Construction companies and contractors know how important it is to have strong working relationships with subcontractors to execute construction projects. Simultaneously, it’s also important to ensure that your company is getting the best rates from subs to reduce project costs and maximize profit.
These competing interests can introduce ethical issues around bid shopping in construction, especially if your company attempts to manipulate the bidding process through unsavory practices.
In the latest edition of our Ethics for Constructors series, we will examine this key ethical issue to help you identify when bid shopping crosses the line from attempting to run a successful construction business to possibly committing a violation.
An Example of Bid Shopping in Construction
– Ethics in Construction Situation: Let’s say that you work for a general contractor. The management team has determined that every subcontractor that wants to work for your company needs to attend a four-hour seminar to be held by the company.
The seminar will teach subcontractors how your company expects subcontractors to bill projects, keep records, meet performance requirements, and follow other processes utilized during each project.
Additionally, a subcontractor cannot bid on a project without having first attended the seminar. There is also a $1,500 fee that a subcontractor must pay for each employee that would be expected to work on the project to attend the seminar. Is this approach to bid shopping ethical?
– Ethics in Construction Answer: There certainly appears to be an unethical component of this plan. However, as means to pre-qualify contractors for the project, it would appear to be an effective means of doing business.
If your company finds itself in this situation, then it’s important for to check each project’s bid requirements to determine if the seminar would violate the bidding process. If your company has set an open bid process that includes subcontractors and suppliers, the seminar would appear to violate that type of process.
Also, certain U.S. states have bidding laws. Ensure that your company reviews the contractor requirements in the state where the project will be taking place. Requiring a subcontractor to pay a fee to bid on a project could run afoul of the law.
Balancing Competing Interests Running a Construction Business
Ethical issues around bid shopping are common in the construction industry. We understand the desire to have several subcontractors compete for work in an effort to reduce prices. However, these issues need to be dealt with carefully.
Your company should strive to stay on the right side of the law, maintain ethical practices, and support valuable working relationships with subcontractors.
Trying to cut costs by pitting subcontractors against each other or trying to whittle down the list of potential subs through a complex pre-qualification process could end up hurting your company in the long run.
– To learn more about how to address these types of intricate ethical issues, we encourage you to become an AIC member. We offer the opportunity to learn from professionals who have been in your shoes making critical decisions in complicated situations. Take advantage of our vast wealth of knowledge to support your company.
– We also encourage you to subscribe to the AIC email newsletter. You’ll receive valuable information about construction ethics directly to your inbox. Visit the email sign-up box at the bottom of this page and enter your email to start receiving our newsletter.