Finance Ministry Defines Numerical Threshold for 'Abnormally Low Bids' in Government Tenders

The Ministry of Finance has revised tender norms by introducing a clear numerical definition for an 'Abnormally Low Bid' (ALB) in government procurement contracts. The move aims to curb the practice of exceptionally low quotes in public tenders and ensure the execution capability of contractors.

According to an office memorandum issued by the ministry, which amends the 'Manual for Procurement of Goods', an ALB is now officially defined as any proposal quoting a price more than 30 percent below the estimated cost. Previously, the manual lacked a specific numerical threshold, describing an ALB generally as a bid that raised material concerns regarding a bidder's capability to perform the contract.

Under the updated framework, procuring entities are required to seek written clarifications from bidders who cross this 30 percent threshold. This includes requesting detailed price analyses regarding the scope, schedule, allocation of risks, and any other requirements specified in the tender document. The same mechanism will apply to the procurement of both consultancy and non-consultancy services.

If the procuring entity determines that the bidder has substantially failed to demonstrate its capability to deliver the contract at the offered price after evaluating the clarification, it holds the authority to reject the bid proposal. In such cases, the authority will evaluate the next higher bidder at their own quoted rate, provided it is considered reasonable, rather than using a counter-offering rate.

The memorandum emphasizes that crossing the ALB threshold does not constitute an automatic ground for rejecting a bid. Furthermore, procuring entities are advised to take due care while formulating specifications during the preparation of tender documents to safeguard against abnormally low bids.

The guidelines maintain existing provisions concerning predatory pricing, allowing procuring entities to refer to ALB considerations to finalize tenders. Additionally, rules regarding Additional Security Deposits or Bank Guarantees remain largely unchanged. Tender documents should generally not include provisions for additional security unless there are compelling circumstances, which require approval from the next higher authority competent to finalize the particular tender or the Secretary of the Ministry or Department, whichever is lower.

"Establishing a clear numerical threshold for abnormally low bids brings much-needed clarity and transparency to public procurement. For businesses and startups bidding on government contracts, this ensures a more level playing field where quality and delivery capability take precedence over unsustainable pricing. Contractors must focus on realistic project costing and robust financial planning to navigate these stricter evaluation norms effectively." — Dr. Shishir Gupta, Founder & CEO, StartupLanes