Bid shopping

Bid shopping
See also
Gharar Authorization to sell Disclaimer of warranties Phoenix company Sole distributor Unascertained goods Standing offer Material misrepresentation Mutual assent

The term bid shopping refers to actions taken by the main contractor after the award of the contract to reduce prices of subcontractors by "buying" the lowest offer in a given craft from subcontractor.

Bid shopping is also the term used to describe a contractor who shares information with other subbiders in order to obtain a lower price. "An example would be a subcontractor, having already submitted a bid to a contractor, calling and asking how the subcontractors bid compares with other bids for the same work".

This problem can be solved in two ways:

1. By informing the subcontractor how the price of the subcontractor is compared to the price of other subcontractors prior to bid. This method is extremely unethical and gives both the contractor and the sub-contractor the right to make pic-bid purchases.
2. By informing the inquiring party, that upon award of the subcontract, this information will be accessible.

Disadvantages of bid shopping

Although "bid shopping" is defined as "the purest form of competition", practically all subcontractors and suppliers definitively reject the possibility of any virtue in the practice. Bid shopping has been condemned by The Code of Ethical Conduct of the Associated General Contractors of America. Nonetheless, it remains present in the industry and the difficult position of the subcontractor is compounded by the lack of available legal theories to bind the best. As a consequence of the various criticisms that have been made about the bid purchases, a number of measures have been taken to stop or at least limit this practice.

Bid shopping is ignored by the industry, and when subcontractors participating in tenders are identified, the consequences may seriously affect their ability to obtain reasonable prices. It often happens that many subcontractors and suppliers do not want to submit an offer to a contractor known for bid shopping. Offer purchases are detrimental to long-term and short-term business relationships. In order to limit the potential for bid shopping some tender documents require bidders to list some or all of their subcontractors in their bids.

According to S. Kubba bid shopping occurs because majority of subcontractors being shopped believe that if they do not cut prices they will not receive employment. Furthermore, if the business activity is slow, subcontractors may be inclined to accept lower profit margins only to keep their staff engaged even if that means they will only break even on the project. In some cases, the main contractor will induce the subcontractor to carry out additional work after receiving the order. Although it may seem that the owner is the primary beneficiary of the bidding purchases, receiving a lower price for the project,it usually turns out that the owner also receives a lower quality project and also exposes himself to greater risk and warranty problems down the road.

S. Kubba also mentions that The Associated General Contractors of America considers the practice of purchasing offers to be "repulsive" and is completely opposed to it. These feelings are also shared by the American Subcontractors Association, which considers it unethical to buy offers and trade offers, and by other trade associations of contractors such as AGC, ASA and ASC. It also seems that this view is shared by the courts that have voted in favour of bid-shopping.

Examples of Bid shopping

• A common example of bid shopping occurs when a contractor solicits and compares bids from multiple subcontractors to find the lowest price for a particular craft. In this case, the contractor may contact multiple subcontractors and ask them to submit bids for the same project. The contractor will then select the lowest bid and award the project to the subcontractor with the lowest price.
• Another example of bid shopping is when a contractor solicits bids from subcontractors for a specific project and then negotiates with the subcontractors to reduce their prices. In this case, the contractor may contact the subcontractors and ask them to submit bids for the project. Once the bids are submitted, the contractor can then negotiate with the subcontractors to reduce their prices in order to secure the lowest price for the project.
• Another example of bid shopping is when a contractor solicits bids from subcontractors for a specific project and then engages in reverse auctioning. In this case, the contractor will contact the subcontractors and ask them to submit bids for the project. The contractor will then hold an auction in which the subcontractors compete to offer the lowest price for the project. The contractor will then award the project to the subcontractor with the lowest price.

Other approaches related to Bid shopping

Bid shopping is a practice used by contractors to reduce prices of subcontractors after the award of the contract. Other approaches related to bid shopping include:

• Bid Manipulation: This involves attempts by a contractor to influence the bidding process by manipulating the bids of suppliers to ensure that they receive the lowest bid.
• Bid Splitting: This involves separating the construction contract into different parts in order to get lower bids from subcontractors.
• Reverse Auction: This involves having multiple bidders compete for the same contract and the winner is the one with the lowest bid.

In summary, bid shopping is a practice used by contractors to reduce prices of subcontractors after the award of the contract. Other approaches related to bid shopping include bid manipulation, bid splitting, and reverse auction.

References

• Kelleher T.J. (2005), Smith, Currie & Hancock's Common Sense Construction Law: A Practical Guide for the Construction Professional, John Wiley & Sons
• The CSI Construction Product Representation Practice, (2013), John Wiley & Sons
• Kubba S. (2016), Handbook of Green Building Design and Construction: Leed, Breeam, and Green Globes, Butterworth-Heinemann

Author: Dominika Kania