"Stacking Atoms" is a series by Foundamental that explores construction's unique processes, hidden workflows, and unwritten rules and norms across different segments, stakeholder profiles, and global markets. Stacking Atoms is for all those hungry to learn about construction and AEC - the founders, the innovators, and the experts with a passion to pick up new knowledge about the building-world. Our intention is not to perfectly describe the last bit of detail - a monumental task we would never succeed in, anyway, as that knowledge lives in the minds of construction's best practitioners. Rather, we aim to spotlight a good amount of detail so the brightest founders and innovators can connect with the brightest minds in construction around the workflows that matter.

Understanding the Practice and Its Impact

What Is Bid Shopping?

Bid shopping is a controversial practice in the construction industry where general contractors take a subcontractor's bid and shop it around to competitors to secure a lower price. This typically occurs after a general contractor has been awarded a project based on the original subcontractor bids. The general contractor then approaches other subcontractors, revealing the initial bid amount and asking if they can beat it, essentially using the first bid as leverage to drive down costs.

The Mechanics of Bid Shopping: How It Works

The process of bid shopping typically follows a predictable pattern. Subcontractors submit their bids to the general contractor for specific portions of a construction project. After the general contractor wins the project contract, often using these subcontractor bids to formulate their overall project bid, they approach other subcontractors with the initial bid amounts and request lower prices. This creates a situation where the general contractor plays subcontractors against each other to drive down costs, sometimes giving original subcontractors a chance to rebid against the new lower prices.

This practice is most common in competitive bid environments where price is the primary selection criterion, rather than in negotiated contracts where qualifications and relationships may carry more weight.

The Controversy: Why Bid Shopping Is Problematic

Negative Impact on Subcontractors

Bid shopping is widely criticized within the construction industry for several reasons. It forces subcontractors to work with minimal or unsustainable profit margins, often leading to quality concerns when subcontractors must cut costs dramatically. The practice damages relationships by eroding trust between general contractors and subcontractors, and raises ethical questions about the integrity of the bidding process.

Legal and Ethical Considerations

While bid shopping is generally legal in most jurisdictions, many industry organizations consider it unethical. Some jurisdictions have enacted laws to curb the practice, including bid listing laws that require general contractors to use the subcontractors listed in their original bid, prompt payment regulations designed to protect subcontractors from financial manipulation, and industry codes of ethics that explicitly discourage the practice.

Prevention Strategies: How Subcontractors Protect Themselves

Subcontractors have developed various strategies to protect themselves from bid shopping. Bid security measures include bid depositories where all subcontractor bids are submitted to a neutral third party, sealed bid systems that prevent general contractors from seeing bid amounts until after submission deadlines, and pre-award agreements that contractually prevent bid shopping.

Strategic approaches include building strong relationships with ethical general contractors, demonstrating value beyond just price, and selectively choosing to work with general contractors known for fair practices.

The Digital Transformation: How Technology Affects Bid Shopping

Modern construction technology is changing how bid shopping occurs and how it can be prevented. Online bidding platforms increase transparency in the bidding process, while blockchain technology provides immutable records of bid submissions. Project management software documents all communications and agreements, creating more transparent and fair bidding environments that potentially reduce opportunities for bid shopping.

Industry Best Practices: Ethical Alternatives to Bid Shopping

Forward-thinking construction companies promote alternatives to bid shopping such as Integrated Project Delivery (IPD), which brings all parties together early in the process, and design-build contracts that align incentives between contractors and subcontractors. Transparent bidding processes like open-book estimating and best-value selection consider factors beyond just price in subcontractor selection.

The Future of Construction Bidding: Trends and Innovations

The construction industry continues to evolve, with increased regulation in more jurisdictions introducing laws to prevent bid shopping. Digital transformation is creating more transparent bidding environments, while skilled labor shortages are giving qualified subcontractors more leverage. There's also an industry-wide shift toward more collaborative project delivery methods.

Conclusion: Building a More Sustainable Construction Industry

Bid shopping remains a contentious issue in the construction industry. While it may appear to offer short-term cost advantages to general contractors and project owners, the long-term consequences can include reduced quality, damaged relationships, and an unsustainable race to the bottom on pricing.

The industry is gradually moving toward more collaborative, transparent, and value-focused approaches that recognize the importance of fair treatment of all project participants. By embracing ethical bidding practices, the industry can build more sustainable relationships and ultimately deliver better projects.

FAQs About Bid Shopping in Construction

Is bid shopping illegal?

Bid shopping is generally not illegal in most jurisdictions, though it is widely considered unethical within the construction industry. Some regions have enacted specific laws to prevent or limit the practice, such as bid listing requirements that force general contractors to use the subcontractors named in their original bid.

How can subcontractors protect themselves from bid shopping?

Subcontractors can protect themselves by using bid depositories, building relationships with ethical general contractors, clearly demonstrating their value beyond price alone, and being selective about which projects they bid on. Some also include contract clauses that prevent their bids from being shopped.

Does bid shopping actually save money?

While bid shopping may appear to reduce initial costs, it often leads to higher total project costs due to quality issues, delays, change orders, and strained relationships. Studies suggest that the practice frequently results in false economy, with any short-term savings being offset by long-term problems.

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