There are two types of bid shopping and both are considered unethical because of the unfair competition involved.
The first type is called pre-award bid shopping and occurs when a board or manager receives bids on a project and instead of awarding the contract to the best bid takes the lowest bid without the contractor's knowledge or approval and discloses it to other contractors. The board or manager "shops" the bid in an effort to get new proposals below the original bid. At that point, the board may award the contract to a new low bidder or squeeze everyone again with another round of bid shopping.
The second type is called post-award bid shopping. This one is done by the general contractor after the association awards him the contract. It is done without the association's knowledge or approval. The general takes his subcontractors' bids and shops them in an effort to drive down the costs he quoted the association. He does not pass the savings on to the association. Instead, he pockets the difference.
Using a legitimate bid to chisel down other bidders can significantly impact work quality. Contractors will cut corners by substituting cheaper materials and inexperienced labor in an effort to make a profit. Another problem is that most vendors will stop doing business with associations that bid shop.
. The Community Associations Institute (CAI) does not directly address bid shopping but its code of ethics is broad enough to cover the practice. Paragraph 14 of CAI's Professional Manager Code of Ethics states that managers shall "Not engage in any form of price fixing, anti-trust, or anti-competition."
"Spec" bidding used by some associations is not the same as bid shopping. Boards that want to budget for a future project may ask one or more contractors to provide a "ballpark" bid on the project. The contractors are told up front the purpose of the bid.It allows the association to set aside funds for capital improvements. Once they get closer to the actual project, formal bidding can take place and a contract awarded. There is nothing unethical with this practice. Boards should to be aware that informal bidding for budget purposes may not be very accurate since specifications at this early state are generally very loose or nonexistent. As a result, there may be significant changes in the budget once the project actually goes to formal bidding.
: Associations needing legal assistance can contact us
To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter