Masonry Magazine February 1961 Page. 26
By Peer Pedersen
Legal Counsel
Mason Contractors
Association of America
BID DEPOSITORIES IN THE CONSTRUCTION INDUSTRY
Bid depositories are vital to the construction trade as they inhibit destructive practices which, if uncontrolled, may result in bankruptcy for small subcontractors. Here the author describes some aspects of bid shopping and how the industry can combat this practice with bid depositories.
This article is devoted to the topic of the operation and legality of bid depositories. A bid depository is a facility established, maintained and operated by a group of subcontractors through which bids are received and processed and made available to general contractors in accordance with the rules for the operation of the bid depository. The prime objective of a legal bid depository is the prevention of bid peddling and bid shopping-practices which may cause great harm to mason contractors.
Bid Peddling/Bid Shopping
Bid peddling refers to an invitation by a subcontractor to "haggle" over a bid submitted to a general contractor. If the invitation to reduce the bid comes from the general contractor, the practice is known as bid shopping. Such procedures are quite common when subcontractors' bids are submitted long prior to the final award of a general contract. But quite typically, a bid depository plan requires the opening of bids by the agency a mere few hours before the opening of bids by the awarding authority. Further when a bid depository plan is employed, there is generally some restriction upon withdrawal of bids once submitted, along with a provision for secrecy which prevents the general contractor from "shopping."
Bid depositories are extremely vital to the construction trade since they inhibit destructive practices which, if uncontrolled, may result in bankruptcy for small subcontractors. Some of the results of bid peddling and bid shopping are listed below.
A bid peddler or a subcontractor responding to bid shopping may not submit a bid in the early bidding, but rather may wait to see what others bid on a project, and then submit a lower bid, in this manner saving himself the expense of preparing a bid.
If subcontractors fear bid shopping, they may hesitate to bid until the latest possible time, thus making it extremely difficult for the general contractor to prepare his bid for the awarding authority.
Many subcontractors will not bid on a project which they fear will involve bid shopping, or if they do bid, they will "pad" their bids in order to be able to reduce them at a later time.
Finally and most important, perhaps, the typical bid depository agreement provides that if a contractor accepts bids through the depository, he will accept the lowest bid offered through the depository. In this manner, the contractor is prevented from shopping for a lower bid once he has obtained the award of the general contract.
With the award in his pocket, the contractor may exert strong pressures to lower bids previously received. He will have made his bid on the basis of previously submitted bids from subcontractors, thus assuring himself of an ordinary profit, but after receiving the award, a windfall profit is his if he can lower the prices of bids previously received. Such practices may create havoc in an industry of small businessmen, no one of whom has the power to reject the pressures exerted by a large contractor.
Public Opinion As Weapon
The depository, as a facility to inhibit destructive practices, must use as its chief weapon the force of public opinion in an industry. If a contractor accepts the low bid through the depository, and then begins to "shop," the depository should bring to bear the reprehension of an industry upon one who would use his power for his own personal advantage. However, sanctions employed against suppliers or contractors by the bid depository will be held to be instances of concert of action prohibited by the anti-trust laws.
The history of bid depositories is replete with examples of plans which have been stricken down by the courts because of sanctions involving concert of action. Boycotts have been instituted against suppliers of low-bidding subcontractors, and against contractors who refused to deal with the bid depository. The assistance of labor unions has made these sanctions effective.
Here it should be noted that when participating in a boycott or in an attempt to fix prices, labor unions are not exempt from the criminal provisions of the anti-trust laws. Allen Bradley Co. v. Local Union No. 3, 325 U. S. 797 at 801 (1945), either the distribution of bids prior to the official opening of bids among contributing bidders, or the employment of an official estimator by the depository also constitute violations in that they represent attempts to fix prices.
Rules to Be Followed
These are some rules which should be followed by those who wish to use the bid depository plan of operation:
Depositories should be open to all who wish to use their services-subcontractors and general contractors alike.
The opening of bids should be subject to advance notice. No disclosure of bids should be made to subcontractors or contractors prior to this time.
Once submitted, bids should be withdrawn only for clear error, in or-(Continued on page 30)
MASONRY FEBRUARY, 1961