[By Aryan Chauhan & Ashish Chauhan]
The authors are students of Dr. Ram Manohar Lohia National Law University, Lucknow.
Introduction
The Indian public procurement system now has another challenge – Abnormally Low Bids (“ALBs”). An ALB is said to occur when a bid’s price “appears so low that it raises concerns regarding the capability of the bidder to perform the contract at the offered price”. This unusually low-price questions the sustainability since it hovers in a region significantly subpar the estimated cost. In India, where the procurement policy awards the bid to the lowest cost L1, an outlandish low offer can hint at unviable pricing or hidden benefits such as collusion. Though economically, these bids appear extremely lucrative and put minimal strain on the public corpus, ALBs directly attack fairness, quality and value-for-money in public contracts. The current regulatory framework is, however, ineffective in dealing with the problem of ALBs, and through the current piece, the authors would try to propose a solution to the problem.
Where are we right now? A perusal of the existing rules and guidelines on Low Bids
The General Financial Rules (“GFR 2o17”) are a comprehensive set of guidelines for managing public finances in India, which ensure efficient and accountable use of public funds. These rules, too, are silent on the question of ALBs. However, procurement manuals have contained procedures for ALBs, which are not statutorily backed. For instance, the Manual for Procurement of Goods explains that if a tender seems abnormally low, the procuring entity may seek written clarifications and a detailed price analysis of that bid. Additionally, the practice of bidding also mandates that the bidder should break down their bidding costs, allocation of risks and any supervening circumstances that might justify the low price. If the authority, after the subsequent assessment, concludes that the bidder has “failed to demonstrate its capability to deliver the contract at the offered price,” the bid may be rejected. Thus, the final say regarding the maintainability of ALBs lies with the procurement authorities, subject to technical review.
Moreover, against the scrutiny invited by ALBs, in November 2020, the Ministry of Finance’s Department of Expenditure cautioned against unwarranted demands for extra guarantees on account of a low bid through a circular. The Office Memorandum stated that no blanket condition should be inserted in bid documents requiring additional security or bank guarantees solely because a bid is low. In cases where there exist compelling reasons and extra performance security is deemed necessary when evaluating a low bid, it must be approved by a higher authority than the one issuing the tender. More or less, the regulatory approach has focused on fairness, from the perspective of the low bidder, considering onerous deposits to be unfair if unjustified. Nonetheless, all of these provisions are administrative advice, not legislated law, as the GFRs themselves contain “no rule… dealing with abnormally low bids,” and the process remains discretionary.
The lack of legal certainty has started to result in inconsistent procurement practices. For example, early this year, the Ministry of Road Transport & Highways reversed the 2020 caution by mandating extra security for low bids in highway contracts. An April 2025 notification imposed an additional performance guarantee whenever a bid was significantly below the engineer’s estimate. As a change, the Ministry of Road Transport & Highways aims at doing away with the trend of abnormally low bid prices, thereby effectively penalising low bidders to make such bids costlier. Though the Ministry justifies the order as an anti-dumping measure, the circular sharply conflicts with the earlier Finance Ministry guidance on ALBs. This clearly illustrates that in the absence of a clear parliamentary enactment, different agencies are drafting their own ALB rules, which lack a consistent legal standard for handling unusually low offers.
Where does constitutional fairness and equality lie?
Public procurement is constitutionally sensitive because it involves state largesse and citizen rights. In the past, the Supreme Court has regularly insisted that government contracts must be awarded by a transparent and non-arbitrary process. In Kasturi Lal Lakshmi Reddy v. State of J&K (1980), the Court held that inviting tenders is the preferred method for granting contracts, ensuring a level playing field. Any departure from open tendering is permissible only for “just and reasonable” causes, and even then, must not be “unreasonable or discriminatory”. In a recent review of state purchasing practices, the Supreme Court reaffirmed these principles: state action must be “just, fair and reasonable” under Article 14, and any deviation from the tender route must not be arbitrary.
ALBs test these constitutional norms. On one hand, seeking clarifications or rejecting a suspiciously low bid can be seen as a reasonable, non-arbitrary safeguard. On the other hand, if a procuring authority rejects a bid without valid justification, the losing bidder may cry foul under Article 14’s equality guarantees. Indeed, courts have noted that even standard “without assigning any reason” clauses in tenders cannot justify caprice. If a tender clause is challenged, the authority still must have valid ground – mere prejudice against low bids would itself be arbitrary. Conversely, repeatedly accepting bids far below cost (without scrutiny) could violate Article 14 by wasting public resources or favouring unscrupulous firms. Thus, fairness demands a balancing act: tender processes must remain open and predictable, yet also economically sensible. ALB protocols help maintain that balance by informing bidders what is expected and by checking capricious decisions.
The constitution also contains provisions providing for governmental business. Article 298 expressly empowers the Union and states “to carry on any trade or business and to the… making of contracts for any purpose”. This clause underscores that public procurement is a legitimate exercise of executive power, not an alien commercial venture. It reinforces that governments may enter the marketplace (for infrastructure, supplies, services, etc.) on their own terms, including the choice of how to conduct bids and whom to contract with. However, Article 298 does not override the requirement of non-arbitrariness and the power it confers is still exercised subject to other constitutional limits.
Procurement rules that favour a certain supplier or exclude others might patently seem to be violative of Article 19(1)(g). Though this right is qualified by reasonable restrictions, in practice, courts have upheld reasonable policy measures in tendering under Article 19(6) exceptions. For example, preferential procurement policies (such as the Make in India procurement orders) have been sustained as valid exercises of state regulation rather than void monopolies. Under the 2017 “Make in India” Order, the government explicitly adopted rules to promote local manufacturing through mandatory or preferential procurement of domestic goods and services. These orders oblige that, wherever feasible, purchases be reserved for Indian firms or MSMEs, especially for certain products. Such preferences do limit the pool of bidders (excluding some foreign suppliers) but have been viewed as constitutionally permissible ‘reasonable restrictions’ designed to boost the domestic industry. In short, procurement law may lawfully channel business to certain classes of suppliers, provided the policy is non-discriminatory in form and authorized by law. But any secret or ad hoc favouritism (e.g. quietly rejecting a low bid without disclosed criteria) would still risk Article 14 scrutiny.
What’s the harm? Understanding the practical dangers of unchecked low bids
An abnormally low bid, if accepted without scrutiny, poses real risks to government projects. A bid priced far below realistic costs may reflect hidden shortcuts or assumptions that might result from subpar quality. The contractor might cut quality, delay completion, claim compensation, or even threaten to default. In the long run, this can result in cost overruns, time delays, or a broken contract, causing harm to public interest and damaging genuine bidders’ confidence. Therefore, evaluation of the ability to perform the contract, proven through financial analysis, prior experience, and capacity checks, must be treated as essential, just like the final price.
The checks are, however, imperfect in current practice. For instance, due to pressure to award a contract quickly, rigorous pre-qualification or detailed examination of a bid is skipped unless prima facie fraud or impossibility can be ascertained. Alternatively, if authorities delay clarifying a suspicious bid, losing bidders might demand answers under the Right to Information Act or file court appeals. In PKF Sridhar and Santhanam v. Airports Economic Regulatory Authority of India, the Delhi High Court pointed out the difference between discretion and arbitrariness, stating that even where a tender reserves the right to reject bids without explanation, the authority cannot act “whimsically or out of malice”. Arbitrary rejections of low bids often lead to litigation on Article 14 grounds, while blindly taking an ALB can invite audit objections or project failures.
Contrastingly, the government has shown remarkable inconsistency in its policy, swinging to and fro on the question of ALBs. The approach has been to dispense with case-by-case approvals and impose fixed extra margins for “select bidders” winning low bids. While this approach deters predatory pricing, it also potentially attacks legitimate competition by automatically imposing a cost on low offers. To ensure certainty in its method of tender allotment, an overall policy or law is a must.
At the global stage, experience indicate that clear rules and transparency are critical. In the European Union, for example, procurement law expressly mandates that authorities to inquire into any abnormally low tender and to reject it only if the bidder fails to justify the low price satisfactorily. Similarly, foreign courts mandate a “price realism” analysis for extremely low bids. India’s scattered guidance tries to emulate these checks, but lack statutory force and makes the process to be opaque. In effect, an unexplained ALB in India still lives in a legal limbo where the manuals empower review, but only limited case law or official orders constrain arbitrariness.
The way forward: towards clearer procurement norms
ALBs experience in India highlights a pressing need for procurement reform. Procurement, being one of the largest recurring functions of the government, must be fair, transparent and competency-based. However, the current piecemeal approach, which depends on manual notes, circulars, and sporadic court intervention, leaves officials and bidders uncertain about their rights and duties. Every inexplicable contract award creates public distrust and every unexplained bid rejection invites a writ petition. Lawmakers and policymakers should consider codifying clear rules on low bids to bridge this disparity. This could include a statutory definition of “abnormally low” (e.g., a fixed percentage below the estimate), mandatory clarification procedures, and restrictions on additional security. Uniform guidelines could reconcile the need for fiscal prudence with the bidders’ right to be heard.
This reform is not fanciful but is common in well-established procurement systems. Standards could be embodied in a single unified Public Procurement Act or clear amendment to the GFR that incorporates best practices from the EU or the US. Such a law would reduce arbitrary variations across ministries and align procurement practice with constitutional fairness. It would address one of the last remaining ambiguities in Indian tendering by, at the very least, informing all bidders of how low bids will be handled.
Meanwhile, officials and courts must navigate ALBs carefully within existing law. They should remember that while very low bids can jeopardise project success, undue penalization of bona fide low bids could itself violate equality and openness. As the Supreme Court in Union Of India & Ors vs Dinesh Engineering Corpn. & Anr has observed, the procurement choices are not entirely immune from judicial review. A balanced approach that includes reviewing price justifications, avoiding hidden penalties, and applying Article 14’s non-arbitrariness test is the prudent way forward. With competition and constitutional values at stake, India’s procurement regime must evolve beyond ad hoc measures if it is to ensure both efficiency and fairness in public spending.