Guide · Building a bid

An abnormally low tender price (section 96) – pricing strategies and the bidder's duty to explain

Public procurement is often a competition on price, but even free price competition has statutory limits. Section 96 of the Procurement Act deals with abnormally low tenders. The provision is there to protect both the contracting authority from delivery risk and the market from unhealthy competition based on neglecting statutory obligations.

Updated 7 July 2026 · Tendera

Understanding the provision matters to a bidding company for two reasons: it must be ready to justify an aggressive pricing strategy, and it must know how the law tackles competitors' unrealistic dumping prices.

1. The contracting authority's duty to seek an explanation

If the price or costs offered appear abnormally low in relation to the quality and scope of the procurement, the contracting authority cannot reject the bid automatically. Under the law, the authority must first require a written explanation from the bidder of the grounds for the bid.

This is a key mechanism for a bidder's legal protection. A rejection cannot rest on a purely mathematical formula or an assumption (that the bid is 30 per cent cheaper than the second cheapest, for example); the bidder must always be given the chance to explain what lies behind its price level.

2. What should the bidder's explanation contain?

When the contracting authority asks for an explanation of an abnormally low price, the bidder must be able to show that the price rests on sustainable and lawful grounds. Under the Procurement Act, the explanation may concern the following factors, among others:

The economy of the manufacturing method or of producing the service: A company can show that its internal processes are automated exceptionally efficiently. In software this may mean, for example, that the solution builds largely on an existing, ready and scalable product, so new code does not have to be written from scratch.
Exceptionally favourable terms or technical solutions: The bidder may have a technological innovation that cuts costs significantly compared with competitors.
Compliance with statutory obligations: The bidder must be able to satisfy the authority that the low price is not based on circumventing occupational safety, working conditions or environmental obligations, let alone collective agreements.

3. Mandatory and discretionary rejection

The contracting authority assesses the explanation the bidder submits. Depending on that assessment, rejection is either discretionary or mandatory:

Discretionary rejection: If the explanation does not satisfactorily account for the low price level and the authority is left with a justified doubt as to whether the bidder can really deliver at the required quality for the price given, it may reject the bid.
Mandatory rejection: The law obliges the authority to reject a bid if it finds the low price results from the bidder neglecting environmental, social or labour law obligations. A bid cannot be accepted if it relies on the grey economy or on underpaying workers, for example.

4. Bidding at a loss (buying market share)

Sales strategies often raise the question of so-called underpricing or buying market share, where a company deliberately offers a service below its own production cost in order to win a strategically important customer.

The Procurement Act does not as such prohibit bidding at a loss, and a low price is not an automatic ground for rejection. Case law has consistently held that a bidder is free to price its bid as it wishes and even to carry a commercial loss, as long as it can satisfy the contracting authority that the contract will be performed properly.

If the bidder can show in its explanation that the company is financially sound and able to cover the losses from its other business without compromising delivery reliability, the authority has in principle no ground to reject the bid merely because the price is low. The risk of profitability then falls solely on the bidder.

Frequently asked questions

Can an abnormally cheap bid be rejected automatically?

No. The contracting authority must first require a written explanation of the grounds for the price from the bidder (section 96). A rejection cannot be based on a mathematical formula or an assumption alone.

How do I justify my low price acceptably?

By showing that the price rests on sustainable grounds: an exceptionally efficient or automated production method, a ready scalable product, favourable terms or a technical innovation, for example — and by satisfying the authority that the price is not based on neglecting labour or environmental obligations.

How does the law tackle a competitor's dumping price?

The contracting authority must require an explanation of a competitor's abnormally low price too, and must reject the bid if the price is based on circumventing statutory obligations.