An abnormally low quote is a quote that is significantly lower than the average price of other bidders or the forecast procurement cost. It may raise suspicions in the procuring entity regarding the supplier’s ability to fulfil the terms of the contract without any violations. The abnormally low quote is automatically identified by the electronic procurement system; procuring entities do not need to calculate it independently for each bid.
When conducting public procurement, in particular under the open bidding procedure, authorised persons of procuring entities need to factor in two important features of the application of the abnormally low quote tool.
1. Using the correct definition
When designing the requirements of the bidding documentation, use the correct definition of an abnormally low quote.
Note that these definitions are set forth in the Law of Ukraine “On Public Procurement” (hereinafter referred to as the Law) and in the Resolution of the Cabinet of Ministers of Ukraine No. 1178 dated 12 October 2022 (hereinafter referred to as the Aspects).
According to the Law, an abnormally low quote is the price/quoted price of the most cost-effective bid following the results of the auction, which is:
- at least 40% below the arithmetic mean of the price/reduced price in other bids at the initial stage of the auction; and/or
- at least 30% below the next lowest price/quoted price in the bid following the results of the electronic auction.
According to the Aspects, an “abnormally low quote” means the price/quoted price of the most cost-effective bid, which is:
- less than 40% or more below the arithmetic mean of the price/reduced price of other bids in the procurement procedure;
- at least 30% below the next lowest price/quoted price in the bid.
As you can see, these are two different definitions. Given that under martial law, public procurement must be guided by the Aspects, procuring entities often use the Aspects’ definition of an abnormally low quote in their bidding documentation.
By Information Letter No. 3323-04/65721-06 dated 3 September 2024, the Ministry of Economy, as the authorised body that regulates and implements state procurement policy, recommends the following course of action to procuring entities: “In the case of conducting open bidding with the use of an electronic auction, the term “abnormally low quote” should be defined in accordance with para. 3 of Article 1(1) of the Law. However, if, by reasoned decision of the procuring entity, open bidding is conducted without the use of an electronic auction, the term “abnormally low quote” should be defined in accordance with para. 37 of the Aspects.” Thus, in order to avoid possible violations of the law, procuring entities should set forth in the bidding documentation the definition of an abnormally low quote depending on whether open bidding is conducted with or without an electronic auction.
2. Applying the tool in practice
When applying the abnormally low quote tool, be guided by the Aspects.
Mandatory rejection (Clause 44 of the Aspects)
Pursuant to Clause 44 of the Aspects, the procuring entity should reject a bid with an indication of the reasoning in the electronic procurement system if the bidder has failed to provide justification for the abnormally low quote within the period specified in:
- para. 1 of Article 29(14) of the Law,
- or para. 9 of Clause 37 of the Aspects.
Justification for the abnormally low quote should be provided within one business day from the date of determining the most cost-effective bid.
In this case, the interpretation is unambiguous: if the bidder in the open bidding procedure, whose quote is determined by the electronic procurement system as abnormally low, has failed to provide justification for the abnormally low quote within the established period, its offer is subject to mandatory rejection.
Optional rejection (Clause 45 of the Aspects)
Meanwhile, according to Clause 45 of the Aspects, the procuring entity may reject a bid with an indication of the reasoning in the electronic procurement system if the bidder has provided an improper justification for the price or cost of the goods, works or services under the bid, which is abnormally low.
What are the risks for the procuring entity?
Here’s a scenario: a bidder in an open bidding procedure has provided a justification for an abnormally low quote within the required period, but the procuring entity considers it inadequate. This entails certain risks for the procuring entity.
After all, both the Law and the Aspects stipulate that justification for an abnormally low quote can be provided by the bidder in any form. And since the legislation does not clarify what justification is considered adequate and what is not, authorised representatives of procuring entities should:
- either specify in detail in the bidding documentation the information that an “adequate” justification must necessarily contain; or
- refrain from rejecting the bids on this ground.
