Abnormally Low Bids definition

We are currently seeing a paradigm shift from (i) pure price based decisions (“Lowest Evaluated Bidder”) to (ii) a more complete analysis (“Most Advantageous Bid”). The World Bank (WB) recognizes that accepting Abnormally Low Bids and Proposals (ALB) can put the contract in jeopardy. It can lead to increased overall costs, contract delays or even the collapse of a contract. WB has given its guidance regarding Abnormally Low Bids and Proposals (ALB), which are defined as follows:

“An Abnormally Low Bid/Proposal is one in which the Bid/Proposal price, in combination with other elements of the Bid/Proposal, appears so low that it raises material concerns with the Borrower as to the capability of the Bidder/Proposer to perform the contract for the offered price.”

General principles

It is preferable for the Borrower (Owner/Employer) to avoid receiving Abnormally Low Bids. This can be achieved through:

  • adequate market research,
  • high quality documentation (RfQ),
  • engagement with the market,
  • a sufficiently long bid period,
  • a pre-qualification phase etc.

In the case of a suspected ALB, there is a requirement to undertake enhanced due diligence on the Bid. The comparison of the price can either be against the Borrower’s  budget or in comparison with other bids; we will further explain this below. Due to the complexity of establishing Abnormally Low Bids, the Client may require the input of independent consultants with technical knowledge and experience relevant to the specifications.

If the Bidder is unable to show it can complete the contract for the Bid price, the Bid must be rejected. Clearly, in case of suspected ALB, the burden of proof is on the Bidder. The due diligence regarding potential ALB price must happen before submission of the Bid evaluation report to WB for no-objection.

Abnormally Low Bids

Abnormally Low Bids – World Bank rules

5 stages of evaluation

If we look more in detail to the process, we identify 5 stages:

1. Identification of potential Abnormally Low Bids.

In any case, identification of ALB should be undertaken on Substantially Responsive Bids only (other Bids should be rejected on beforehand). An objective calculation can establish potential ALB, either with:

(i) the ‘absolute’ approach when fewer than 5 bids were received: We have a potential ALB if Bidder’s price is more than 20% below Borrower’s cost estimate; or

(ii) the ‘relative’ approach: We have a potential ALB, based on a statistical calculation, if the Low Bid is more than one standard deviation below the average of the Substantially Responsive Bids.

2. Clarification with the Bidder.

The Bidder’s capability to perform the contract within its total evaluated Bid price must be established. This is done based on detailed price analysis and on a correlation with the following factors:

  • scope,
  • methodology,
  • schedule, and
  • risk allocation.

A preliminary assessment shall first be performed:

  • Has the cost of materials minimal divergence between Bidders, as is usual?
  • Are items omitted from the price or consistently under-priced?

The Bidder shall not be asked, nor be allowed, to change its Bid during the evaluation process. The Borrower shall request clarifications to produce a detailed price analysis depending on the issues identified during the preliminary evaluation. The Borrower shall clearly state these issues. Some examples:

  • very low overhead & profit; or
  • a specific part of the contract with very low prices.

Any misrepresentation by the Bidder shall be subject to WB’s anti-fraud and corruption guidelines and may lead to sanctions. The Bidder shall provide a typical Bid price breakdown identifying separately:

  • the cost of Goods/Works (equipment, materials and labor),
  • Overhead,
  • Contingency, and
  • Profit.

3. The Bidder prepares a justification.

The Bidder’s justification should include all information requested by the Borrower. The Bidders shall also provide any documentary evidence used for determining its Bid price. Failure to provide the justifications shall lead to bid rejection. No Bidder shall be permitted to withdraw its Bid or add any cost element during the Bid validity period. The explanations may concern the following :

  • economics of manufacturing processes & services,
  • the technical solution,
  • the originality of the works / supplies or services,
  • the compliance with applicable standards etc.

Contract training / Negotiation training

4. The Borrower analyzes and verifies

Suitably qualified personnel from, or working on behalf of, the Borrower shall fully analyze the information and evidence given by the Bidder. They shall check the consistency of prices in combination with other elements of the Bid. And also the consistency of resource inputs. The Borrower may evaluate previous satisfactory performance by the Bidder and contract implementation at similar prices.

The Borrower shall determine if the Bid price, in combination with other elements of the Bid, is unreasonably low. If the Borrower is not satisfied with Bidders demonstration of his capability to perform the contract successfully for the price submitted, then the Bid must be rejected, subject to WB no-objection.

5. The Borrower decides and obtains WB’s no-objection.

The Bid evaluation report shall include full details of the basis of Borrower’s decision, including the following:

  • unrealistic resource estimates by the Bidder,
  • Borrower’s estimates and any shortfall,
  • the recommended decision,
  • copies of all clarification exchanges and
  • Bidders objections to Borrower’s estimates (if applicable). 

If the Bidder has failed to demonstrate its capacity, it will lead to Bid rejection. If the Bidder fully demonstrates its capability to deliver the contract for the offered price, its Bid should be accepted.

Conclusion

World Bank’s new methodology regarding the identification of ALBs (Abnormally Low Bids and Proposals) provides Borrowers with a structured approach to address this issue. Projects financed by World Bank and Multilateral Development Banks will be in a better position to achieve maximum value for money.

You can find other publications on World Bank by clicking here.

Click here for publications regarding FIDIC contracts.

For the entire guideline, please find herewith the reference document from the World Bank’s website:

ProcurementGuidanceidentificationandtreatmentofAbnormallyLowBidsandProposals

About AfiTaC

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Categories: World Bank

Jan Bouckaert

Jan Bouckaert has 25 years of worldwide experience in negotiation of complex construction, renewable energy, power and infrastructure projects. He is also specialized in contract management, risk management and alternative dispute resolution. During Jan’s career path, he lived in France, Belgium, Egypt, India and Portugal and worked for GE Renewable Energy, Alstom Hydro, Besix/Six Construct. He is a Civil Engineer from the University of Leuven (Belgium) and has an MBA from ISEG (Portugal). He speaks fluently English, French, Portuguese and Dutch. Jan is the founder of AfiTaC, a company giving advice on international tenders and contracts. Be welcome to connect on LinkedIn: https://www.linkedin.com/in/afitac/

5 Comments

johnson · 24 February 2019 at 16 h 22 min

Dear Sir,
What if a contractor failed to submit its completion certificate for similar works completed as requested. With a good price, could we request the contractor to submit the completed certificate?

2, if a contractor demonstrated completion of major assignments that included large volumes of concrete works, Earth works , reinforcement, Gabions , excavation, drains etc. But failed to fill the volumes executed in his submission as required. With a good price, could we request the contractor to submit the volumes of key activities for evaluation purposed or be disqualified?

    Jan B. · 24 February 2019 at 17 h 42 min

    Thanks for your questions.
    If a bidder has submitted an offer and some information is missing, this information can be requested if the lack of it is not a material deviation to the tender requirements.
    Examples:
    – Completing information about Contractor’s reference (such as providing a completion certificate or confirming quantities of past works) is, in my opinion, not a material deviation.
    – On the other hand, excluding an important part of the scope of works would be a material deviation. The bidder should not be requested to complete its offer later on and increase the price.
    Whether a deviation is material or not should be evaluated on a case by case basis. At AfiTaC, we can support with this evaluation.

Tony Johnson · 10 April 2019 at 13 h 18 min

Dear Sir,

Should a bidder be considered responsive for a lot even though he had giving a false representation in another lot of the same bidding exercise.

    Jan B. · 10 April 2019 at 15 h 00 min

    Dear Mr. Johnson,

    We generally prefer to give precise replies. But, as we have only limited information about the actual case, we have no choice than to respond “it depends”.

    Excluding a bidder form several lots due to a misrepresentation on one lot can, or cannot, be recommended based on the following:
    – The degree of intentionality in the misrepresentation. For example, if the bidder clearly wanted to get the award thanks to a wrong reference, this could lead to exclusion of several lots on the same bidding exercice. However, if it is all a matter of interpretation, I would not be so severe.
    – If the misrepresentation was clearly limited to the scope of one lot, I would not debar that company from other lots on the same project (except as stated in the previous point).
    BR, Jan

    Tesfaye · 11 July 2020 at 11 h 32 min

    false representation is fraudulent practice and shall never be tolerated. Such cases shall be escalated to an appropriate level of investigation, in the case of World Bank, it is reported to the institutional Integrity vice-presidency unit (INT). Regarding whether bidder be considered responsive or not, the same unit gives guidance on the matter.

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