Bid Shopping + Bid Peddling: What It Is, Why It Hurts, and What Can Be Done About It?

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Bid Shopping/Bid Peddling:
Presented by Eric B. Travers, Esq.
December 2015
LMCI/FIF Convention
Las Vegas, NV
What it is, why it
hurts, and what can
be done about it?

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Introductions
Construction Law Attorney
18+ Years Practicing
General Counsel to the American
Subcontractors Association since 2006

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Understanding
Bid Shopping +
Bid Peddling
Legal + Ethical
Problems
Practical Options
Today’s Program

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What is Bid
Shopping?
General Contractor uses a sub’s
bid to win a contract
But then discloses the sub’s
bid price to one or more
competitors
If competitor agrees to ‘beat’
original sub’s price, GC awards
subcontract to competitor
And GC pockets difference

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Post contract award, GC goes
back to sub to ‘chisel down” its
quoted price
Implicit (or explicit) threat that
sub will not get the subcontract
unless it lowers its bid price
If sub agrees, GC awards
subcontract to the chiseling sub
GC pockets difference
What is Bid
Chiseling?

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After Prime Bid is opened and
low GC is known, another sub
contacts GC
“Peddling” sub offers
to beat the low bid sub’s price
If GC agrees, awards
subcontract to peddler
And GC pockets difference
What is Bid
Peddling?

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Result?
All of these Inhibit the ability
of the contractors to offer
the best price + guarantee
quality of work produced

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Result?
Subs Suffer Owners Suffer
Good GCs
Suffer

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Only
Winner?
The Bid-Shopping GC

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What Does the
Industry Say about
Bid Shopping?

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“abhorrent”
“resolutely
opposed”

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“Bid shopping or bid peddling are
abhorrent business practices that
threaten the integrity of the
competitive bidding system that
serves the construction industry and
the economy so well.”
“The figures of one competitor
shall not be made known to
another before the award of the
subcontract, nor should they be
used … to secure a lower
proposal from another bidder.”

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“abhorrent”
“unethical”

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Canon #5
Professional estimators …shall conduct
themselves with integrity at all times …
1
“By not participating in bid
shopping… This practice is
unethical, unfair, and a direct
violation of this Code of
Ethics.” ….
4
“If not a violation of
applicable laws, a
professional estimator should
not provide quotes to known
bid shoppers.”

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Widely Condemned
but Widely Practiced

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80%
Know other who have
engaged in bid shopping
32%
Admit bid shopping or
peddling themselves
2008 Industry Survey

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How Do GCs
Justify Shopping?

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“I leverage one supplier
against another. Who
hasn’t gone to a car dealer
and said there is a better
deal down the street?
Should we be surprised if a
GC accepts a lower price
after a tender closes?”
* Actual Response (anonymous)
To 2008 Bid Shopping Survey
“This is free money to
the [general
contractor] and anyone
who doesn’t think it
will happen is naïve.”

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Many Courts
recognize the
dangers

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Sheet Metal
Employers’ Ass’n v.
Giordano

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Court of Common
Pleas of Cuyahoga
County, Ohio

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“Many hours are invested … in preparing a bid to the
… contractor. The latter may then proceed to play
one bidder against another, getting each in turn to
shave its bid as much as it will. Estimated profit is
drastically reduced and financial loss threatens.
There is little satisfaction in such a contract. The
temptation to do inferior work and to cheat is
strong.”
Sheet Metal Employers’
Ass’n v. Giordano

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Post-Award
Terminations for
Price Concessions
may be actionable
for lost profits

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Questar Builders, Inc.
v. CB Flooring, LLC
Post-contract GC terminated sub “for Convenience”
after finding lower priced subcontractor
ASA filed an amicus brief for the subcontractor
MD highest court found this violated duty of
good faith + fair dealing

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But Pre-Contract Award, the
Legal System Actually Protects
Bid Shopping/Chiseling

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How is a
Contract
Formed?
Bid = Offer
Contract not formed
until there is offer
and acceptance
GC gets job relying
upon sub’s bid

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Use of Bid to Win Job =
Detrimental Reliance
Sub now legally bound
by “Promissory
Estoppel”

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What is “Promissory
Estoppel”?
The legal principle that a promise is
enforceable by law when:
A person (the “promisor”) makes a
promise to another (the “promisee”)
And the promisee relies on the
promise to his or her detriment

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Promissory estoppel allows general contractors to hold
subcontractors to their bids, even if no formal
acceptance of the subcontract was ever made
Enforceable Rights
The Reason?
GC reasonably relied on the sub's bid when it used the
sub's price in submitting a bid to the owner
Because GC would be bound to owner to perform the
work for its bid price, it would have detrimentally relied
on sub’s bid. Promissory estoppel prevents that injustice

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If “Promissory
Estoppel” Applies
The GC who reasonably used the
sub’s bid can force sub to honor price
But generally, sub will not have right
to demand GC use it on the job
This creates a window of time where
there is no contract but the sub is
bound to the GC

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Promissory estoppel generally cannot be used
offensively by a sub against a general contractor
who has found another sub to replace it

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 Sub submits a low bid
 General Contractor uses that bid
to prepare its bid to the owner
If PE applies, sub is bound to the GC, but GC is not
required to give the sub a contract. Why? Most courts
reason that subs are not in the same legal position as the
GC because they are not in legal jeopardy the way the
GC is with the owner.

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Effects of Promissory
Estoppel?
Creates window in which GC can shop bid
without fear
Subs are bound to honor their price
But GC can shop, chisel, or listen to peddlers
without danger of losing the bid on which it
won the job

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Effects of Bid Shopping?
Defeats purpose of competitive bid system
Promotes use of lower-quality labor
Increases claims/change orders because it
incentivizes corner-cutting
Reduces competition: Some subs won’t bid,
over time others go out of business (profit
margins harmed).
Generally worsens business environment
All this can delay project completion

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Measures Available
to Mitigate?
1 Bid Listing
2 Bid Depositories
3 Self Help: Condition Your Bid

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What is Bid Listing?
Requirement that general contractor must
submit with its bid
1 a list of the subs it intends to use
2 the price of each subcontract
GC not allowed to substitute listed sub without
cause + must award subcontract at listed price

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States Have Bid
Shopping Statues10

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1 California
2 Connecticut
3 Delaware
4 Florida
5 Massachusetts*
6 New Mexico
7 New York*
8 Oregon
9 S. Carolina
10 Washington

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No, not this
What are Bid
Depositories?

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Generally speaking, subs would turn in
their prices to depository by a set time
Depository would make the sub bids
available to GCs
Bid Depositories?
GC would then turn in its price to the
owner and list its subs
A way for a third party to manage the bid
process

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Because GC was obligated to use the sub
$ provided by the depository
If it used a different $, its bid
could be nullified
In theory, Bid Depositories
Stopped Bid Shopping
Most Bid Depositories are now
gone (only Nevada + Utah
still have them)

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GC who Shops
or chisels
releases Sub
from its Bid
Value Engineering
Changing Scope
Attempting to Secure
Price Concessions
Other arguments

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Have these
arguments worked?

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Complete General
v. Kard Welding
GC bid shops
Loses promissory
estoppel protection
GC bid shopping =
rejection of sub’s bid
Because no reasonable
reliance on bid

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An Offeror is
allowed to control
the conditions of
their offer

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30
30 days
from the
date of
bid; or
Make Bid good for earlier of:

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1
1 business day
after opening
of GCs Bid +
Notification of
Award of GC
“This bid is only good until …

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Bid condition could also provide that the
bid price is confidential & any disclosure
to 3rd parties other than owner voids
bid/releases sub from its bid, & entitles
sub to damages (cost of bid preparation)
for the unauthorized disclosure.

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Attempts to use
Promissory estoppel
as a sword

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That states that you have devoted time
and resources to preparing the bid only
with the understanding that …
GC has promised to contract with you
subject to two contingencies:
Use promissory estoppel
as a sword
Obtain before bidding bid (or submit with
bid a cover letter)

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GC will contract with you
(accepts your bid) if:
Your bid was the
lowest for the work at
the time of the bid

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And Owner then:
Awards GC the Prime
Contract (or notifies
GC of the award)

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How Does
Conditioning
Your Bid Help?
A conditioned bid can nullify
promissory estoppel

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Promissory
Estoppel now
works for you
Your time & money to
prepare the bid is your
detrimental reliance on
GC’s (express or implied)
promise to award contract
and accept your conditions
Both Promissory estoppel
and Unjust Enrichment
claims now open to sub

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Electrical Construction &
Maintenance Co. v. Maeda
Pacific Corp.
GC bid shops
Using promissory estoppel
principles, court holds
for sub
Electrical sub bid on the
condition that it would be
awarded the job if it was
the low bid
Reverses trial court
dismissal of sub’s claim for
lost profit damages

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“We find no authority for the proposition that
ECM's submission of its electrical
subcontractor's bid constituted insufficient
consideration for [the GCs] bargained for
conditional promise to accept ECM's bid. ECM
was under no legal obligation to submit its bid.”
Electrical Construction &
Maintenance Co. v. Maeda
Pacific Corp.

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West Construction v.
Florida Blacktop
GC bid shops
Jury found that due to the
bid condition
GC had accepted bid +
agreed to contract by
using sub’s bid to win job
Appellate Court, however,
reversed

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West Construction v.
Florida Blacktop
Appellate Court based its
ruling almost entirely on
two ‘facts’:
The Sub failed to, in the
appellate court’s eyes,
prove the GC accepted the
condition.
And failed to establish the
GC’s use of its bid allowed
it to be the low bidder on
the Project

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Reject it When
GCs Threaten
to Shop

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"I am not in business to work at a loss. And, I am not
in business to lower quality on my jobs and
endanger a hard-won reputation for quality. So
when a general contractor shops or threatens to
shop my bid, I reject it. It's not worth the danger to
my company's reputation.“
John Fuqua, Carol Electric Co.,
Testimony on Capitol Hill, July 13, 2000

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Bid Shopping is
NOT going away
Most of All …
Good labor + quality work
perhaps hurt most by it

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Why Should Owners Care?
Lower quality labor or
materials = lower quality work
Less competition = higher prices
from the get-go + laundry list
of ills (more claims/delays/etc.)
No benefit of ‘savings’ from the
shopping/peddling/Chiseling

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Why Should the Public +
Political Representatives Care?
No benefits to taxpayers
Lower quality work
Worsening of competitive
bid system/degradation of
business ethics

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What Can Owners Do?
Doing nothing risks quality,
timeliness, & no savings
Use standard form documents
Require bid forms/listing, with
teeth for non-compliance

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What Can YOU Do?
Condition your bid
Educate owner about quality
risks if bid shopping not stopped
Lobby for legislative action

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Reducing Bid Shopping
Starts with YOU!

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Starts with YOU!
Educate Customers

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Starts with YOU!
Educate CustomersEducate Politicians

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Starts with YOU!
Educate CustomersEducate PoliticiansEducate Owners

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Starts with YOU!
Educate CustomersEducate PoliticiansEducate OwnersEducate Fellow Trades

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Most of All …
Don’t forget to
condition your bid

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www.asaonline.com
ASA on the members only side has
resources, sample language, and
information, on bid conditioning

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Thank You!
Eric Travers, Director
Kegler Brown Hill + Ritter
etravers@keglerbrown.com
keglerbrown.com/travers
614.462.5473

Bid Shopping + Bid Peddling: What It Is, Why It Hurts, and What Can Be Done About It?

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