Key Contacts: Laura Mullen – Partner | Michael Cahill – Senior Associate |
Introduction
The Court of Appeal has delivered its judgment in the case of Killaree Lighting Services Limited v Mayo County Council v Electric Skyline Limited [2025] IECA 7 (the “Decision”), in which the Court upheld the High Court’s decision that Mayo County Council (the “Council”) “did not err in its decision to exclude” Killaree Lighting Services Limited’s (“Killaree”) tender on the basis that it was abnormally low. You can read the Court of Appeal’s decision here.
The High Court’s decision, delivered in February 2024, provided much-needed guidance in the area of abnormally low tenders, a topic that has attracted increased judicial scrutiny in the Irish and European Courts in recent years. It confirmed that, under Regulation 69 of the European Union (Award of Public Authority Contracts) Regulations 2016 (the “Regulations”), contracting authorities are under a legal obligation to identify and investigate tenders that appear to be abnormally low – you can read our article on the High Court’s decision here.
The Court of Appeal, however, disagreed with the High Court’s finding that Killaree was not deprived of the possibility of pursuing pre-contractual remedies for a breach of procurement rules by the Council. The Court of Appeal instead found that the Council’s failure to provide a standstill letter had deprived Killaree of the chance to seek remedies before the contract was signed with the successful tenderer. However, the Council’s breach did not justify a declaration of ineffectiveness and instead the Court of Appeal found that there was a mandatory obligation on the Court to impose a civil financial penalty (under Regulation 13(1) of the European Communities (Public Authorities’ Contracts) (Review Procedures) Regulation 2010) (as amended) (the “Remedies Regulations”) on the Council and remitted the matter to the High Court for determination on the sum that the Council is required to pay into the Central Fund.
Further Guidance For Contracting Authorities
Importantly, the Court of Appeal’s Decision adds further clarity to the approach that should be taken by contracting authorities in carrying out an investigation into prices that appear abnormally low, in particular:
- Not obliged to accept tenderer’s explanation – the Court found that contracting authorities are not obliged to accept a tenderer’s explanation for a price that appears abnormally low. Contracting authorities are entitled reach their own conclusions as to whether a tender is genuine, reliable and will not impair the proper performance of the contract.
The Council was, therefore, fully entitled to consider that Killaree’s initial explanation – that it had previously completed other contracts based on the same pricing strategy – did not satisfactorily explain the low price/costs. The Council was required to assess the reliability of Killaree’s tender for the current contract, not its performance of previous contracts.
- Entitled to investigate individual rates – The Decision also confirms that contracting authorities are entitled to assess whether the individual rates forming part of a tender are abnormally low and, if such rates are determined to be abnormally low, contracting authorities are not precluded from excluding such a tender because the total price is not abnormally low.
The Court of Appeal explained that this approach was consistent with both case law and the wording of Regulation 69(1). With regard to the wording of Regulation 69, the Court agreed with the Council that the reference to both “price or costs” in the Regulations indicates that a contracting authority “is not obliged to limit its enquiry to the bottom-line price… but rather may consider also the “costs” i.e. the constituent parts of the tender.”
The Court also found that an ability to scrutinise the individual costs forming part of a tender is consistent with a purposive interpretation of Regulation 69, which is intended to allow contracting authorities to determine whether a tender “is genuine, reliable and will not impair the proper performance of the contract.”
- Onus on tenderers to explain rates that appear abnormally low – The Court of Appeal also emphasised that, when a contracting authority requires a tenderer to explain prices or rates that appear to be abnormally low, contracting authorities are not required to seek to obtain additional information verifying the tenderer’s explanations; the onus is on the tenderer to provide information that explains that the prices or rates are not abnormally low and the contracting authority is only required to consider the information provided.
Council’s Failure To Issue A Standstill Letter
Killaree succeeded in its argument that the Council’s failure to send the required standstill letter (as required under Regulation 5(1) of the Remedies Regulations) deprived it of the possibility of pursuing pre-contractual remedies as, if proceedings are issued prior to the end of the standstill period, an automatic stay on the conclusion of the contract until the proceedings are determined or other disposed of or the High Court lifts the suspension.
The Council’s letter to Killaree stated its tender had been excluded from the competition, but it did not clarify that the Council had identified the successful tender. As a result, Killaree was not aware that the standstill period had started to elapse and, by the time Killaree initiated proceedings, the contract with the successful tender had already been signed.
The Court of Appeal agreed with the High Court’s decision not to grant a mandatory declaration of ineffectiveness (a declaration that the contract between the Council and the successful tenderer is set aside and all future obligations become unenforceable) on the basis that Killaree did not meet the requisite conditions for such a declaration under the Remedies Regulations and noting that it is “an unusually intrusive remedy” in that it effects the rights of, not only the challenger and the contracting authority, but also the successful tenderer.
The Court of Appeal also agreed with the High Court’s decision not to grant a discretionary declaration of ineffectiveness under Regulation 11(7) of the Remedies Regulations, noting that “both the substantial impact of a declaration of ineffectiveness (on the successful tenderer, the other local authorities and the public), and the inaction of Killaree in the face of the letter of 9 October, mean Killaree is a long way from showing substantial unfairness”.
The Court of Appeal, however, found that, if a declaration of ineffectiveness is not made where there has been a breach of Regulation 5(1) of the Remedies Regulations, there is, by virtue of Regulation 13(1) of the Remedies Regulations, a mandatory obligation on the High Court to impose an alternative penalty. The Decision noted that this is “an obligation placed upon the High Court by the Regulation. It is not optional”. As a result, the matter was remitted to the High Court, solely on the question of the imposition of a civil financial penalty on the Council. Notably the imposition of a civil financial penalty (which can be up to 10 per cent of the value of the contract) does not result in any financial benefit for Killaree, however, the Court of Appeal noted that the Decision may have consequences for the costs Order made by the High Court.
Conclusion
The Court of Appeal’s judgment follows recent Irish and European Union case law in emphasising the obligations of contracting authorities in relation to abnormally low tenders. In March 2024, the High Court’s landmark decision in White Mountain Quarries Limited t/a Breedon v Mayo County Council [2024] IEHC 259 served as a reminder of contracting authorities’ duty to identify and investigate tenders that appear to be abnormally low – you can read our article on the White Mountain decision here.
The Court of Appeal’s Decision adds further clarity and provides very welcome guidance in an area that has been – and will continue to be – both important and controversial.
This article was written with the assistance of Cilian Macnamara and Andrea Kells.
