system/files/non-official-document/ciclp2012_RT_PP_Lithuania_en.pdf

[100] Article 69(1), Directive, supra note 72.

[101]CJEU, Case C-285/99 Impresa Lombardini; CJEU, Cases 76/81 Transporoute; C-103/88 Fratelli Costanzo, C-599/10 SAG ELV Slovensko and Others.

[102]UNCITRALModelLawon International Commercial Arbitration, 1985.

[103]Koch Navigation Inc. v. Hindustan Petroleum Company Ltd. (1989) SC.