Oppose Unsound Bid Shopping Legislation

Background:

• In 1995, the Associated General Contractors of America, the American Subcontractors Association, and the Associated Specialty Contractors issued this joint statement on the issue of bid shopping and bid peddling: “Bid shopping or bid peddling are abhorrent business practices that threaten the integrity of the competitive bidding system that serves the construction industry and the economy so well.” AGC strongly believes that bid shopping and bid peddling cannot sustain long-term working relationships between prime and subcontractors.

AGC Message:

• H.R. 3854 Imposes Unreasonable Penalties on Prime Contractors that are Unfair and Overreaching. This legislation places prime contractors in a position to bear the full brunt of any penalty imposed, regardless of whether or not the prime contractor engaged in the prohibited behavior. The bill goes further to assure that a prime contractor, as the only party with a direct contract with the federal government, would be liable even in instances where the subcontractor is the sole party engaging in bid shopping. Furthermore, the bill fails to provide any mechanism to permit the federal government or the prime contractor to recover directly against a subcontractor engaging in bid shopping.
• The Legislation Applies the Concept of Liquidated Damages Inappropriately. The penalty portion of the bill clearly imposes liquidated damages as penalties to dissuade parties from engaging in bid shopping. As a general legal principle, liquidated damages are not enforceable if they constitute a penalty. Such damages must be reasonable in proportion to the actual damages suffered, and unreasonably large liquidated damages are void as penalties. The bill then ties in the imposition of liquidated damages as a new cause for suspension and debarment, putting the act of bid shopping on the same level as a criminal conviction or civil judgment, ranking it among the most serious violations a contractor could be accused for under the Federal Acquisition Regulation.
• Bid Peddling is Inexplicably Not Addressed in Bid Shopping Legislation. The legislation fails to address the act of “bid peddling” by not establishing any penalties if a subcontractor or supplier requests information from a contractor regarding any “sub-bid” in order to submit a lower proposal on that project.
• Bid Shopping Legislation will Likely Drive Contractors out of the Federal Procurement Market. This legislation is not supported by any federal government study, is not requested by any federal entity, and is not considered common commercial practice within the construction industry. Under the current debarment and suspension procedures of the Federal Acquisition Regulation (FAR), causes for debarment require conviction of or civil judgement for such actions as fraud, embezzlement, forgery, tax evasion, receiving stolen property or engaging in criminal offenses to obtain or perform a public contract or subcontract. This bill now adds “bid shopping” to that list, placing the imposition of liquidated damages on the same level as a criminal conviction or civil judgement as sufficient justification to warrant a suspension or debarment proceeding. The “criminalizing” of the unreasonable and overreaching penalties create a significant disincentive for entering the federal construction market.

AGC Opposed Legislation:

• H.R. 3854 - Construction Quality Assurance Act of 2007
  • 10/16/2007 - Introduced