Briefly defined, the term bid shopping describes the practice of obtaining a bid from a potential supplier and then taking that bid to one or more other suppliers to see if they will match or beat it.
The fact suppliers do not like this practice is hardly surprising. Suppliers want higher prices rather than lower ones.
Courts that hear complaints from suppliers that customers are threatening the integrity of a market and depriving taxpayers of the full benefits of fair competition ought to exercise a degree of healthy skepticism with respect to such complaints.
The function of competition is to get as low a price as possible. Bid shopping serves that end. In contrast, as a general rule, it is in the interests of suppliers to restrict competition as much as possible, so as to get a higher price.
Accordingly, there is something inherently suspicious when suppliers complain that competition is being restricted; and there is something preposterous about such complaints when what the complaints boil down to is the fact that a price has been lowered as a result of what has been done.
Low prices are the result of competition, not a deprivation of the benefit of competition.
The one situation in which bid shopping clearly appears objectionable is where there is a collusive arrangement between a favoured supplier and customer. This is to the general effect that any price obtained through the use of a request for tender will be provided to the favoured supplier so that it can offer an equal or more competitive price, with the certainty that the contract will be offered to them if it is inclined to take at or below the best price obtained through the tender.
In such a case, there is nothing genuine about the request for tender at all. It is a mere sham used by a customer and seller who are clearly not dealing in an arm’s length manner to set the price for their contract.
Such a technique is in bad faith unless it is clear to all who submit their bids that they are being asked to submit them solely so that the customer and an existing or preferred supplier can settle the present market price between them.
Nevertheless, at least for the moment, the law clearly takes a dim view of the practice of bid shopping.
Bid shopping is to be contrasted with the type of negotiating that becomes necessary where no suppliers submits a bid that meets a budget ceiling. In Dolyn Developments Inc. v. Paradigm Properties Inc. the plaintiff, Dolyn, was one of only four pre-qualified bidders approved by Paradigm in an invitation to tender.
Dolyn submitted a bid with a price of $149,690.86 ($139,898.00, plus GST), which was the lowest among three bids submitted. After the close of tenders, Paradigm informed Dolyn that all bids received were in excess of Paradgm’s budget of $130,000, and that all bids were rejected.
Only two cost-saving suggestions made by Dolyn could be relied upon to reduce costs by approximately $3,300. Paradigm asked Dolyn whether it could complete the project starting the very next day with the two cost saving changes for a price of $130,000 plus GST, instead of its adjusted price of $136,598 plus GST. Dolyn refused.
Two days later, Paradigm contracted the second lowest bidder, but it also declined Paradigm’s offer to award the project for its budget price of $130,000 plus GST.
The second lowest bidder agreed to complete the contract for a total price of $136,000 plus GST, a price that was only $598 lower than Dolyn’s adjusted price. The award of the contract to the second lowest bidder was upheld.
The fundamental objective in public procurement is to get a fair price for the taxpayer.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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