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ConstructionPro Week, Volume: Construction Advisor Today - Issue: 157 - 05/03/2012

Can Anything Be Done About Bid Shopping?

By Bruce Jervis

 

The practice of “bid shopping” is the bane of trade contractor existence. This occurs when a bidder on a prime contract obtains a price quotation from a trade contractor and uses that price in calculating its bid. Upon award of the prime contract, the contractor then “shops” the trade contractor’s price around, disclosing it to competitors and inviting them to beat it.

 

Critics of bid shopping say general contractors take unfair advantage of their economic leverage, frequently gained through public works expenditures, and harm projects by bringing in weak, low-ball performers. In the public sector, statutes have been enacted requiring more direct procurement of trade work or mandating the listing of selected trade contractors in prime contract bids.

 

In the absence of legislative intervention, however, there is little trade contractors can do to protect themselves. This was illustrated in a recent Florida case. A paving contractor included language in its proposal prohibiting disclosure of the price to third parties. The proposal said any such disclosure would constitute acceptance of the proposal and create a binding subcontract.

 

The low bidder on the public project used the paving contractor’s price in its bid, disclosed the price to a third party, and awarded the paving subcontract to a different company. The paving contractor had no recourse. The price proposal was an offer. An offeror cannot unilaterally dictate the form or manner of acceptance of its offer.

 

What is your opinion of bid shopping? Is it a legitimate competitive business practice or a predatory misuse of public works funds? If you consider the practice inappropriate, what practical steps can be taken to discourage it?

 

Featured in Next Week’s Construction Claims Advisor:

  • Anti-Indemnification Statute Protected All Construction Parties
  • Design Did Not Render Contract Performance Impossible
  • Timely Acceptance of Subcontractor Bid Questioned

 

Comments

 

Payback is a bitch for bid shoppers. I love sending them whacked out numbers but excluding something in the small print. They never read that stuff when a bid comes in at 10 minutes to bid time. Subs do have a way to play their games too! We're not poor defenseless little pee-ons!

Treat us fair and we'll respond with accurate, fair, and timely pricing. Shop us out and watch out on the next one!

KM

We like to require the list of proposed subs in our contractor's proposals, with contract language requiring a valid reason and approval to switch them out.

 

Well said Kurt, thank you...

 

Your right about the bid shopping. I believe its happened to me!

 

please post the case record for the contractor law case

 

One of the standard contracts we use on construction projects typically includes language to the effect that the contractor cannot assign / sub all or any part of the works without the prior written approval of the A/E. The contractor is also required to list all trade subcontractors and the prices included in their bid. In addition to the subbing of the contract being at the discretion of the A/E, the contractor has a deadline by which he must submit a request for change or substitution. If a prime contractor submits a request for substitution after this deadline, the A/E can reject as late automatically.I have found that this significantly helps trade subs to be protected from bid shopping. This is not to say that bid shopping does not and has not occurred here. On poorly formed and administered contracts, it is quite common.

 

We have discussed this topic many times in our local and national ASPE (American Society of Professional Estimators)conferences, and I present a seminar about it as well designed to teach subcontractors how to combat this unseemly practice, which has several faces - bid chiseling, bid beating, bid peddling, bid discounting - they all stink. ASPE's Canons of Ethics specifically prohibit this practice, but most of these activities are perfectly legal, making them tough to combat. Thanks for raising this important topic in this forum; the creation of awareness is our best tool to use against these practices.

 

Nothing can be unless legislation is enacted at the State level. Honesty will only make one starve and collusion will continue just as it has done for centuries. Just like larceny has been illegal thru laws, bid collusion can be solved through legislation ONLY. People will not solve it on their own honesty, so long as their are others doing it with larceny in their hearts, the balance will have to suck it up or lobby for legislation making it illegal

 

NO!!!..(to Daniel)
You do not ever want the state involved in private business practices. While bid shopping is a crappy way to conduct business, it is a lawful business practice nonetheless. We all compare prices on the internet v. brick and mortar stores, etc. Subs just need to learn not to tip their hand when bidding. Schematic drawings, rough bids, and contract language will put us on even footing with the primes.

 

Very Interesting topic...Nobody ever likes having their price shopped after a bid, but we all like to have "last look" with our GC clients. Why else we would take them to play golf, go out to fancy dinners, etc. Let's get real here people...protect yourself and be smarter than your competition.

 

Most people involved in construction are members of at least one professional society. Those societies should at least censure bid shoppers and list their names in the newsletters.

 

As a GC we don't use bids from subs who send them 10 minutes before our bid time. At 10 minutes before bid time there is not enough time for us to change our bid and update our sublist. Those subs sending their bids late are only wasting their time. Sometimes we may lose a job from this policy, but 99% of the time the savings would not make a difference in our overall bid.

 

No!!! To Shamus. In North Carolina, on publc funded, municipal and county supported work, GC's must list their major subs of choice on their bid and the state makes them stick to those they name. That cuts down on the BS that some GC's pull.
On private work you take your chances with the GC's being honest.
All public work in NC requres at least three bidders in each major area sub area (GC, Plbg, HVAC, Elec and sometimes FP) in order to open the bid packages for that trade. If there is only two bds then they hold them and advertise the bid and bid it again n 2 weeks.
The real problem n NC is the Federal bids for government work. Those bids go to a GC,and they don't have to list their subs in the bid and they get shopped by the GC's like bandits.

 

We are and architectural firm in California and we have the requirement of all subs of 1/2 of 1% of total must be listed. This has helped reduce shopping unless the general lists a sub who he knows will fail with the hope of getting a sub of his choice to fill the void. I am sure this happens. With the economy in its current condition we are seeing subs drop form 5% to 30% on many projects. We are spending much time in the sub change process which if adverserial takes weeks if not months to go thru with numerous hearing and discovery.

 

How about some version of the old 'Kill Fee' concept:
The bidder submits a hard number for their estimating
fee (i.e. $5,000) along w/their bid price. If the GC then
shops the bid and looks to award elsewhere, it will now cost them ($5,000) to do so - and suddenly the new 'low bid substitute' may no longer be 'low' anymore.....the original 'low bidder' is 'low' once again!

 

Naturally, the only type of sub that can sell this approach to a GC is one that the GC knows to be
consistently low-priced and thus worth the ($5,000)
decrease in the spread w/the second low bidder.

Interesting discussion here. I have had multiple experiences with having my organized and timely bids being "shopped" by a GC. Both on private and public projects.
Needless to say, it is very frustrating to have put in a huge amount of effort to produce a competitive number only to have it sold out from under me after the bid deadline. But the question is: why would I want to do business with an unethical GC?
I'm truly not interested. I assume he will "sell me out" at some point during the construction phase or try and screw me out of money elsewhere on the project.
It's been my routine that after discovering I've been "shopped" on a bid I contact all of my subs, sometimes as many as 6 or 8 and tell them what has occurred. In this manner the GC's reputation has been revealed as an unethical one and we can all keep that in mind for future bids.

 

Tar & feather is the first thing that comes to my mind.
How about a fine of 25% of the bid going to the shopped contractor.
If a complaint is filed freeze the award of the job, investigate, & if it can be proven pull the contract & give it to GC #2.
Any of these penalties would stop this practice. 
It costs thousands of dollars to prepare most bids. 
When we are low & assuming we are a reputable contractor we deserve to get the project.

 

Right now if they shop they get dropped. No more bids from me ever!!! 
The shoppers would be the first to go for their lawyers if right after the bids were opened the owner said," Gee, these bids are so close I think we are going to give everyone one more chance to give us their best & final offer."

I would also be interested in knowing the case cited or other similar cases found for either party.

 

I have been on both sides of the fence sub/prime and seen shopping pulled on numerous occasions. Our industry does not need additional regulations to deal with.

 

As several have already said, the contractors that shop need to be outed. If you can prove that they have shopped you call the president/owner of the firm and tell him how you feel. Some estimators are shopping and receiving kick-backs.

If the firm is willing to shop legitimate quotes they are probably doing other unethical practices as well and why would you want to take the risk of doing business with them.

We might consider using something other than the "lowest" bidder to award contracts. More appropriate woudl be the bidder closest to the average of all bids received.

 

Other than that, Mr. Mehrer et. al. have the right idea. 

Well as a GC we are up against similar actions on the part of some owners that we bid to (retail work). More important is the late reciept of sub bids on bid day. Some sub's say that the supply houses, particularly with the mechanical trades, do the same thing and hold out releasing their material quotes until the last minute. I wouldn't call it bid shopping but more accurately trying to determine if a quote received 10 minutes before bid time has the correct scope?? So in 10 minutes with numerous bids being faxed and emailed, we are supposed to list the sub's we intent to use complete the pricing, and relay via phone all the information required on the bid form. No way!!!!

 

The problem I see with comments above, mostly coming from subcontractors, is that subcontractors bidding on a certain project will not bid to every general. When I am bidding a public project, we need to find the subcontractor that is only going to bid to me. So Subcontractor "a" bids to every gc and is low, but subcontractor "b" bids only to me and has a lower price than "a", then I am considered a bid shopper, when in fact, I did nothing wrong.

 

Send out scope letters early in the process and pricing later

 

I feel that my company has been bid shopped. Knowing I own a ethical electrical contracting firm that does quality work... I dont know how to identify that is the intent of the Gc before I bid the job. How do defend against, and how do I know it occurred?

 

 

 

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