The award criteria determine to which tenderer the contract will be awarded in a particular tendering procedure. Price is often an important sub-criterion for award in practice, but award based on the lowest price is not permitted in principle. What is actually the situation with award based on best price-quality ratio versus the lowest price? An overview of where things stand and points to note in practice.
The Public Procurement Act: award takes place in principle on the basis of best price quality ratio.
The introduction of the Public Procurement Act 2012 in 2013 confronted contracting authorities with a new obligation. Section 2.114 of the Public Procurement Act stipulated that contracts could, in principle, be awarded on the basis of the best price-quality ratio. Award on the basis of lowest price was only permitted if reasons for this were provided in the tender documents, and not, incidentally, only in the summary of additional information and changes.
The line between best price-quality ratio and lowest price: de facto lowest price
The line between the two criteria was vague, however. After all, contracting authorities could decide to state in the documents that best price-quality ratio was the award criterion, but then assign the greatest value to price in the underlying sub-criteria for award. This meant there were indeed quality criteria, but they had little actual value.
In a judgement concerning the Zevenaar City Hall, it was precisely this problem that was addressed. The provisional relief court found:
‘(…) It is correct, as the municipality argued, that a contracting authority in principle has the freedom to assign more weight to the sub-criterion of price than to all other quality-related sub-criteria collectively, but, as the Commission also considered, it must be assumed that the freedom to do this reaches its limit at that point where the contracting authority’s decision for the criterion of most economically advantageous tender ends up being a de facto choice for the award criterion of the lowest price. In view of the expert underpinning of the Commission’s advice, it must be found that in this case, this limit was exceeded. The conclusion is therefore that it must be assumed that because of how the municipality elaborated the sub-criteria, the municipality actually opted for the criterion of ‘lowest price’ referred to in section 2.114 (2) of the Public Procurement Act 2012. (…)’
The provisional relief court ruled that it could not be the case that the weight of the various sub-criteria meant that there was indeed officially an award on the basis of best price-quality ratio, but that in fact it was only price that determined the ranking. In that case, it was in fact the award criterion of lowest price that was applied and the contracting authority must give reasons for that in the tender documents. Quality must have a significant influence on the ranking if award is to actually take place based on the criterion of best price-quality ratio.
The judgement caused a buzz, because how can it be determined that award is actually taking place based on the lowest price? And when does quality have a ‘significant influence’ on the ranking? In second preliminary relief proceedings concerning the Zevenaar City Hall, the provisional relief court provided more clarity on this:
‘(…) It can occur, however, that the quality elements are of such little significance that it cannot reasonably be assumed that there is still a case of most economically advantageous tender. This naturally attracts the practical objection, for contracting authorities as well, that it cannot generally be determined where the turning point lies. (…) Where that turning point lies can only be determined on a case-by-case basis, taking into account all the circumstances of the situation, such as the specific award criteria, their relative weight, the subject of the tendering procedure, the market in which the tendering procedure is taking place, the degree to which award based on most economically advantageous tender is worthwhile, with the corresponding achievement of the goals deemed relevant by the legislator in mind, etc.’
A consideration that the earlier judgement clarifies to some extent, but which is still of little practical significance. It can be concluded from this, however, that if the qualitative aspects are merely a formality and no longer have any influence on the ranking of tenderers, it is to be expected that award will actually take place based on the lowest price. In that case, the contracting authority must explain why this particular award criterion is being applied.
CvAE: the limit value
It was still unclear when quality has a ‘significant influence’ on the ranking. The Gelderland provisional relief court rightly commented that this cannot be determined generally, but that some starting point is nonetheless needed for the drawing up of the award criteria.
The CvAE (Committee of Tender Experts) attempted to provide this starting point. In a tendering procedure involving Standard Building Documents for Residential and Commercial Property (STABU contract documents), the CvAE advised on the problem above. The outcome was the so-called limit value. The limit value can be defined as the percentage difference between the lowest price and the maximum price that a tenderer with the maximum quality score can offer and still be able to land the contract.
The CvAE found that a limit value of 10% is proportionate in general. In concrete terms, this means that a tenderer who has not offered the lowest price must still be able to land the contract if:
- this tenderer receives the maximum score for quality; and
- its price is no more than 10% higher than the lowest price; (and
- the tenderer with the lowest price has received the minimum score for quality).
The CvAE advised, however, that the limit value must always be related to the concrete assignment. In a concrete case, the limit value of 10% could still be disproportionate, therefore. That would be the case if the prices are expected to diverge significantly because the tenderer has a great deal of influence on the execution of the assignment. For example, in the event of an integrated contract for design and build activities where the contractor must draw up a final design and so forth. If the prices are expected to remain within a limited bandwidth, for instance, because the tenderers need only carry out a design based on STABU contract documents or RAW (specification system for civil and hydraulic engineering works) specifications, a limit value could in fact be disproportionately high.
The advice does leave some wiggle room, however, since the CvAE assumes somewhat extreme circumstances. Specifically: the tenderer with the lowest price has received the lowest (minimum) score for quality. It is also presumed as a starting point for the limit value that another tenderer receives the maximum quality score. In practice, however, situations like this rarely occur.
Whether quality has a significant influence must be determined based on the tender documents at the time of the tendering procedure. If, based on these documents, tenderers can expect quality to have a significant influence, but after the fact it is nonetheless the price that is the deciding factor, this does not mean that the award criterion is unlawful.
Award based on quality is inefficient
The limit value is also of little practical value. In later advice, the CvAE provides a more general and more useful framework for determining whether award based on lowest price is permissible. The CvAE considers:
‘(…) In deviation from the main rule of section 2.114 (1) of the Public Procurement Act 2012, a contracting authority will be allowed to decide to apply the criterion of lowest price if deciding to apply the criterion of most economically advantageous tender would be inefficient. This decision can be considered inefficient if, in the given circumstances of the case, it cannot reasonably be expected that this will create room for the market parties such that they will feel adequately challenged to offer innovative and sustainable solutions. (…)
An important circumstance related to the subject of the tendering procedure (…) is, in the Committee’s opinion, also the degree to which the contracting authority has created room in the assignment specifications for market parties to offer innovative and sustainable solutions that lend themselves for assessment using the criterion of the most economically advantageous tender (…).’
In other advice, a number of concrete circumstances are mentioned that can play a role in the consideration:
- the existence of a framework agreement, an OMOP (contract with open items), whereby the quality is not realised until the further agreement is concluded, not upon conclusion of the framework agreement;
- it concerns RAW specifications in which far-reaching standardisation of activities is implemented. These kinds of specifications provide virtually no room for offering extra quality. It is noted, however, that according to CROW (information and technology centre for transport and infrastructure), the use of the Standard RAW Provisions does not rule out that quality can play a role in the award.
Based on case law and advice from CvAE, the following conclusions can be drawn:
- The quality criteria must have a significant influence on the ranking.
- The limit value between the lowest price and the second price can be normative for this. In general, a limit value of 10% is proportionate, but this must be determined anew for each assignment. It is relevant for this whether prices are expected to fall within a small bandwidth or diverge significantly.
- Award based on the lowest price is permissible if award based on best price-quality ratio is inefficient and entrepreneurs cannot reasonably be expected to offer innovative or sustainable solutions. In particular, the specifications of the assignment are relevant in this context.
With these circumstances, within the bounds of the aforementioned case law and advice, the award criteria can be determined by contracting authorities and assessed by tenderers.
By Joris Bax