How to spot an abnormally low tender: criteria, scoring and procedure

An abnormally low tender is both an economic and a legal concept. Economically, it is a tender whose amount falls below the real cost of production, which means the contractor cannot carry out the works in accordance with the specification without losing money. Legally, on a public contract, the buyer is obliged to identify and deal with such tenders before any award, under article R2152-3 of the procurement code. On a private contract there is no legal obligation, but prudence calls for the same rigour.

The question is not whether the tender is "good for the client", a low tender is tempting. The question is whether the contractor can physically carry out the works for that price. If it cannot, the project will pay the difference one way or another: in variations, in defective work, in an abandoned site, or in litigation.

ℹ The three recovery mechanisms First, systematic variations: a contractor appointed at a low price raises a variation on every change, interpretation or imprecision in the tender package. A package that is not perfect, and none is, becomes a source of recovery, and the accumulated variations wipe out the apparent saving. Second, under-delivery: the contractor executes the works with materials or labour below what the specification requires. The gap between what was specified and what was installed is rarely visible before completion, sometimes not for two to five years. Third, abandonment: the contractor, unable to absorb its losses, stops work halfway. The consequences are heavy, the package has to be taken over by another contractor at market price, several months are lost, and the work already done often has to be made good.

Spotting an abnormally low tender is not simply a matter of comparing the total against the priced bill. A tender can sit inside the ranges overall and still show targeted anomalies on particular items, which is often the signature of deliberate underpricing on the items that are hard to quantify, offset by overpricing on the visible ones. The scoring below uses ten independent criteria.

Reading the score: 0 to 4 points, a tender to watch, clarification optional. 5 to 7 points, a suspect tender, clarification recommended. 8 points or more, probably abnormally low, and the treatment procedure must be triggered before any award.

The criterion most often underestimated is the internal inconsistency between a low tender and high unit rates in the schedule of rates. It is the signature of a deliberate strategy: underprice the contract to win it, then load the schedule of rates to recover margin on every change made on site.

An example: a frame tender at 135 000 €, 43 % below the priced bill, with schedule rates of 180 €/m² for reinforced concrete where the market sits at 120 to 140 €/m². Every drawing change, every additional opening, every variation will be valued at those rates, and such extras commonly amount to 5 to 15 % of the original contract. The apparent saving on the tender is wiped out.

As soon as a tender reaches 8 points, a record sheet should be opened. It documents the anomaly, tracks the request for clarification and the answer, and forms the basis of the decision to award or to reject.

The request must be factual, quantified and targeted. It lists the anomalous items with the gaps observed, and asks explicitly for the technical assumptions adopted, the build-up of the price for the items concerned, and confirmation that the price covers the whole of the scope described in the specification.

A vague request, "could you confirm your price?", produces a vague answer and settles nothing. A precise one, "your concrete wall item stands at 68 €/m², 53 % below our reference of 145 €/m²; please break down the labour, material and plant cost for this item", forces the contractor to cost its assumptions, and quickly reveals whether the justification is credible.

ℹ Awarding without the procedure: the risks On a public contract, awarding to an abnormally low tender without having run the statutory procedure exposes the buyer to annulment of the contract for breach of the competition rules. The risk is real even where the contractor performs the works properly. On a private contract, awarding without prior analysis can be treated as a fault of the design team if the contractor later fails or the works prove defective, where the client can show that the signals were visible and were not acted on.

Most contractor failures during construction are preceded by an abnormally low tender that was never dealt with at award. A contractor appointed at a price it cannot hold is condemned either to absorb losses that weaken its cash position, or to find recovery mechanisms that degrade quality and create disputes. Either way, the risk of failure is structural.

Detecting and dealing with abnormally low tenders at tender assessment is the most profitable preventive investment in the whole of the economist's appointment.

An abnormally low tender presupposes an inability to carry out the works properly, and translates in practice into systematic variations, under-delivery or failure on site. The ten-criterion scoring grid quantifies the risk: a score of 8 or more makes the procedure compulsory before award. The most dangerous and most underestimated signal is a low tender behind high rates in the schedule of rates. The record sheet documents the procedure and protects the design team legally. On a public contract the statutory procedure is compulsory; on a private one it is strongly advisable. Awarding without it exposes the design team to liability if the works prove defective or the contractor fails.

The nature of the figures quoted

The percentages and amounts quoted on this page are orders of magnitude for framing, not measurements. They illustrate mechanisms and proportions, and they substitute neither for a tender exercise nor for an estimate prepared on drawings.

• How to analyse a contractor's tender: the reading grid and the warning signs
• How to build a tender comparison schedule: columns, weightings and reporting
• Tender stage risks: under-priced tenders, inflation and contracts with traps
• Contractor insolvency during construction: the first 72 hours decide everything