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Anti-bid Shopping Measures

Friday, December 03, 2004 03:20 pm

Anti-bid Shopping Measures

"Bid shopping" is a longstanding practice in the construction industry. A prime or general contractor, having submitted a successful fixed-price bid on a public works project, then "shops" the subcontracted portions of the work around to other companies, inviting them to beat the subcontract prices carried in the bid. To the extent the contractor succeeds, the profit margin on the prime contract is improved.

The practice of bid shopping has been subject to three primary criticisms. While not necessarily endorsed in this article, these beliefs are widely held in segments of the industry. The first is that bid shopping is a predatory, exploitative business practice which forces smaller trade and specialty contractors to work on the thinnest of margins.

The second criticism is that a prime or general contractor is paid with public funds when constructing a public works project. To the extent the prime contractor beats down subcontract prices, the prime enriches itself and shares none of the cost savings with the taxpayers. Finally, there is concern that bid shopping is not in the best interest of a project. From an owner's standpoint, it is not necessarily advantageous to have only the hungriest trade contractors working on the thinnest of margins.

In response to these criticisms of bid shopping, many state and local governments have enacted anti-bid shopping statutes or ordinances. Additionally, there is case law which holds that bid shopping will prevent a prime contractor from enforcing pre-bid price quotations against subcontractors.

Filed Sub-Bids

One mechanism for preventing bid shopping is a system of filed sub-bids. The public project owner solicits bids directly from the trades for key components of the work. Every bidder on the prime contract is required to carry the low filed sub-bid in its bid price and utilize that sub-bidder if awarded the prime contract, unless the prime intends to perform the trade work with its own qualified forces.

A filed sub-bid system creates certain risk for the public project owner. When a low sub-bidder defaulted and declined to enter into a subcontract, the municipal project owner was required to pay the prime contractor the difference between the low sub-bid, carried in the bid price, and the second low [...]

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