Procurement: How to respond to a tender priced at zero

In its recent decision in the case C-367/19 Tax-Fin-Lex, the European Court of Justice (ECJ) discussed the concept of a “contract for pecuniary interest” and whether a contracting authority may automatically reject a tender because it is priced at zero. The ECJ decided that the tender could not automatically be rejected on this ground. The tender should be considered an abnormally low tender and assessed in line with the abnormally low tender provisions.

The case arose in the context of a procurement process for legal information services run by the Ministry of the Interior, Slovenia (the “Ministry”). The Ministry received two tenders for the services. The tender submitted by Tax-Fin-Lex was priced at Euro 0.00. The Ministry rejected Tax-Fin-Lex’s tender on the ground that the price submitted was Euro 0.00. The underlying reason for this decision was that, in the Ministry’s view, if the tender was accepted, it could not result in the award of a public contract for pecuniary interest as no consideration was to be paid. Tax-Fin-Lex argued that its offer was acceptable and should not be rejected. Tax-Fin-Lex explained that, although it would not be directly compensated, the award of the contract would confer on it an economic advantage, giving it access to a new market, new users and references providing access to future public procurement contracts.

The ECJ considered the definition of public contracts “for pecuniary interest” in Directive 2014/24, which is transposed in Regulation 2 of the Public Contracts Regulations 2015. The ECJ confirmed that the phrase “for pecuniary interest” designates a contract under which each of the parties undertakes to provide one form of consideration in exchange for another. The ECJ also confirmed that “consideration” need not necessarily consist of a payment of a sum of money; the supply of a service could be compensated by other forms of consideration.

The ECJ went on to state that the fact remains that the reciprocal nature of a public contract results in the creation of legally binding and enforceable obligations on both parties to the contract. It follows that a contract under which a contracting authority is not legally obliged to provide any consideration in return for services which the other party to the contract has undertaken to provide, does not fall within the concept of a “contract for pecuniary interest”. The ECJ also expressed the view that the economic value of the contract to Tax-Fin-Lex in opening up access to a new market, is too uncertain and insufficient to characterise the contract as a “contract for pecuniary interest”.

However, the ECJ decided that the fact that the contract price was Euro 0.00 could not constitute a ground for automatic rejection of the tender. Rather, the ECJ was of the view that the tender should be classified as an abnormally low tender and the legal provisions and process applying to consideration of abnormally low tenders must be followed.[1] This means that the Ministry cannot automatically reject the tender; it must first ask the tenderer to explain the amount of the tender. The explanation provided by the tenderer is then to be used to assess whether the tender is reliable. This enables the contracting authority to establish whether, despite the price proposed, the contract can be properly performed. The ECJ also confirmed that the assessment of information submitted when considering an abnormally low tender must be carried out in compliance with the principles of equal treatment, non-discrimination, transparency and proportionality.

[1] The abnormally low tender provisions are set out in PCR 69, Public Contracts Regulation 2015 (as amended)/art.69 Directive 2014/24/EU.