Davis Stirling.com Reader Asks About BID SHOPPING-From Our Friends At Adams Kessler PC

Reprinted from
Davis-Stirling.com by Adams Kessler PLC

BID SHOPPING

QUESTION: I would appreciate your comments on whether bid shopping by a board of directors is a violation California law or a violation of the Code of Ethics by a certified manager.

ANSWER: There are two types of bid shopping and both are considered unethical because of the unfair competition involved.

Pre-Award Shopping. 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 yet again with a another round of bid shopping.

Post-Award 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.

Negative Impact. 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. Some states have made efforts to curb this practice. Those efforts have been largely unsuccessful.

Managers. I reviewed the Codes of Professional Conduct posted by the Community Associations Institute (CAI) and the California Association of Community Managers (CACM) on their websites. They don't directly address bid shopping but their ethics standards are broad enough to cover the practice. In 5-01(b) of CACM's Standards of Practice:

[Managers] shall employ a sealed bid process wherein all bids are received sealed and are opened in the presence of the client board or its designated representative other than the Member.

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."

RECOMMENDATION: I know that boards and managers who engage in bid shopping have good intentions but the practice is not ethical. Moreover, using it to save a few dollars may actually backfire and cost the association more money than it saves.