Post-award Bid Shopping in the Colorado Public Construction Industry
| Publication year | 1989 |
| Pages | 1739 |
1989, September, Pg. 1739. Post-Award Bid Shopping in the Colorado Public Construction Industry
In the typical bid letting on a proposed public construction project, the awarding public authority (also called the "owner") solicits bids for the prime contract on the entire project from general (or "prime") contractors. General contractors in turn solicit bids from subcontractors for portions of the work on the project which the general contractor will not itself perform. Under Colorado's competitive bidding statute, the public authority is required to award the prime contract to the "low responsible bidder" whose bid meets the requirements as specified in the invitation for bids.(fn1) Only in exceptional situations as prescribed by statute may the public authority either resolicit bids for the project or negotiate an adjustment of the bid price with the low responsible bidder.(fn2)
The general contractor to whom the prime contract is awarded, on the other hand, is not obligated by either current statutory or common law principles to use the bids of the subcontractors which had been incorporated into its prime bid. Instead, the general contractor is free to engage in further negotiations with these as well as other subcontractors in order to secure a still lower bid than that used by the general contractor in obtaining the prime contract. This practice is called post-award "bid shopping."
This article examines the practice of post-award bid shopping and its deleterious effects on the Colorado public construction industry. Common law and statutory safeguards against postaward bid shopping as currently exists also are discussed. Finally, the author suggests a remedy to correct the effects of post-award bid shopping through legislative initiative.
In the construction industry, bid shopping is the practice of a general contractor who solluts bids from subcontractors for specialized work on the project, which it will incorporate into its bid submitted to the public authority. It is the standard in the construction industry to engage in the practice of bid shopping.(fn3) In the pre-award stage, which is before the prime contract is awarded by the public authority, this practice is seen as an acceptable expression of free competition. It ultimately benefits the public authority by arriving at the lowest possible bid for, and consequently the cost of, the public project. However, when bid shopping is practiced after the prime contract is awarded, it is considered to be unethical and serves to benefit only the general contractor by increasing its margin of profit on the prime contract.(fn4)
The general contractor, upon award of the prime contract and before executing a subcontract for the performance of the specialized work, uses the incorporated subcontractor's bid as a negotiating tool with other subcontractors in an effort to obtain a lower bid for the work. Post-award bid shopping also includes "bid peddling," the post-award negotiation tactic of subcontractors themselves undercutting the known bid of the subcontractor used in the prime contract.(fn5)
Post-award bid shopping violates standards of good faith and fair dealing among contractors and creates an unstable commercial environment in which dealings among contractors are grounded in caution and distrust. In addition, this practice has several other harmful effects upon the construction industry. First, in order to combat a general contractor's post-award bid shopping practices, subcontractors will often inflate the initial bids to compensate for subsequent chiseling down of that bid amount. These distorted bids ultimately have the effect of increasing the overall cost of the construction project, since they...
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