The 15 % threshold is no way out: Laarne asked for a price justification, ignored its own designer’s advice and sees the Kalken school renovation award annulled
The municipality of Laarne had its designer request a price justification for a steel-framed veranda priced 42 % below the average, received an answer the designer expressly called inadequate, and awarded the contract to the lowest bidder anyway on the view that a price can be abnormal ‘only’ where the total is 15 % below the average — a misreading of the price examination that led the Council of State to annul both the award and the accompanying refusal decision.
What happened?
The municipality of Laarne launched an open tender for the renovation of the school house in Kalken, phase 3: extension, interior finishing and technical installations. Five tenders were opened on 26 May 2010. By letter of 17 June 2010 the consulting architect reported that the lowest bid, from B&R Bouw en Renovatie, showed an abnormally low price for item 07.01.32, the steel-framed veranda: 13,850.00 euros, 42 % below the average of the middle bids (24,069.25 euros) and 52 % below the estimate. He proposed requesting a justification. For the second-lowest bid, from Bouwbedrijf VMG – De Cock, he flagged the painting item at 11,723.08 euros, 40 % below the average, and proposed a justification there too. The municipality requested the justification on 23 June 2010 — from B&R only. The reply of 6 July 2010 was brief: at the time of bidding there was no supplier price because the supplier could not prepare a quote in time; the price had been set ‘on the basis of our years of experience at around 500 €/m²’; even if the item later proved loss-making, the contractor would bear that loss; and the average was said to be no real reference because there were ‘only 3 bidders’. He closed by pointing to earlier work for the municipality, the conversion and extension of the library. In his evaluation report of 20 July 2010 the architect took that answer apart point by point. The explanation did not allow anyone to verify from objective data whether the price was justified. An undertaking to perform in conformity with the specifications, at a loss if need be, is not a justification meeting the statutory conditions. Nor is a reference to the number of bidders — and that reference rested on a mistake, since five tenderers had in fact taken part. A price justification must address the tenderer’s own price and demonstrate, with objective data on wages, materials and overheads, that it is in line with the market. Even the one figure cited did not hold: on inspection no price of around 500.00 euros per square metre had been given, but a unit price of 442.00 euros per square metre. The architect placed the decision squarely with the municipality. If it accepted the justification, B&R was the lowest regular bidder, at 250,526.32 euros excluding VAT, or 303,136.85 euros including 21 % VAT. If it did not, VMG – De Cock was the lowest regular tenderer at 257,564.20 euros excluding VAT. On 29 July 2010 the municipal college awarded to B&R. Its reasoning recorded that the tenders of Detrac and KWR were non-conforming, that B&R’s tender was 10.5 % below the average, and that ‘under the royal decree of 8 January 1996 (article 110, § 4, first paragraph) a tender can be of possibly abnormal character only where its amount is at least 15 % below the average amount of the tenders submitted’ — and then, ‘having regard to the foregoing’, awarded to B&R at the checked amount of 250,343.54 euros excluding VAT. Of the price justification itself, not a word. VMG – De Cock was informed on 2 August 2010, requested the evaluation report on 5 August, received the award decision on 17 August and the report only on 30 August 2010. The action followed on 13 October 2010. In its final pleading the municipality raised an objection of lack of interest: the contract with B&R had already been concluded; the applicant’s tender was said to be irregular for want of the required proof of expertise in metal joinery and on account of its own abnormally low price for the painting work; and the action against the refusal decision was in any event inadmissible. The Council of State rejected the objection on three points. First, the fact that the natural aim of the action — obtaining the contract — has become unattainable does not necessarily extinguish the direct interest. The action seeks annulment of an award decision, a severable administrative act by which the applicant was passed over, and from that being passed over it derives a qualified moral interest that annulment continues to serve despite performance of the contract. Second, a defending party may in principle not invoke for the first time before the Council the irregularity of the applicant’s tender where the contested decision did not note it — and neither the evaluation report nor the award decision contained anything on that. That the architect had suggested in a letter that a justification also be sought from VMG – De Cock changes nothing, since nothing in the administrative file shows this ever happened, let alone was assessed. Third, on the refusal decision: the Council does not accept that annulling it automatically creates a duty to grant what was refused; what the authority must do afterwards depends on the ground of annulment. On the substance, the second plea — breach of the duty of substantive reasoning — was decisive. The Council read the award decision as written: by holding that a price can be abnormal ‘only’ in the case of article 110, § 4, the municipality implicitly but unmistakably rejected its own designer’s position that B&R’s tender had to be set aside for want of an acceptable justification for item 07.01.32. That view is wrong. Article 110, § 4, concerns the total price and mandates an examination, but it is not the only route to a finding of irregularity on account of abnormal prices. The optional price examination of article 110, §§ 2 and 3 — covering both unit prices and total prices — can equally lead there. And here such an optional examination had been carried out, justification included, so the municipality had to take a substantive position on it before awarding. The argument that an irregular tenderer may claim only the reasons for its own rejection failed: the applicant alleged no defect in the notification. The plea was well founded. The Council annulled both the award decision of 29 July 2010 and the refusal decision, and ordered the municipality to pay the costs, set at 175 euros.
Why does this matter?
The 15 % threshold in the old article 110, § 4, was a trigger, not a boundary. It obliged the authority to examine prices once the total fell far enough below the average — but it said nothing about what was permitted outside that case. Laarne read the threshold as a safety margin: 10.5 % below the average, hence by definition no abnormal price, hence award. That is the error the judgment exposes, and it is as topical today as in 2011. The architecture of the price examination has since been redrawn — article 36 of the royal decree of 18 April 2017 now governs the examination of abnormal prices and costs — but the core is unchanged: the examination extends to unit prices, and whoever asks for a justification must assess it. That second point is the real hinge. Once the municipality had put the question, it had an answer on the table that called for a judgement. Its own designer had prepared that judgement and placed the decision expressly with the authority: accept the justification and B&R is the lowest regular tenderer; refuse it and VMG – De Cock is. Two roads, one decision — and the municipality did not take it, brushing the question aside with a rule that was not about it. An authority may set its designer’s advice aside; it must then say why. The judgment is also a useful reminder of what a price justification must contain. B&R’s consisted of an experience figure, a promise to work at a loss if necessary and a reference to an earlier project. None of the three says anything about how the price is composed. Worse, the experience figure did not match the tender itself — 442 euros per square metre against the claimed 500. A justification drafted that way hands the authority not an argument but a risk. Finally, two procedural lessons that hold good beyond price examination. A tenderer does not lose its interest because the contract has meanwhile been awarded and performed: the award decision is a severable administrative act, and being passed over yields a qualified moral interest that annulment continues to serve. And an authority that found the applicant’s tender regular in its own decision cannot afterwards attack that tender before the Council in order to sink the action.
The lesson
As a contracting authority: the threshold that makes a price examination mandatory is not a free pass for everything below it. A unit price far out of line can render a tender irregular even where the total sits comfortably within the margin. Once you have requested a justification you must assess it and put that assessment in your decision — in this file the municipality needed no more than one paragraph saying why it found the contractor’s explanation convincing. If you depart from your designer’s advice, say expressly why; referring to a report that advises the opposite will not carry the decision. And treat tenderers alike: if there was reason to seek a justification from the second-lowest bidder too, do so, and document it. As a tenderer asked for a price justification, answer with figures about your own price: wages, materials, overheads, supplier quotes. A promise to work at a loss if necessary, a reference to years of experience or to an earlier project for the same client do not count — and an experience figure that does not match your own unit price will be used against you. If you are the tenderer who was passed over, do not be deterred by being told the contract is already signed: your interest survives. Request the evaluation report as soon as you receive the decision, and compare what the designer advised with what the authority decided — the gap between the two is often the plea.
Ask yourself
Do you confine your price examination to the threshold that makes it mandatory, or do you also look at unit prices that stand out? Have you genuinely assessed every justification you requested, and does that assessment appear in your award decision? If you depart from your designer’s advice, have you reasoned that departure expressly rather than referring to his report? Have you put comparable questions to all the tenderers concerned and documented the answers? And as a tenderer: does your justification consist of objective figures on your own cost structure, or of experience, good will and a reference to an earlier project?
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The Council of State (Raad van State / Conseil d'État) is Belgium's supreme administrative court. In disputes over public procurement — from contract awards to tenderer exclusions — the Council of State is the final arbiter. The rulings in this database are summarised by TenderWolf in plain language, with practical lessons for tenderers and contracting authorities. View all rulings →