Bid Shopping
Bid shopping (Definition)
Any practice involving the provision of information to a prospective contractor or subcontractor that a competitor has submitted a lower price than that of the prospective contractor or subcontractor and the offer to such contractor or subcontractor of an opportunity to underbid the competitor.
Bid Shopping and Bid Peddling
Bid shopping is unethical and undermines the bidding process.
In 1995, the Associate General Contractors of America, the American Subcontractors Association, and the Associated Specialty Contractors issued this joint statement on the issue of bid shopping and bid peddling:
“Bid shopping or bid peddling are abhorrent business practices that threaten the integrity of the competitive bidding system that serves the construction industry and the economy so well.
“The bid amount of one competitor should not be divulged to another before the award of the subcontract or order, nor should it be used by the contractor to secure a lower proposal from another bidder on that project (bid shopping). Neither should the subcontractor or supplier request information from the contractor regarding any subbid in order to submit a lower proposal on that project (bid peddling).
“The Associated General Contractors of America, the American Subcontractor’s Association, and the Associated Specialty Contractors oppose these practices.”
The statement by itself is remarkable since it is rare to find such agreement on any issue within the construction industry. It may be unprecedented to have such a strongly worded, definitive statement prepared jointly by some of the industry’s leading voices.
While the joint statement touches on some of the concepts of bid shopping and bid peddling, we can turn to the American Society of Professional Estimators (ASPE) for more succinct definitions of these abhorrent practices.
Bid shopping “occurs when, after the award of the contract, a contractor contacts several subcontractors of the same discipline in an effort to reduce the previously quoted price.”
Bid peddling “occurs when a sub-bidder approaches a general contractor who has been awarded a project with the intent of voluntarily lowering the original price below the price level established on bid day. This action implies that the subcontractor’s original price was either padded or incorrect.”
It is a short-term, transaction based perspective that fosters bid shopping and bid peddling.
The general contractor’s motivation to bid shop is a short-term increase in profit. Through the process of bid shopping, he may be able to increase the project’s profit by pitting one subcontractor’s proposal against another’s and buying out the subcontract for less than the amount included in the general contractor’s bid to the owner.
The subcontractor who becomes subject to bid shopping or who engages in bid peddling is able to reduce his cost only if his bid was “padded” with unnecessary costs, if he is willing to accept a reduced profit on this work, or if he plans to deliver less than originally proposed.
Further, bid shopping and bid peddling are unfair business practices since they seek to usurp the business opportunities that ethically should accrue to the sub-bidder who submitted the lowest, responsive price on or before bid day.
The professional practice of construction requires a perspective that is long-term and relationship-based, with a focus on the ideal of client service. Practices such as bid shopping and bid peddling cannot sustain long-term working relationships between contractors and subcontractors and these practices are not in the client’s best interest.