Just because someone’s selling burgers for 5 bucks
doesn’t mean they’re plotting to bankrupt McDonald’s,
sometimes, they’re just really good at flipping patties fast.
When it comes to competitive bidding, a rock-bottom price might
raise eyebrows, but it isn’t always anti-competitive, nor does
it necessarily undermine the competitive integrity of the process.
Some tenderers, especially incumbents, have simply mastered the art
of sizzling and flipping with a bit more speed in comparison to
others.
In the recent Court decision of Ndodana Consulting Engineers & Others v SANRAL
& Others, handed down by the Pretoria High Court, and
spearheaded by the FWB Team, it was confirmed that a comparatively
low tender, which by default implies very low prices, does not
automatically make a bid anti-competitive and would not undermine
the integrity of the process, especially when the bidder can show
genuine operational advantages or historical efficiencies. This
case centred around a dispute over major road-maintenance tenders.
One bidder (the incumbent contractor) had a long history of
providing the same services and had been the successful tenderer
for the last 25 years and claimed it could offer lower prices
thanks to existing infrastructure, data, experienced staff, and
industry related knowledge obtained as a result of doing the work
for such a significant period.
However, the tendering authority declared these prices as
“unbalanced” and further disqualified the bids on the
basis that they were deemed too low and posed a financial risk. The
precise ambit of this financial risk was never fully explained, and
this is still open to speculation, however one might reasonably
infer that the authority questioned the feasibility of delivering
the required work at such rates perhaps concluding, in effect, that
no one can flip a patty that fast without cutting corners.
The Court, reviewing both the process and the reasons for
disqualification, concluded that relatively low bids are not
automatically anti-competitive. Provided a bidder can show how and
why it arrived at its lower prices, whether through operational
efficiencies or historical knowledge. The mere fact that the rates
are lower than competitors’ does not mean the bid is
unacceptably risky, anti-competitive, nor does it mean that a
tenderer undercuts the market. The Court confirmed that a truly
competitive price, grounded in proven efficiency or prior
experience, is both lawful and beneficial to the public purse. The
key is transparency: a clear explanation of costs protects both the
bidder’s credibility and the integrity of the tender process
itself.
That said, the flip side of the burger patty does exist, where
low bids could amount to anti-competitive conduct, and due to the
nature of the bid, is deserving of being disqualified. For example,
when a bidder offers prices below the reasonable cost of performing
the work with the intent of driving competitors out of the market
and creating a monopoly, this can distort competition. If a
bidder’s low price is unsustainable and designed to undercut
competitors with the expectation of raising prices in later bids
once they have eliminated competition, this could amount to
predatory pricing. Additionally, if the bidder is not able to
demonstrate that the low price is backed by efficiencies or
legitimate cost savings, and instead relies on unrealistic
assumptions or concealed cost-cutting measures, this would suggest
that the bid may be anti-competitive. In such cases, the tendering
authority has a responsibility to thoroughly assess the
bidder’s pricing model to ensure it is not indicative of market
manipulation or anti-competitive behaviour.
In conclusion, low prices, in and of themselves, are not
indicative of anti-competitive conduct. When supported by rational
justification such as prior experience or operational efficiencies
such pricing promotes healthy competition rather than being
anti-competitive. Disqualifying bids solely on the basis of price
in the absence of a benchmark against which tender pricing will be
evaluated, and without proper inquiry into the bidder’s
capabilities or cost structures, undermines the very
competitiveness that public procurement seeks to promote. As long
as the bidder can demonstrate an ability to deliver the required
services without compromising quality, sustainability, or
contractual obligations, a competitively priced offer should be
viewed not with suspicion, but as a potential win for both the
public entity and the taxpayer.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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