We selected three of the top four  agencies for further review. The Army, Navy, VA and GSA accounted for  almost 75 percent of the total $28 billion obligated for construction  contracts in fiscal year 2013. To identify what is known about the prevalence of bid shopping on federal  construction projects, we interviewed agency contracting officials, prime  contractor and subcontractor trade associations, prime contractors and  subcontractors; and reviewed GAO reports, articles, academic literature,  and congressional testimonies addressing bid shopping. However, we did not determine whether agencies’ construction contract  oversight was effective. For the purposes of this report, we refer to the prime  contractor’s offer to the government as a proposal; we refer to the  subcontractor’s offer to the prime contractor as a bid. After a construction contract is  awarded, the federal government is represented in the contracting  process by a contracting officer, who has authority to modify or terminate  contracts on behalf of the government. No Conclusive Evidence Exists on the Use of Bid Shopping on Federal Construction Projects

We were not able to determine if bid shopping occurs or does not occur  on federal construction projects, and thus were not able to determine the  prevalence of bid shopping. Government officials at the agencies we reviewed stated that  they were not aware of bid shopping occurring on their construction  projects. Prime  contractors told us that in preparing their proposals, they try to obtain  multiple subcontractor bids from each trade (e.g., electrical, plumbing,  mechanical). Further, most of the subcontractors we interviewed told us that if  they have not done business with and are unfamiliar with a specific prime  contractor’s negotiation procedures or if a prime contractor is known to  shop bids, they may propose an inflated price under the assumption that  the prime contractor will negotiate that price down during the buyout  process. Agencies Have a Variety of Tools to Monitor Project Quality and Methods to Address or Correct Unsatisfactory Contractor Performance

Subcontractors have suggested that bid shopping leads to poor quality  construction, however we found that the selected agencies have existing  tools to hold the prime contractor accountable for a project’s work quality  and progress and, when performance is unsatisfactory, have methods to  address or correct deficiencies. The government can be protected from  poor quality construction if it appropriately uses the various tools at its  disposal to manage and address deficiencies. Examples of oversight  tools include onsite agency representatives, daily construction progress  reports and periodic inspection reports. Further, one tool that is used by some states to  prevent the poor quality construction allegedly caused by bid shopping is  bid listing—whereby the prime contractor must name the subcontractors  in its proposal to the state government. However, as past analyses of the  use of bid listing in the federal government have found, the benefit of  requiring it for the prevention of bid shopping is questionable in part  because of the administrative burden. Monthly progress payment reports. Agencies’ Use of Bid Listing May Provide Insight into Potential Instances of Bid Shopping, However Benefit Is Questionable

Bid listing is a practice whereby the potential prime contractors are  required to identify certain subcontractors in their proposals that it will use  if awarded the contract, which moves their selection and initial  negotiations with subcontractors to earlier in the contracting process than  if bid listing was not used. GSA  testified in 2000 that bid listing would create more harm than benefit and  strongly opposed bid-listing requirements for a number of reasons, such  as adverse affect on the timeliness and cost of contract performance and  increase in the government’s administrative expenses. After the  prime contractor is awarded a fixed-price contract, it must manage the  subcontractors to complete the job within the established contract price  and schedule. None provided comments on this report.
Why GAO Did This Study

In fiscal year 2014, the federal government obligated almost $32 billion for construction projects using primarily competitive, fixed-price contracts. In these contracts, the government holds the prime contractor fully responsible for project delivery at the agreed-to price and schedule. Once a construction contract is awarded, the prime contractor must manage subcontractors that typically perform 60 to 90 percent of the work on a construction project. Bid shopping—whereby a prime contractor uses one subcontractor's price in its proposal but negotiates a lower price with a subcontractor after the contract award for the purpose of retaining the difference for its benefit—is considered an unethical business practice by the construction industry. Subcontractors have alleged that bid shopping leads to poor quality construction.
GAO was asked to review the government's insight into subcontractor selection and oversight of subcontractor performance on federal construction contracts. This report covers (1) what is known about the prevalence of bid shopping on federal construction projects and (2) what tools the federal government has to monitor and address contractor performance.
GAO judgmentally selected and reviewed construction contracts from three of the four federal agencies that obligated the most funds for construction contracts in fiscal year 2013. GAO also interviewed agency and state contracting officials and construction industry representatives. GAO is not making recommendations in this report. The agencies in this review did not provide comments on this report.

What GAO Found

GAO was not able to determine if bid shopping occurs or does not occur when prime contractors select subcontractors on federal construction projects, but found that the selection process could lead to subcontractors' perceptions of bid shopping. GAO's review of selected contract files did not reveal evidence of bid shopping. Further, officials at the agencies GAO reviewed stated they were not aware of bid shopping occurring on their contracts. Many of the construction contractors that GAO spoke with said that bid shopping occurs, but could not furnish evidence of specific instances. Negotiation procedures between prime contractors and subcontractors may create the impression of bid shopping among subcontractors that submit bids. Specifically, prime contractors explained that they receive multiple subcontractor bids for each trade (e.g., electrical, plumbing) up to minutes before their proposal is submitted to the government; and they typically do not use a specific subcontractor's price in their proposal, but a price informed by the subcontractors' bids. After award, the prime contractor negotiates and selects a subcontractor for each trade during the “buyout process,” as shown below.
To hold the prime contractor accountable for a project's work quality and progress, selected agencies use oversight tools such as
agency representatives deployed on site,
daily progress reports, and
When performance is unsatisfactory, agencies use a number of methods to address or correct deficiencies. For example, agencies can withhold progress payments to the prime contractor or report poor contractor performance in government databases. Further, the government can be protected from poor quality construction if it appropriately uses the oversight tools at its disposal. To address bid shopping, some states are using bid listing, which requires the prime contractor to name certain subcontractors in its proposal to the state government. But the benefit of requiring bid listing in the proposal solely for the prevention of bid shopping is not certain, as past analyses of its use in the federal government have found it adversely affects the timeliness and cost of contract performance, and increases the government's administrative expenses.