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Suicide bidding is a response to a tendering exercise in which a potential supplier, anxious to win business, submits a proposal to carry out the work for less than it will cost. These procurement processes are typically modelled as reverse sealed-bid auctions with the lowest bid winning. [1]
The motive for such bidding is to keep the company's skilled labour employed, even if the project only breaks even or makes a loss. [2]
This can result in poor quality work, poor service and debates over loopholes in contract wording in attempts to charge clients extra, [3] or even insolvency on the part of the contractor. [4]
The practice has particularly been noted in construction bidding. Around 2010, suicide bidding was widespread due to the economic crisis and strong competition. [5] 2010 survey by the Chartered Institute of Building found that 82% of respondents believed that “suicide bidding” existed within the industry. [2] It was considered to have contributed to the financial collapse of British firms Connaught plc and Rok plc in 2010. [3]
The Civil Engineering Contractors Association acknowledged that the practice had become "rife" in the desperate competition for work during the late-2000s recession, but blamed the public sector procurement process for focussing on the lowest price rather than best value. [4]
Some commissioning bodies, such as Crossrail, openly discourage the practice. [6] In 2011, some housing associations began including specific terms in tenders to protect them from legal challenge in the event of refusing to award the contract according to the lowest tender. [3]
See also
References
- ^ Biruk, S.; Jaśkowski, P.; Czarnigowska, A. (2017). "Modelling contractor's bidding decision". Engineering Management in Production and Services. 9 (1). doi: 10.1515/jem-2017-0007. ISSN 2543-6597. S2CID 159251582. Retrieved 21 May 2021.
- ^ a b Procurement in the Construction Industry. Chartered Institute of Building. December 2010. pp. 3, 12.
- ^ a b c Brown, Carl. "Landlords crack down on 'suicide-bidding'". Inside Housing. Retrieved 2011-05-31.
- ^ a b Prior, Grant (28 April 2011). "Government urged to stamp out suicide bidding". Construction Enquirer. Retrieved 31 May 2011.
- ^ MANGANELLI, BENEDETTO; MORANO, PIERLUIGI; TAJANI, FRANCESCO (2016). "An empirical analysis of winning bids in public procurement in the Italian construction sector" (PDF). Trans. Bus. Econ. 13: 129–137. Retrieved 16 May 2021.
- ^ Lane, Michael (19 November 2009). "Crossrail discourages suicide bidding". Construction News. Retrieved 2011-05-31.