Bid Peddling And Bid Shopping In The Construction Industry

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Bid Peddling and Bid Shopping in the Construction Industry
In this paper I will be discussion the effects of bid peddling and bid shopping on the different roles of those involved in the construction industry. I will touch on how prime contractors, sub-contractors, owners, and the design professionals are affected by this practice.
A prime contractor submits a bid for a construction project based in part on bids that they have received from subcontractors for work associated with the job. To arrive at the bid figure, they use the lowest bid for each item of work on a project (regardless of who submits the bid, their experience, or reputation) and may then deduct a percentage of the total. To avoid having their bid shopped, subcontractors often submit their bids at the deadline. Once a prime contractor is awarded the contract, they return to the subcontractors and pressure them to knock down their prices in order to get the job. They call in all subcontractors that could bid, showing them the bid price less a percentage for each subcontract. They ask subcontractors to bid for the work with permission to use any means possible to achieve a lower price. Suggest they use all possible contacts with the owner and design professional to allow for changes (under the guise of "value engineering"). They repeat the above steps using the lowest price received each time a subcontract is re-bid until all but one subcontractor drops out of the bidding or there appears to be no further reduction attainable. Prime contractor makes submissions based on the lowest bids received, using all means possible of obtaining approvals (including the threat of legal action). Many times, inadequate designs and scope bids can result in low-ball bidding, where contractors underbid their competitors, knowing that they will pressure the subcontractors to meet their cost demands later in order to get the work. In Bid Peddling, the rules are reversed. Subcontracto...