Like bid listing, bid depositories are another method of fighting the practice of bid shopping. Let’s briefly review what happens on bid day because of bid shopping. First, the vendors hold back their prices until the last moment for fear of being shopped by the subcontractors. Next, the subcontractors hold back their bids until the last moment for fear of being shopped by the general contractors. Then, the GCs only have a few minutes to understand and compare dozens of bids before they must complete their paperwork and deliver it to the required location on time.
But, wait! While all this is going on, the fixture price got shopped, and we have a new number. Quick! Recalculate our bid, and get on the phone to the seven GCs with the new number. Now the generals are cursing because they already sealed their envelopes. It’s a madhouse for everyone involved. (In spite of all this, I actually enjoy bid day, including getting pizza after the bid.)
All of this drama could be lessened by using a bid depository. The theory behind bid depositories is this: by having a third party manage the bid, last-minute panic and bid shopping can be eliminated.
To shop or not to shop?
So how did the depositories stop bid shopping? Each one had different rules, but the following was fairly typical: The subcontractors would turn in their bids to the depository by a set closing time. After recording the bids, the depository would make the subcontractor bids available to the GCs at a specified time several hours before the bid closing. The general contractor would then turn its bid, with listed subcontractors into the depository, to be forwarded to the owner. Theoretically, this stopped bid shopping because the general was obligated to use the numbers provided by the bid depository. If the GC tried to use a different number, its bid could be nullified.
You may have noticed that the last paragraph describes bid depositories in the past tense. That is because most of them no longer exist. Some for good reasons, such as corruption. Others were sued under antitrust laws, and most of the depositories lost their cases, as the courts found that they were restricting trade. A current factor causing headaches for bid depositories is the upswing in the popularity of design/build and construction management methods of project delivery. These methods bypass the hard bid process, precluding the use of depositories.
As part of my research for this article, I spoke at length to three of the surviving bid depositories: Southern Nevada Sub-Contractors’ Bid Depository, Builders Bid Service of Utah, and British Columbia Construction Association in Canada. The U.S. depositories I spoke to are completely voluntary, thereby not breaking the antitrust requirements. However, the courts in Canada allow required participation in a depository. In all three cases, the GCs are allowed to take outside bids and may list any subcontractor they want at any price they want.
So how does that stop bid shopping? It doesn’t. None of the people I spoke with could tell me that they can stop bid shopping under the current laws. However, they can encourage bidders not to participate in it, and some require participants to sign an agreement stating they won’t.
What’s in it for me?
There are several reasons to use a bid depository. All three services to which I spoke had two benefits in common. The first is transparency, as the bid results are public. It can be very apparent when a GC is shopping bids. Second, the depositories create a common scope for the subcontractors to bid on. This eliminates the headaches general and subcontractors have getting the bids to be “apples to apples.” Beyond these reasons, each service may have its own added value. For instance, the Southern Nevada Sub-Contractors’ Bid Depository acts as a plan room, and Builders Bid Service of Utah provides online profiles of subcontractors. The British Columbia Construction Association, being in a better legal position, offers even more perks. In addition to the standardized scope, it requires the use of a nationally recognized contract, which must be given to the listed subcontractors. They also require a bid bond, which makes the GCs happy.
So who pays for all of this? You do, of course. Each service I spoke with was a little different. Often, the low subcontractors pick up the tab. Strangely enough, as a result of a law suit against Builders Bid Service of Utah, it can now charge a GC if it lists nonparticipating subcontractors.
Would I participate in a bid depository? I believe so. The standardized scope alone is worth the price of admission. Knowing exactly what I am bidding up front would save time and anxiety.