It is a short-term, transaction based perspective that fosters bid shopping and bid peddling.

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.

The History of Legislation to Curtail Bid Shopping

Bid shopping and bid peddling are not new problems and a few states prohibit these activities through legislation or administrative procedures on the projects that they fund. Currently, legislation is pending in Congress to curtail these activities on federal construction projects. The history of legislative action or administrative procedures shows the industry wrestling with the issue yet never developing an industry-wide solution.

In 1931, Congress first took a look at the idea of “bid listing” to curtail the practices of bid shopping and bid peddling. Under several proposals made in the 1930’s, a general contractor for federal projects would have been required to list his subcontractors on bid day. Any subcontractor substitution would have required approval by the federal contracting officer.

In 1938, both Houses of Congress approved legislation requiring bid listing but it was vetoed by then President Franklin Roosevelt because of a provision that required federal agencies to supervise subcontractor payments. There was a concern that the legislation would create administrative headaches.

During the World War II years, the issue of bid listing or other legislation to curtail bid shopping/peddling was deferred. In the 1950’s, the issue received considerable attention from Congress but no legislative action was taken.

In 1963, the General Services Administration (GSA) adopted a policy that required successful contractors to list their subcontractors within 48 hours after the submission of bids for most GSA projects valued in excess of $150,000. The GSA revised these administrative procedures in 1965 to require bid listings by the time of bid opening. A June 4, 1965 GSA press release explained the action was being taken “as a step to help eliminate the practice of ‘bid shopping’ by prime contractors for Federal projects”.

Also in 1965, the Department of the Interior adopted a similar bid listing policy and in a November 13, 1965 press release then Secretary Udall stated the policy was “designed to promote maximum stability in subcontractor selections, and to eliminate as far as possible the practice of ‘bid peddling’. In a very real sense, the policy is advantageous to small business”.

The GSA required bid listing until 1983 when it was eliminated on the belief that “bidding problems and protests related to the listing of subcontractors requirement adversely affected the GSA construction program”. By eliminating the bid listing requirement, the GSA stated the change would “simplify procurement procedures, reduce paperwork burdens associated with procurement…and eliminate potential delays and financial losses experienced as a result of the listing requirement”. (Quotes taken from the testimony of David A. Drabkin, Deputy Associate Administrator, Office of Acquisition Policy, Office of Governmentwide Policy, GSA, in a statement before the Subcommittee on Government Management, Information, and Technology Committee of Government Reform, U. S. House of Representatives, July 13, 2000.)

In 2000, Representative Paul E. Kanjorski (D-PA) sponsored H.R. 4012, the “Construction Quality Assurance Act of 2000”, which explained:

The bill further provides for suspension or debarment of a contractor who is found guilty of bid shopping on any two contracts within a five-year period.

This new bill contains language that summarizes the problems of bid shopping:

H.R. 1859 highlights the ethical concerns of bid shopping or bid peddling: The parties who engage in bid shopping and/or bid peddling have every incentive to reduce the quality of the final project in order to make up the difference between the original bid and the final cost.

Even in those occurrences where the original plans and specifications are not compromised as a result of bid shopping, the sub-bidder who diligently prepared a price that became a part of a general contractor’s bid deserves fair, ethical treatment. This does not occur when a bid is shopped or peddled and the work is awarded to another sub-bidder.

The Objection to Bid Listing

The objection to bid listing may be summarized in a few simple concepts: risk, poor planning, and comparable price.

In a perfect world, construction plans are prepared properly and accurately, buyers of construction services have engaged in adequate planning and budgeting, and they have the funding available to pay for their proposed projects. Further, the plans and specifications are integrated as seamless documents, there is adequate time allowed to bid the project, and the owner’s design professional is available during the bid process to provide any clarification or correction to the plans and specs.

Unfortunately, the world of construction is rarely perfect. As a result, the world of construction is risky. And the risk begins at the bidding stage.

Over the past twenty years, construction projects and construction contracts have become increasingly more complicated and risky. More risk is being transferred down the line from owners and designers to general contractors to subcontractors. At the same time, many owners have reduced their in-house engineering and design staffs as both government agencies and private owners alike have downsized.

These developments have had a direct impact on the quality of plans and specifications, which increases the risk that is assumed by the construction industry. As a result, alternative methods of project delivery are increasing, such as design/build where one party assumes full responsibility for the design and construction of a project. Another alternative that is becoming more widespread is Construction Management (CM), where the CM serves as the owner’s agent with a fiduciary obligation to the owner.

Today, it’s not unusual for a contractor to have one week or less between the time that a request for proposal is sent and the time the proposals are due. Fax machines, email, and CAD drawings transmitted via Internet are all tools that facilitate this kind of fast paced environment. Unfortunately, these advanced tools don’t always provide for better planning; they provide for tighter deadlines.

Tight deadlines and poor project planning increase bidding risk. Where once there was time to fully clarify a subcontractor’s quotation through discussion and inquiry, today that time may not available until after the bid date. For this reason, the Pre-Award or Scope Review Meeting between a prime contractor and subcontractor has become a necessary practice. Here, the prime and sub can sit down and discuss the scope of work, clarify the assumptions made by the parties, and make a comparison all with the objective of determining “comparable price”.

The American Society of Professional Estimators (ASPE) defines “comparable price” as “the price which accurately reflects to the prime bidder a scope of work comparable to the other sub-bidders in that trade”. The ASPE guidelines further state:

If all this were possible before bid day, bid listing could become an industry standard. For now, there is a need for leadership on the issue together with a strong commitment to ethical standards.

The Owner’s Role

Buyers of construction services can have a significant influence on the practice bid shopping/bid peddling. However, among buyers of construction services there may be an acceptance of the idea of bid shopping. In an October 16, 2001 letter to Rep. Kanjorski, a representative of Smithsonian Institution explained a position that, unfortunately, too many owners seem to accept:

Owners must also understand that they, too, are victims of bid shopping and bid peddling and take a strong stand against these practices. The federal government, as the nation’s largest purchaser of construction services has been under pressure to take a position of leadership on the matter of bid shopping and bid peddling since the 1930’s. Unfortunately, up to this point in time, the industry hasn’t been able to agree on the method. The answer may lie in the successful passage of H.R. 1859.

The Development of Ethical Standards for Construction

Strong leadership from buyers of construction services will help reform the unethical practices of bid shopping and bid peddling. However, the solution is a strong commitment to ethical conduct by the professionals who work within the construction industry.

The need for strong ethics in construction as well as the need for other reforms lead to the establishment of the American Institute of Constructors (AIC) in 1973. In 1994, the AIC established its Constructor Certification Commission, which grants the professional credentials of Associate Constructor (AC) and Certified Professional Constructor (CPC). Part of AIC’s credentialing process includes a means of disciplining a construction professional who engages in unethical conduct.

Constructor Certification is a growing movement that is finding significant support in university programs that teach construction. Soon, we will have a generation of professional constructors who have been indoctrinated as a part of their formal training with the need for a commitment to ethical conduct.

In the meantime, buyers of construction services must recognize that they may be at risk when contractors engage in bid shopping/bid peddling. Because, as stated so clearly in H.R. 1859, “when bid shopping occurs the cost savings gained are not passed on to the (project owner), while the simultaneous reduction in quality and value are passed on.”

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