The construction industry relies heavily on competitive bidding to secure efficient pricing for projects. These systems are designed to ensure fairness and transparency among project owners, general contractors (GCs), and subcontractors. One controversial activity is bid shopping, which undermines the competitive balance and introduces uncertainty into project cost estimation. This practice erodes trust and affects long-term industry relationships.
Defining Bid Shopping
Bid shopping is initiated by a general contractor (GC) who uses the lowest price submitted by one subcontractor as leverage. The GC pressures other potential subcontractors into offering an even lower price for the same scope of work. This activity typically occurs after the GC has been awarded the prime contract by the owner. The GC’s objective is to reduce project costs and maximize profit margins.
The defining characteristic is the manipulation of price information submitted in good faith. The GC discloses the lowest sub-bid to competing subcontractors, demanding they undercut that figure. This exploits the subcontractor’s investment of time and resources spent preparing their original proposal, shifting the financial benefit entirely to the GC.
The Mechanics of Bid Shopping
The execution of bid shopping begins when the GC secures the project award. The GC receives numerous sub-bids from specialty contractors for trade packages and incorporates the lowest acceptable bids into their submission to the owner, securing the prime contract.
After securing the contract, the GC contacts subcontractors who were not the lowest bidders. The GC reveals the lowest sub-bid price and pressures the competing firm to submit a lower price. This forces subcontractors to sacrifice profit or walk away from the job.
This process allows the GC to realize a windfall profit by maintaining a high contract price with the owner while driving down labor and material costs. The lowest initial bidder often loses the job unless they agree to a further reduction. Subcontractors sometimes mitigate this by submitting bids at the last possible moment, a tactic known as “bid-holding.”
Distinguishing Bid Shopping from Bid Peddling
Bid shopping and bid peddling are disruptive to fair competition, but they are distinct practices defined by who initiates the activity. Bid shopping is driven by the general contractor (GC), who solicits lower bids using an existing low bid as leverage. The GC is the active party seeking to reduce costs after the bids are submitted.
Bid peddling is initiated by the subcontractor. This occurs when a subcontractor learns a competitor’s bid price and voluntarily approaches the GC after the submission deadline to offer a lower price. The subcontractor is the active party attempting to undercut a competitor’s price. Both practices undermine the integrity of the competitive submission process, but the source of the negotiation pressure defines the difference.
Negative Consequences for the Construction Industry
Bid shopping has negative outcomes that extend beyond immediate financial loss for subcontractors. It drives down profit margins for specialty contractors, forcing them to operate on unsustainable terms. Subcontractors invest substantial time and resources preparing accurate bids, which are devalued and manipulated during post-award negotiation.
Subcontractors forced to lower prices may use lower quality materials, less experienced labor, or cut corners on the scope of work. This compromises the final quality of the construction project, negatively impacting the owner and the project team’s reputation. Bid shopping fosters deep mistrust, discouraging the honest bidding efforts necessary for accurate project pricing.
Ethical and Reputational Considerations
Bid shopping is widely condemned because it undermines the fundamental principle of fair competition. Organizations like the Associated General Contractors of America (AGC) and the American Subcontractors Association (ASA) have declared the practice “abhorrent,” recognizing it threatens the integrity of the competitive bidding system. While generally legal in the private sector, it is considered unethical as it exploits the time and expertise invested by subcontractors in their initial proposals.
GCs who frequently engage in bid shopping risk damaging their professional reputation. Subcontractors are less likely to submit their best pricing or bid for a GC known for this activity, making it harder to secure reliable partners for future projects. For public works projects, some jurisdictions have enacted “Subcontractor Listing Laws” to curb this behavior.
Strategies for Mitigating Bid Shopping
Owners and general contractors can implement strategies to reduce bid shopping and promote a more transparent bidding environment. Project owners can require GCs to submit a list of all major subcontractors with their prime bid. This requirement locks the GC into using the named subcontractors, preventing post-award substitution solely for cost reduction.
GCs can adopt internal procedures demonstrating a commitment to fair bidding. They can utilize “bid boxes,” which are physical or digital mechanisms that only accept subcontractor bids up to the minute of the deadline, preventing the early use of low numbers as leverage. Subcontractors can protect themselves by submitting bids only to trusted GCs, or by including clauses that void the bid if the GC attempts to negotiate the price with a competitor.