In construction law, bid shopping is the practice of divulging a contractor’s or subcontractor’s bid to other prospective contractor(s) or subcontractor(s) before the award of a contract in order to secure a lower bid. Lowered bids may lead to cost cutting in the construction process, primarily in materials and labor, which may lower the quality of the work performed. At least seven states have adopted some type of anti-bid shopping legislation. These states recognize that bid shopping can result in poor quality, unfair competition and insolvencies. These statues require general contractors to list the subcontractors that they will use in their bids to owners. The general contractor cannot change subcontractors if its bid is accepted.
Another form of bid shopping is a practice known as a “reverse auction”. In this situation, the bids are posted on the internet and each subsequent bid must be lower than the previous bid. Legislation prohibiting bid shopping may be applicable based on the dollar amount of the contract, and may require cancellation of the contract and/or penalties for violations. Local laws should be consulted for specific requirements in your area.
Bid peddling is bid shopping in reverse. Bid peddling occurs when a subcontractor who is not selected for a construction project seeks to induce the prime contractor to substitute his or her company for a subcontractor on the original bid by offering to reduce its price.