A new ruling of Högsta förvaltningsdomstolen (HFD) [the Supreme Administrative Court] states that it is permissible to establish an obligatory requirement that prohibits negative partial prices. According to the Supreme Administrative Court, such a requirement does not prevent tenderers from competing by means of low prices down to zero SEK and is therefore not contrary to the principle of equal treatment. Since the reason for applying the requirement was to counteract unhealthy strategic pricing rather than enabling low tenders to be rejected, the Supreme Administrative Court considered that the procuring authority had no obligation to allow the tenderer to explain the low price in accordance with the rules on abnormally low tenders.
Background
A procuring authority carried out a procurement of pavements and cycle paths. The authority established an obligatory requirement whereby all partial prices should exceed or at least be equal to zero SEK. No negative partial prices were therefore accepted. The authority applied an evaluation model with evaluation based on lowest price.
The tender with the lowest total amount was rejected by the procuring authority because it contained a negative partial price. The tenderer submitting the tender applied for a review of the procurement. According to the tenderer, the requirement in question meant a prohibition on offering prices below a certain level and was therefore inadmissible. The procuring authority argued that a requirement that meant a prohibition on negative partial prices did not contravene procurement legislation in cases where the tenderers were free to determine the total tender price.
THE SUPREME ADMINISTRATIVE COURT’S ASSESSMENT
The question to be considered by the Supreme Administrative Court in the case was whether it is permissible for a procuring authority to establish an obligatory requirement prohibiting negative partial prices.
The Supreme Administrative Court notes that the principle of equal treatment in procurement law is expressed, inter alia, in the right of suppliers to compete by means of their prices. A supplier that, for various reasons, is able to and wishes to offer an extremely low price normally has the right to do so as a result of the principle of equal treatment. In view of this, the Supreme Administrative Court has previously reached the conclusion that floor prices are not permitted (HFD 2018 ref. 50). Procuring authorities must instead assess the reliability of low tenders by means of the procedure provided in the rules on abnormally low tenders.
The Supreme Administrative Court goes on to explain that not every restriction on the possibility of freely pricing tenders will conflict with the principle of equal treatment. In case HFD 2020 ref. 24, the Supreme Administrative Court found that imposing an obligatory requirement whereby a tender in which the price per unit for a larger quantity band is higher than the price per unit for a smaller quantity band for the same type of work will be rejected is compatible with procurement legislation. Because the requirement did not specify any absolute lower limit on what prices could be offered, the requirement, according to the Supreme Administrative Court, did not prevent the suppliers from competing by means of their prices. For that reason, the Supreme Administrative Court also did not consider that the procuring authority had an obligation to allow the supplier to explain the low price in accordance with the rules on abnormally low tenders.
According to the Supreme Administrative Court, the prohibition on negative partial prices is similar to the floor price at issue in case HFD 2018 ref. 50. However, according to the Supreme Administrative Court, one crucial difference is that, in the question of the prohibition on negative partial prices, the floor is set at zero SEK. The requirement therefore does not prevent suppliers from competing by means of their prices down to zero SEK. The reason for establishing the requirement was to prevent suppliers from manipulating the evaluation model through strategic pricing so that the price being evaluated appears to be lower than the actual amount that will be payable on fulfilment of the contract. According to the Supreme Administrative Court, the requirement thus helps to increase transparency in pricing and thus encourages rather than restricts competition. In that way, the requirement is more similar to the requirement addressed in HFD 2020 ref. 24. The Supreme Administrative Court therefore considered that the requirement was not contrary to the principle of equal treatment.
With regard to the obligation to allow the tenderer to explain the low price in accordance with the rules on abnormally low tenders, the Supreme Administrative Court refers to the fact that the requirement was aimed at counteracting unhealthy strategic pricing rather than giving the authority an opportunity to reject abnormally low tenders. The Supreme Administrative Court notes that the procedure that gives the tenderer an opportunity to explain the low price is aimed at ensuring that the supplier is able to fulfil the contract at the low price. According to the Supreme Administrative Court, this procedure thus addresses issues other than those underlying the price requirement in question.
Comments
We understand that unhealthy strategic pricing – particularly in the form of abnormally low tenders – is a reality that many procuring authorities find difficult to deal with. The procedure to be used to deal with abnormally low tenders is in many cases perceived as a blunt instrument. There is thus a desire in many quarters for the ability to counteract unhealthy and abnormally low pricing through requirements in tender request documentation.
Since the Supreme Administrative Court established in HFD 2018 ref. 50 that floor prices are not permitted, there have been many questions concerning the limits on price control carried out by procuring authorities. Through the ruling HFD 2020 ref. 24, the Supreme Administrative Court opened up the possibility of a degree of price control, provided that suppliers are not prevented from competing by means of their prices and that abnormally low tenders are not automatically rejected.
Now, in case 766–22, the Supreme Administrative Court has expanded its case law in this area and has established that it is permissible for procuring authorities to establish an obligatory requirement prohibiting negative partial prices, i.e. it is permissible to specify a floor price of zero SEK. Despite the fact that the Supreme Administrative Court said no to floor prices in previous case law. The Supreme Administrative Court justifies this new position by referring to the purpose behind the requirements. However, regardless of how the aim of the requirements is justified, the fact remains that a floor price limits suppliers’ ability to compete by means of their prices below a given price level. It is therefore not entirely easy to understand the Supreme Administrative Court’s reasoning when it comes to distinguishing between, on the one hand, requirements restricting competition and, on the other, requirements aimed at suppressing unhealthy strategic pricing.
However, it should be stressed that the ruling should be understood as meaning that from now on it will be forbidden to prevent suppliers from competing by means of their prices and that abnormally low tenders must be evaluated in accordance with the procedure laid down in the provisions on abnormally low tenders.
