THE AGREEMENT NOT TO BID SHOP

Although most contractors, subcontractors and suppliers profess that bid shopping is unethical, it is still a common practice in the construction industry. Bid shopping occurs when a contractor takes the low number (price) for a bid, and then asks other bidders if they would like to match or beat that number. In public sector construction, bid listing is an attempt to prevent bid shopping. In private sector construction, bid shopping is primarily a matter of business ethics and agreement between the parties. If they feel that the contractor is going to bid shop, many subs and suppliers will leave some "negotiating room" in their initial bid. By agreeing not to bid shop, i.e. by agreeing that the general contractor will accept the lowest responsive bid, the subcontractor or supplier is encouraged to give his best price up front. If a subcontractor or supplier is able to get a general contractor to agree not to bid shop, then he knows that he is considered "qualified" to do the work in the eyes of the general.

There is little doubt that a written contract not to bid shop, properly drafted and signed by both parties, would be binding on the parties. The oral agreement not to bid shop is likewise enforceable, but subject only to proof by testimony, usually conflicting.

A recent case involving highway construction in Jacksonville illustrates an enforceable oral agreement to not bid shop. [W.R. Townsend Contracting, Inc. v. Jensen Civil Constr., Inc., 728 So.2d 297 (Fla. 1st DCA 1999)] In this case, the general contractor on a $21 million job solicited a sub-bid from a reluctant supplier of fill material. (The sub intended to bid only to the general contractor that he preferred, but was persuaded to bid to this general after they made an agreement not to bid shop.) The allegations contained in the Complaint indicated that the general contractor and the supplier orally agreed that the supplier would provide the material and the general would buy the material at the quoted price on the condition that (1) the supplier's price was the lowest price at the time of the bid and (2) the general contractor won the bid. When the general contractor won the bid, he attempted to negotiate a lower price with another supplier, i.e. he engaged in bid shopping. The sub filed suit.

The court held that the allegation contained in the supplier's Complaint were sufficient to establish a claim for (1) breach of an oral contract, (2) promissory estoppel, (3) unjust enrichment, and (4) fraud in the inducement. This means that the supplier was allowed to proceed with the lawsuit, i.e. that the suit wasn't thrown out at the motion to dismiss phase of the proceeding. We can't tell from this stage of the case whether the sub ultimately won the case, or whether it settled.

The lesson is clear. Contractors, subcontractors, and suppliers can agree to not bid shop. In order to make proof of an agreement to not bid shop easier, it is better to have that agreement in writing. One way that subs deal with this is to include a condition in their written (fax) bid that the bid will not be shopped, and is accepted if there is any evidence of shopping the bid. Even with an oral agreement, where there is sufficient evidence of the agreement and shopping, a bidder may be able to recover on that basis.