Bid Shopping: Legal Insights and Impacts on Construction Contracts
Definition & Meaning
Bid shopping is a practice in the construction industry where a contractor or subcontractor shares their bid with other potential contractors or subcontractors before a contract is awarded. The goal is to obtain a lower bid, which can lead to reduced costs for materials and labor. However, this practice can compromise the quality of work. To address these concerns, several states have enacted anti-bid shopping laws that require general contractors to disclose the subcontractors they intend to use in their bids. Once a bid is accepted, contractors cannot change their listed subcontractors. Additionally, there is a related practice known as "reverse auction," where bids are submitted online, and each new bid must be lower than the last.
Legal Use & context
Bid shopping is primarily relevant in construction law. It is often addressed in contracts and procurement processes. Legal frameworks in various states may include regulations that aim to protect the integrity of bids and ensure fair competition among contractors. Users can manage related forms and procedures through resources like US Legal Forms, which provide templates for contracts and agreements that comply with local laws.
Real-world examples
Here are a couple of examples of abatement:
- Example 1: A general contractor submits a bid for a construction project and lists subcontractor A for plumbing work. After winning the bid, they cannot replace subcontractor A with subcontractor B, even if subcontractor B offers a lower price.
- Example 2: In a reverse auction scenario, a contractor posts their initial bid online. Other contractors then submit lower bids until the auction closes, potentially compromising the quality of the project in pursuit of the lowest price. (hypothetical example)