Bid Shopping and How Your Contracting Business Can Avoid It

When property owners look for a contractor for a project, they are often searching for the lowest price. So it’s not entirely surprising that, on occasion, you might interact with a property owner or a contractor who reveals another contractor’s bid in an effort to get you to lower yours. This concept is known as “bid shopping,” and it is illegal in certain contexts. By understanding it, you can have a better chance of avoiding it.

What Is Bid Shopping?
It’s common for property owners to ask for lots of companies to bid on a project, so that they have various options. This is not the same as bid shopping. When a general contractor is looking for subcontractors for their own bids on a project, they might publicize the bids that they are receiving in the hopes that subcontractors will offer to do the work for a lower price. Bid shopping essentially encourages other contractors to lower their prices in an attempt to secure work.

What’s Wrong With Bid Shopping?
If you have ever done comparison shopping or asked a company to match the price that a competitor is offering, you might wonder what is wrong with bid shopping. As a contracting business owner, you may quickly understand how bid shopping can create significant problems within the industry. There’s already a lot of pressure for small businesses to compete with larger ones by lowering their prices and cutting into their profit margins. Bid shopping can create a “race to the bottom” mentality where the lowest price becomes the biggest factor for general contractors or property owners to determine who gets the bid. If you’re constantly having to cut your bid to meet the lowest price, you may eventually end up losing money on projects.

What’s the Difference Between Bid Shopping and Bid Peddling?
The difference between bid shopping and bid peddling is the person who is doing it. Bid shopping usually involves a general contractor or property owner looking for lower bids from subcontractors. Bid peddling comes from a subcontractor offering lower prices than another subcontractor in the hopes that they can supplant that subcontractor for the same job. Both actions can be sneaky and unethical, they just come from different directions.

Is Bid Shopping Illegal?
In many cases, bid shopping is illegal. In fact, California state law requires that for public projects, contractors have to publish a list of the subcontractors whom they would hire to complete the work for the project. With a few exceptions, this law makes it much harder for contractors to substitute a lower-bidding subcontractor on a whim. Outside of this context, however, it may not be illegal. It’s worth keeping in mind that most professional organizations in construction dislike the practice, mostly because it kills profit margins and makes it more difficult for businesses to thrive in a competitive environment.

What Should I Do If I Encounter Bid Shopping?
Although bid shopping is often illegal and generally looked down upon, you may still encounter it on occasion. The best thing you can do is to understand the laws for submitting bids to a contractor. If there’s a contractor in your area who you find is trying to push the envelope to see what they can get, try to avoid doing business with them in the future. Ask your lawyer about adding clauses in your contracts to protect the confidentiality of your bid. You won’t be able to get rid of bid shopping entirely, but you can establish yourself as an above-board contractor who prizes a healthy industry. You’ll be able to build more credibility with that view anyway.

Bid shopping is a problem in construction, but if you know what to look for, you can generally avoid it. For more advice about getting started in construction, visit CSLS today!

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