In many jurisdictions across the country, bidders on public works contracts are required to list the key subcontractors they intend to use if awarded the contract. Many times, the list of trade contractors is provided by the public project owner, based on successful sub-bidders on those trade contracts. Sometimes the bidder simply commits in advance to subcontractors it selected. Unauthorized substitution of listed subcontractors typically subjects the bidder to a financial penalty.
Bid-listing is intended to prevent the practice of “bid shopping.” This is where the successful low bidder, public works contract in hand, seeks to procure subcontracted work at prices lower than those carried in the prime contract bid. The argument is that contractors should not be allowed to use the leverage of public contract dollars to obtain discounted trade work and then pocket the discount as a windfall. Bid-listing is also used to mandate participation by minority and women owned business enterprises (MBEs/WBEs). In a recent California case, a successful bidder had listed the subcontractors, suppliers and lower-tier subcontractors it would utilize in order to meet MBE/WBE participation targets. The subcontract amounts of two listed MBE lower-tier subcontractors were later reduced. Even though the complex project was completed on budget and ahead of schedule, and even though the subcontract reductions resulted in part from owner changes in the scope of work, the contractor was assessed a $200,000 penalty for under-utilization of the MBEs.
As always, I invite your comments on this subject. Is bid-listing an appropriate mechanism for preventing the evils of bid shopping and fostering goals of minority participation? Or is bid-listing inefficient and anti-competitive?
Bruce Jervis, Editor
Construction Claims Advisor