What is Bid Shopping?

In Canada and some other jurisdictions, there is a concept known as bid shopping in which the Owner leverages one bid against another to gain an advantage. In The Origin Story of Contract A and Contract B, I covered how bidders are obligated to commit to their bids as submitted. However, Owners, as an extension of the formation of Contract A, are also obliged not to leverage bids to unfairly treat the bidders. The case Stanco Projects Ltd. v. B.C. (2006), 226 B.C.A.C. 210 (CA), is a well-cited and definitive case that illustrates bid shopping.

The British Columbia Ministry of Water, Land and Air Protection (Owner) intended to update a water system that included two epoxy-coated tanks. The Owner engaged consultant Aplin & Martin (Alpin) to prepare a tender package for the job. After the tenders were opened, the Owner decided to change the scope of the work and install one tank instead of two. Stanco Project Ltd. (Stanco), the lowest bidder, was asked to break down its price to provide a price for just one tank. However, after Stanco provided the price for one tank, Alpin issued an "offer of credit" requesting the same information from the other bidders. Stanco, after having learned about this, refused to submit the "offer of credit", and another bidder was awarded the revised scope. Stanco then sued the Owner for breach of contract, and the Owner, in turn, brought a third-party claim against Aplin for breach of contract and negligence.

The original trial found the Owner liable but excused Alpin. In appeal, the trial judge found that Alpin had contributed to the breach and was therefore liable to the Owner for damages.

Here is part of Madam Justice Ballance of the British Columbia Supreme Court's ruling:

…conduct where a tendering authority uses the bids submitted to it as a negotiating tool, whether expressly or in a more clandestine way, before the construction contract has been awarded, with a view to obtain a better price or other contractual advantage from that particular tenderer or any of the others. What I am speaking of here is bid manipulation which can potentially encompass as vast a spectrum of objectionable practices as particular circumstances may make available to a motivated and inventive owner, intent on advancing its own financial or contractual betterment outside the boundaries of the established tendering protocol.

Tips to Avoid Bid Shopping

• Have a well-defined scope - well-defined scopes are less likely to require changes that open opportunities for bid shopping mistakes.

• Create a granular breakdown of the scope - this builds in flexibility by enabling direct price comparisons to award separate parts of the scope if the original scope is not required. This applies when an item is not required or if the quantity of an item needs to be changed.

• Transparent bid clarifications and communications - communications should be open and consistent to all bidders so they have access to the same information. Communications after bid closing should be avoided if possible.

• Use Request for Proposals (RFP) rather than a tender process - proposals in an RFP are not binding. Evaluations may be more complex, but it is less risky as the proposals are expected to vary by proposal in addition to specific priced elements.

• Cancel and retender if circumstances change or if no acceptable bids are received.