Errors In Price Evaluation

Author:Mr Philip Nolan and Robert McDonagh
Profession:Mason Hayes & Curran

Price is a critical part of tender evaluation. It is evaluated in different ways using different formula and assumptions. It is important that these are carefully considered and don't give rise to grounds for challenge. This came to the fore in a recent Northern Irish case.

The Department of Education for Northern Ireland ("DOE") invited tenders for participation in a framework agreement as part of a schools modernisation programme. Henry Brothers, an unsuccessful tenderer, challenged the process. This was on the grounds that price was evaluated based upon tendered fee percentages which were applied to assumed "Defined Costs". The underlying assumption was that the "Defined Costs" would be the same for each contractor.

The use of fee percentages was intended to address the historic problems with lowest price tenders, which introduced a low bid/high claim culture. Other mechanisms of assessing competitive cost had been considered by the DOE including the pricing of sample schemes and actual historic projects. The DOE's expert explained that these were of limited use since contractors often found reasons for arguing that the samples were not representative of the projects to be completed or arguments for amending previous prices.

The Court confirmed that DOE was entitled to rely on the advice of its professional advisers, applying SIAC Construction Ltd v County Council of the County of Mayo (Case C-19-00). It noted, though, that such advice is subject to analysis to establish whether it was erroneous. The Court held the approach to evaluating price was unlawful. This was because the underlying assumption that Defined Costs would be the same for each contractor was incorrect. This may potentially be applicable in other contexts also, such as with respect to price evaluations based upon margins on open-book contracts where there is no underlying evaluation of the input costs.

Interestingly, the trial judge in the original decision indicated that he had difficulty with the proposition that a public body could determine the most economically advantageous bid without a reliable indication of price or cost to...

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