What is Price reasonability?
Price reasonability is the buyer’s check that the winning bid’s price is fair and justified, compared with estimates, past prices and market rates.
What is price reasonability?
Price reasonability, also called reasonableness of rates, is the assessment a buyer makes before award to confirm that the price it is about to pay is fair. Being the lowest bid is not enough on its own; the L1 price should also be reasonable.
Government buyers are expected to obtain value for money under GFR 2017, so the tender committee usually records its view on reasonability in its proceedings.
How it works
Committees compare the L1 price with one or more benchmarks. Which ones they use depends on the buyer and the item.
- The estimated cost prepared before the tender
- The last purchase price, adjusted for time and quantity
- Current market rates, price lists or published schedules of rates
- Prices in comparable recent tenders
- The number of bids received and how close they are to each other
What happens if the price is not reasonable
If L1 looks too high, the buyer may negotiate with L1 where its rules allow this, or cancel and retender. Negotiation is generally treated as an exception and, where held, is usually only with L1.
If L1 looks unusually low, the buyer may ask for a justification or rate analysis to check that the bidder can deliver at that price.
Common questions
Common questions about Price reasonability in government tenders.
It is a record by the buyer or committee that the rates have been checked and found reasonable. Many buyers require it before an order is placed, including for some purchases on GeM.
Yes. Buyers may ask L1 to explain an unusually high or low price, sometimes with a breakdown or rate analysis.
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