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How No-Bid Contracts are Interfering with Competitive Bidding

How No-Bid Contracts are Interfering with Competitive Bidding

When searching through available contract opportunities, you may notice that some bids say “Sole Source intended” in the title. These are what government agencies call ‘no-bid contracts’. Unlike Requests For Proposal, which similarly don’t require a formal bidding process but do call for multiple bids to be submitted, sole source or no-bid contracts are used to hire a vendor as quickly as possible for a specific job, without the need for a competitive bidding process.

What is a No-Bid or Sole Source Contract?

When government agencies solicit for bids using the sole source model, what they are implying is that the items or services they are looking to acquire can only be provided by one person or one company. The argument presented by buying agencies in these cases is that if the agency was to call for multiple, competing bids on the contract, the selected “sole source” company would certainly bid on the contract, and would most likely win the award as a result. These types of contracts are usually for very specific items and the stated need for a no-bid contract is usually based on stated cost and urgency requirements. By making these arguments, agencies can be given the go ahead to hire contractors faster, and without competition, in urgent situations.

No-bid contracts tend to be easier to negotiate than open-bid opportunities because the vendor is usually awarded the price that they initially ask for, as they are the only supplier who can provide the agency with what they need. That being said, many agencies still try to negotiate the price of a no-bid contract down to try to save money. For an agency to be granted the ability to pursue no-bid contracts they must follow a rigid set of rules, and ultimately, sole source contracts are only awarded under very specific circumstances.

How No-Bid Contracts Hurt the Competitive Bidding Process and Lead to Wasteful and Inefficient Use of Public Funds

Many agencies recognize that no-bid contracts hurt the competitive bidding process and lower the chances for small businesses and startups to win government contracts. As more and more no-bid contracts are issued in the U.S., issuing agencies are needlessly spending an unknown amount of money by avoiding competitive bidding, ultimately misappropriating funds that could be better used elsewhere. By avoiding the competitive bidding process, the number of competing vendors who can bid on government contracts is reduced, creating a situation where agencies may not be getting a fair value price for the product or service they are purchasing.

It also creates risk that taxpayer dollars are being misused.  In 2009, President Obama made the argument to federal agencies that no-bid contracts were wasteful and inefficient; however just four years later, his office spent more money on no-bid contracts than in any year prior: In 2012 the federal government spent $115.2 billion on no-bid contracts, an 8.9% increase from the $105.8 billion spent in 2009, with the Pentagon topping the list of agencies that spent the most on no-bids after having allocated $100 billion to sole source contracts. The top recipients for these no-bid contracts were Lockheed Martin (awarded $17.4 billion); Boeing ($17.1 billion); and Raytheon ($7.04 billion)[i]. 

Government Crackdown on No-Bid Contracts

With the number of no-bid contracts being awarded on the rise, state and local governments have started to look into why so many opportunities are being awarded without a formal bid process via state audits. New York is one of these governments: The state found that sole source contracts issued by SUNY Downstate Medical Center and the Madison County school district provided two prime examples of no-bid contracts being issued rather going through a formal bid process. SUNY Downstate, located in Brooklyn, NY spent $1.3 million on a no-bid contract to upgrade their IT healthcare service; officials claimed that the project was “highly specialized” and that they complied with the applicable laws on non-compete contracts[ii]. The Madison County school district was criticized by New York’s State Comptroller’s office for spending over $119,000 on no-bids for seven professional service and insurance contracts[iii], for which the State Comptroller office could find no compelling reason why the two contracts were issued as sole source.

Competitive Bidding is Still Going Strong

Even with the increase in no-bid contracts issued by government agencies, competitive bidding is still going strong. Agencies rely on competitive bidding to help cut costs and find quality products and services they can purchase at reasonable prices. Competitive bidding also allows agencies to get to know the vendors they work with and what they sell, providing an opportunity for agencies to invite reliable vendors to bid on the next contract. It also gives agencies an idea of how many vendors are out there that can provide the specific product or services they are looking for, and which of those vendors are truly interested in supplying the items to the agency and are able to fulfill the contract requirements.

Getting involved with competitive bidding is a great opportunity for vendors to become known and introduce their company to potential customers; it also allows vendors who are new to the public sector to promote their brand and build relationships. Sole source contracts aside, there are still plenty of opportunities available that give vendors a fair shot at winning a government contract and the chance to grow their business within the public sector.

Danielle Calamaras |

[i] D.Ivory “No-Bid U.S. Government Contracts Jump 9 Percent Despite Push for Competition.” The Washington Post. 17 Mar. 2013. Web. 11 Apr. 2016

[ii] C.Campnile “Hospital Blew Through $1.3 Million in No-Bid Contracts: State Audit.” The New York Post. 29 Feb. 2016. Web. 11. Apr. 2016

[iii] E. Doran “State Criticizes Madison County School District for No-Bid Contracts.” 9 Feb. 2016. Web. 11 Apr. 2016

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