Bid Shopping: Understanding Your Rights
By Jonathan Whitcomb
General contractors and subcontractors are familiar with the process of bidding for work; soliciting competitive bids from subcontractors and materialmen is a crucial ingredient in every bid. However, there are conflicting rules of law that govern the conduct of those involved in bid shopping, and simply looking for the best deal may not always be legal.
Bid shopping, in its most general form, occurs when general contractors continue to solicit bids from subcontractors after their initial bid for a project has been selected. A general contractor may utilize one set of subcontractors when preparing to submit a bid for a project. Once a project is awarded, the general contractor may seek additional bids from subcontractors in an effort to reduce costs on the project and increase profits. While permissible in certain circumstances, bid shopping is not always allowed. General contractors and subcontractors alike need to understand the legal nuances of this process to avoid liability, while enhancing the competitive results of bidding and in turn, maximizing profits.
In order to determine whether bid shopping is allowed under the law, it is necessary to look to the owner or solicitor of bids as well as the project itself. There are three types of owners or projects to consider. The first is an owner on a private project. Generally, bid shopping is permissible on private projects. The law usually holds that no enforceable contract is created between a general contractor and a subcontractor during the initial bidding process. This allows general contractors to continue to solicit bids and change subcontractors even after the initial bid is awarded. Likewise, subcontractors are free to revoke their bids and back out of a project when it appears that the profitability of a job is compromised. However, there are cases where courts have held that certain general contractors were unjustly enriched when they are awarded work to prevailing subcontractors (who were not initial subcontractors) in the bid shopping process. In such cases, the initial subcontractor did more than just submit a bid - it actually helped to facilitate the general contractor’s award of a contract for a particular project.
The picture becomes murkier when the project involves an owner that is a municipality. Municipalities are governed by municipal codes, rules and regulations that may limit general contractors and subcontractors alike. These limitations may restrict a general contractor’s ability to bid shop as well as a subcontractors’ ability to pull out of a bid. Moreover, given their complex nature, certain municipal codes might provide general contractors with various incentives that, as a practical effect, may limit the number and types of subcontractors a general contractor can utilize when submitting a bid for a municipal project. For example, many municipalities have ordinances that give preferential treatment to general contractors and subcontractors who are minority controlled enterprises or who are located within the municipality.
The third type of project which will impact a general contractor’s ability to bid shop is that involving a state. Some states have statutes that expressly prohibit bid shopping in projects where the state is the owner or solicitor of bids. These statutes have the effect of “locking in” various general contractors and subcontractors after the initial bidding process is concluded and the bid for the project is awarded. Under these statutes, general contractors cannot swap out subcontractors after the bid has been awarded to them, even if there are other subcontractors who subsequently appear to be more attractive from a price perspective. A violation of these statutes could lead to fines, or worse yet, the loss of a bid that had previously been awarded.
To summarize, different laws and rules do exist that affect whether or not a general contractor may bid shop after having been awarded a project. What is acceptable on one project may be problematic, if not illegal on another. Determining the type of project and its owner is critical before going shopping for other bids.
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Article Concepts: bids, bid shopping, municipal jobs, government jobs, state jobs, bid solicitation
© 2008, The Barthet Firm