Legal Blog

Bid Shopping

Bid shopping occurs when a contractor obtains a price from a sub and then uses that price as a bargaining chip to bargain with other subs. Does it also occur when a general goes back to a sub, or a sub goes back to a subsub, and asks for a price revision? This question was answered in the case of Western Plumbing and Heating Ltd. v. Industrial Boiler-Tech Inc., a 1999 decision of the New Brunswick Supreme Court.

Facts 

A sub prepared a tender for a general. It obtained from a supplier a price of $52,000 for boilers and incorporated that price into its tender. Forty-six days after the tender opening, it was awarded the job by the general. An employee of the sub then went back to the supplier and asked the supplier to reduce the price to $50,000. “Why?”, the supplier asked. “Because there is another bid of $50,000,” the employee replied. This was nonsense. There was no other bid. The employee’s “job was to obtain better prices than those quoted and he had looked at the price of $52,000 and ‘figured’ that asking a price drop of $2,000 would not be too much.”

Of course, the supplier had to review its quote. On review, it realised that it had made a mistake; it revoked the old quote and quoted a new amount of $74,000. The sub then issued a purchase order for $52,000. The supplier refused to supply; and the sub took the next best price of $66,000 and sued for $14,000.

Nemesis 

The judge first looked at whether the supplier was bound to keep its quote open for acceptance, even though it knew nothing of the details of the original call for tender. The judge held that there was an implied term of the contract that the quote be held open for 30 days. Since the first telephone call from the sub to the supplier was 46 days after the tender, the supplier had a right to withdraw the quote before it was accepted.

The judge noted that the sub never accepted the quote in its first conversation and purported to accept the quote only after the quote had been withdrawn. This was too late. There was no contract.

Sham on You 

The sub’s action against the supplier was dismissed, a result that followed naturally from the judge’s findings of fact.

The truly interesting aspects of the case arise from the judge’s comments about the sub’s practise of negotiating lower prices.

“It is my conclusion, in the circumstances as described to me by the various witnesses, that the contractors and subcontractors have turned the tendering process into a sham. The assertion that the practice described to me is not bid shopping appears to be sophistry and hypocritical. The practice encourages subcontractors and suppliers to put in inflated bids, keeping in mind that ultimately the contractor will attempt to force them to lower their prices. The lowered price will result in a profit to the contractor, but with no saving to the owner. This practice will ultimately defeat  (and arguably has done so) the value of a bona fide tendering process. In effect, Western has by this action requested the court to validate the bargaining process as I have described it. I will not do that.”

The judge goes on to say: “The process of bid shopping is destructive of the tendering system. In my view the process followed by Western amounted to bid shopping and as described to me borders on deceit.”

Them there are fightin’ words.