The Hidden Cost of Construction Bid Shopping

On any construction project, a general contractor (GC) has an overarching goal: complete the required work with a profit margin. 

Because very few GCs self-perform a project in its entirety, they usually pay specialty contractors part of what they get from owners. Having those subcontractors do the necessary work for a lower price means a bigger profit for the GC.

As a result, it might seem like good business sense to apply practices that help GCs secure the lowest possible bid for subcontracted work. And in most cases, it is. But in the case of bid shopping, the effort to get a lower price can undermine relationships and lower the quality of the work.

In fact, the Associated General Contractors (AGC) of America issued a joint statement with the American Subcontractors Association and the Associated Specialty Contractors saying all three groups are “resolutely opposed” to the “abhorrent business practices” of bid shopping. Let's take a look at the practice of bid shopping in construction — and what generally makes it so frowned-upon.

What is bid shopping?

Bid shopping is a practice during which general contractors use numbers submitted in a specialty contractor’s bid to negotiate a lower price from that specialty contractor’s competitor. 

Or, as one academic study succinctly put it, bid shopping is “showing [another subcontractor’s] bid to a competing subcontractor in an attempt to secure a lower price.”

For example, say a GC solicits bids from a handful of electrical contractors. Three subcontractors submit a bid. The GC then turns around and calls a fourth electrical contractor, telling them the lowest number they have and asking them to beat it. That’s bid shopping.

This can happen at two points in the bidding process:

1. It can occur before the owner awards the contract to the general contractor during the bidding phase. The GC bid shops in an effort to bring down their own number and heighten their likelihood of landing the job.
2. It can occur after the contract has been awarded. In this case, the GC uses bid shopping to lower their project costs, increasing their profit margin. 

Is bid shopping illegal? Technically, no. 

That said, many industry professionals view this practice as unethical because it negates all the hard work and due diligence put in by the specialty contractors who initially bid the project. It eliminates a level playing field during bid evaluation, giving a competitive advantage to the specialty contractors the GC approaches during bid shopping. 

Bid Shopping vs. Bid Peddling

Bid peddling is a similar — and similarly frowned-upon — practice, but it’s perpetrated by the subcontractor rather than the GC. With bid peddling, the subcontractor waits until competitors have submitted bids, then approaches the GC and offers to perform the work for a lower price. 

Is bid shopping illegal?

Technically, there is no overarching federal law prohibiting bid shopping, nor are there similar state statutes. That does not mean, however, that bid shopping hasn’t landed GCs in hot water. 

Specialty contractors (and other general contractors) who pursue recourse against GCs they accuse of bid shopping usually apply the legal principles of "promissory estoppel" and "detrimental reliance." Paired together, that essentially means that the GC promised to use the subcontractor, and the subcontractor relied on that promise to their detriment. 

If, for example, a GC told the specialty contractor they planned to award them the contract, then turned around, shopped their number, and hired a different subcontractor, the first specialty contractor could have a legal leg to stand on. That’s particularly true if they had already allocated resources to the promised project. 

Because public projects are often high-value, specialty contractors tend to have more motivation to ensure their bid was fairly considered. As a result, many legal cases involving bid shopping center around public works. 

Take, for example, one California Supreme Court case. A construction company accused a school district of choosing a GC who it was assumed had plans to bid shop based on their long list of potential subcontractors. Similarly, bid shopping became the focus of a Philadelphia case. In this instance, a party bidding work at a pumping station accused the municipality of choosing a competitor that listed options for its suppliers rather than designating one particular supplier, keeping their option to bid shop those suppliers open.

As those cases show, intent is a key component in bid shopping. If the specialty contractor has reason to believe the GC is acting against them, they’re more likely to pursue legal recourse. 

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How Bid Shopping Affects Each Project Party

Bid shopping may seem like it primarily negatively affects specialty contractors, but it has the potential for downside for all parties involved on a potential project.

Owners

If a GC is bid shopping, they probably value their profit margin over just about anything else (including their reputation, since this practice is widely seen as unsavory). As a result, hiring the GC could mean putting the project in the hands of someone whose primary concern is dollars. In fact, that GC may be willing to nickel and dime the owner on change orders in an effort to drive up their own profits. 

Even if the GC does a thorough job managing the project without cost overruns, their bid shopping could put specialty contractors in a compromising position. If the subcontractor's bid-shopped number was tight to beat out the competition, the subcontractor might consequently need to cut corners to complete the project without taking a loss. All of the work that was completed to prove constructibility could be compromised. 

General Contractors

General contractors generally stand to gain the most from bid shopping. But they can also see serious fallout from deploying this practice. 

Choosing the lowest bid over one from a specialty contractor known for good, consistent work can create quality control issues. In fact, managing that subcontractor’s work can drive up the cost of general conditions, eating into the GC’s profit margin. 

Beyond that, word that the GC bid shopped can spread. If they get a reputation for bid shopping, specialty contractors may stop submitting their most competitive bids. They may pad their prices, or refuse to submit a bid at all. Moving forward, the reputation for bid shopping can make it significantly harder for the GC to fulfill project requirements that they don’t self-perform. In fact, they might not last long enough to see returns on the cost savings they reaped from bid shopping. 

Specialty Contractors

Specialty contractors are the big losers in bid shopping.  For the subcontractors who initially submitted a bid, the practice undermines the effort they put into creating a bid that accurately reflects their pricing. It often takes weeks and weeks (usually 2–4) to go through the drawings and specifications and put together the bid. With one afternoon of bid shopping, all of that work can be undone.

Even the specialty contractors who beat their competitors by working with a GC that bid shops can find themselves in a compromising position. The competition most likely submitted bids that accurately reflect the cost of the required work. Bidding below that means taking a smaller profit — or potentially even a loss. And once the GC learns that a specialty contractor is willing to perform that work for less money, they’ll expect similarly low pricing moving forward. 

Measures That Prevent Bid Shopping

Since bid shopping can negatively impact all parties, many understandably want to deploy measures to defend against it. 

On the owner’s side, that can mean sending out information in the invitation to bid that says they won’t accept bids from general contractors who bid shop. They may also ask GCs to submit a list of subcontractors they plan to use on the project — and to carefully review that list to ensure it isn’t overly extensive. 

Specialty contractors can reduce their risk of being bid shopped in two ways. First, they can wait until right before the GC’s bid deadline to submit their bid. While this won’t prevent the GC from bid shopping if they get awarded the contract, this does defend against getting bid shopped as the GC draws up their own bid. 

Secondly, specialty contractors benefit from being choosy about the GCs with whom they work. If the contractor is known to have a reputation for bid shopping and the sub doesn’t absolutely need the profit from the project, it’s best to steer clear. 

The Takeaway: Relationships Matter as Much as Numbers

Is bid shopping illegal? No. But does it hurt a fair bidding process, damage relationships, and lower profits for specialty contractors? Absolutely. 

Instead of bid shopping, GCs can take steps to ensure they’re getting the most competitive pricing from specialty contractors they trust. Strong relationships mean getting bids that are competitive and reliable. And that means working with solid partners on a project, helping to propel it to success — and mitigating unexpected costs that could eat into the GC’s profit. 

For owners and subcontractors, it’s equally important to build relationships with their partners on the project. When all parties — the owner, the GC and the specialty contractors — work together, they can move more effectively toward their goal. This helps to keep unanticipated expenses down, supporting everyone’s bottom line. 

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