Facts of the Case

The petitioner, Unicon Builders and Contractors, participated in the tendering process for two works bearing Package Nos. UDRP/PWD/07/RD/118 and UDRP/PWD/07/RD/119. Since both writ petitions arose in similar circumstances, the High Court treated Writ Petition (M/S) No. 3067 of 2018 as the lead matter.

In relation to Package No. UDRP/PWD/07/RD/119, the estimated cost of the work was ₹1,528.53 lakh. The petitioner submitted a bid of ₹15,24,91,267.15, which was only about ₹4 lakh below the estimated cost.

The respondents issued a Letter of Acceptance dated 23 September 2017 and required the petitioner to furnish Additional Performance Security of ₹2,88,69,664.72 on the ground that the bid was “unbalanced” in terms of ITB Clause 40. However, the communication did not disclose how or on what objective basis the petitioner’s bid had been treated as unbalanced.

The petitioner declined to furnish the Additional Performance Security, contending that such demand was contrary to the contractual terms. The respondents thereafter sought to forfeit the petitioner’s bid security.

The petitioner had earlier approached the High Court through Writ Petition (M/S) No. 2798 of 2017, contending that no basis had been disclosed for requiring Additional Performance Security under ITB Clause 40.1. The learned Single Judge disposed of that petition with directions to the respondents to consider the petitioner’s case in terms of Clause 40.1, consider its explanation, and pass an order in accordance with law.

Pursuant to that direction, the petitioner submitted its explanation on 2 July 2018. The respondents subsequently passed the impugned order dated 31 August 2018. They stated, inter alia, that rates quoted for 42 items of work were substantially low in comparison with departmental sanctioned estimates and that Additional Performance Security had been assessed in accordance with the applicable Government Order. The petitioner challenged that decision.

Issues Involved

  1. Whether the respondents could invoke ITB Clause 40.1 and demand Additional Performance Security merely by stating that the petitioner’s rates were “substantially low”.
  2. Whether the employer was required to undertake an objective analysis and disclose the specific basis on which the bid or individual item rates were considered seriously unbalanced, front-loaded, or substantially below updated estimates.
  3. Whether the impugned order dated 31 August 2018 complied with the earlier High Court direction dated 25 June 2018 in Writ Petition (M/S) No. 2798 of 2017.
  4. Whether the respondents had properly considered the petitioner’s rate analysis submitted on 2 July 2018 before reaching the conclusion that the quoted rates were substantially low.
  5. Whether the demand for Additional Performance Security could be sustained in the absence of a reasoned and objectively supported determination under ITB Clause 40.1.

Petitioner’s Arguments

The petitioner contended that the demand for Additional Performance Security was contrary to the terms governing the tender and that the respondents had failed to disclose any proper basis for treating the bid as unbalanced or substantially low.

It was emphasized that the petitioner’s total bid was only about ₹4 lakh below the estimated cost of the work. Therefore, a bare assertion that the bid or rates were substantially low could not justify invocation of ITB Clause 40.1.

The petitioner further maintained that adequate contractual safeguards already existed, including the performance bank guarantee and deductions from running bills. It assured the authorities that the work would be completed within the stipulated time and to the required satisfaction.

The petitioner also relied upon the detailed rate analysis furnished on 2 July 2018 pursuant to the earlier order of the High Court and contended that the respondents had not objectively evaluated that explanation before maintaining the demand for Additional Performance Security.

Respondents’ Arguments

The respondents maintained that the petitioner had quoted substantially low rates in respect of 42 items of work when compared with the departmental sanctioned estimates.

They relied upon ITB Clause 40.1 and the Uttarakhand Government Order dated 12 June 2017 to justify the assessment and demand of Additional Performance Security amounting to ₹2,88,69,664.72.

The respondents further stated that the Letter of Acceptance had been issued after treating the petitioner as competent, but the petitioner failed to deposit the assessed Additional Performance Security within the stipulated period. Consequently, action was taken under ITB Clauses 45.1 and 45.2, including cancellation of the Letter of Acceptance and the bid.

The respondents also referred to the time-bound nature of the UDRP project and the limited period remaining for completion of the works.

Court Order / Findings

The High Court found that the respondents had failed to undertake the exercise expected of them. The impugned order did not clearly identify the specific items in respect of which the rates quoted by the petitioner were found to be unbalanced or substantially low, nor did it objectively disclose the basis for such a conclusion.

The Court held that a mere statement that the petitioner’s rates were substantially low was insufficient. This was particularly significant because the petitioner claimed that its total bid was only about ₹4 lakh below the estimated cost.

The High Court observed that invocation of ITB Clause 40 required the respondents to arrive at an objective conclusion that the bid submitted by the bidder was substantially low.

The Court further held that the impugned order did not comply, either in letter or in spirit, with the earlier order dated 25 June 2018 passed by the learned Single Judge in Writ Petition (M/S) No. 2798 of 2017.

Accordingly, the High Court:

  • quashed the impugned order dated 31 August 2018;
  • remanded the matter to the respondents;
  • directed the respondents to clearly state the basis on which the bids or rates submitted by the petitioner were claimed to be substantially low;
  • directed consideration of the rate analysis furnished by the petitioner on 2 July 2018;
  • directed that a personal hearing be granted to the petitioner;
  • directed the respondents to pass a reasoned order; and
  • required completion of the entire exercise within four weeks.

Both writ petitions were disposed of in these terms.

Important Clarification

The High Court expressly clarified that it had not itself examined or decided whether the rates or quotations submitted by the petitioner were, in fact, substantially low.

That question was left for determination by the respondents. However, the respondents were required to reach such determination objectively, disclose the basis of their conclusion, consider the petitioner’s rate analysis, provide a personal hearing, and pass a reasoned order.

Therefore, the judgment should not be understood as holding that the petitioner’s bid was not substantially low. The decisive finding was that the respondents could not sustain such a conclusion merely through an unsupported assertion without objective analysis and disclosed reasons.

Sections / Clauses Involved

ITB Clause 40.1: Relating to seriously unbalanced, front-loaded, or substantially below-estimate bids; detailed price analysis; evaluation of internal consistency and justification of prices; and possible enhancement of performance security to protect the employer against financial loss in the event of default.

ITB Clause 45.1: Referred to by the respondents in connection with action following failure to furnish the required security.

ITB Clause 45.2: Referred to by the respondents in connection with cancellation-related consequences arising from non-submission of the demanded Additional Performance Security.

Uttarakhand Government Order dated 12 June 2017: Relied upon by the respondents for assessment of Additional Performance Security.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1783504067_2101compressed.pdf

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