-. COMPTROLLER GENERAL OF THE UNlTED STATES ‘J _ /, - , WASHfMGTOrY. D.C. 23948 B-109181 Illlllllllllll Illllllllllll llllllllll LM095595 lllll II11 Ill1 Dear Mr. Chairman: By letter dated February 20, 1970, our Office replied to your letter dated February 6, 1970, wherein you advised us that a hesring would be held on March 11, 1970, relative to H.R. 3345 and H.R. ll245, gist Congress. These identical bills would require that certain sub- contractors be identified on bids for public works contracts. An iden- tical bill, H.R. 10, has been introduced in the 92nd Congress. In our letter of February 20, 1970, we advised you that our Office had no audit experience in the area and that we had no recommendations to make regarding the merits of the proposed legislation. Subsequently, we have made a review of this matter. In this review, we were unable to obtain any significant new information not already received by your Committee in the testimony over the years. Since we noted, however, a lack of uniformity in agency procedures related to this area, we are sending a copy of this letter to the Commission on Government Procurement. As stated in the subject bills requiring the naming of subcontrac- tors in bids on certain Government construction work, the intent of such a requirement would be to promote fair competition among prime contrac- tors and subcontractors and to curb a practice referred to as bid shop- piGi -.m.. i.e., efforts of a prime contractor, after awsrd of a contract, to secure lower subcontract prices. The proposed legislation defines a subcontractor as an individual or firm with whom the prime contractor proposes to enter into a subcon- tract for manufacturing, fabricating, installing, or otherwise perform- ing work pursuant to the specifications. The categories of subcontrac- tors to be listed (named) by the bidders would include "plmbing, heating, air conditioning and ventilation, electrical, elevators, painting, masonry, tile and terrazzo, granite, lathing and plastering, roofing, and all other categories comprising more 43s .?$ percent of the total estimated cost of the contract". Other categories could be included at 50TH ANNIVERSARY 1921- 1971 the discretion of the contracting officer. Only the name of the sub- contractor and the type of work to be performed would be required to be specified on the bid documents. Because of your Committee"s interest, we inquired into the current procedures of Federal agencies as related to specifying subcontractors in prime contractors' bids and attempted to obtain information bearing on the merits of the proposed legislation, including information on the extent of any problem areas that would indicate the need for a closer control of subcontractor selection. In connection with this examination, we studied the history of previously proposed subcontractor listing legislation and applicable position papers of various Government construction agencies. We also reviewed the listing regulations of the Generti Services Administration and the Department of.the Interior and examined some of their contract files. Further, we studied the statutes governing subcontractor listing in the States of California and Massachusetts and also secured and con- sidered the opinions of about Xl.0 individuals in Washington, D. C., and the States of California and Massachusetts. These individuals repre- sented Government and State construction agencies, prime contractors, subcontractors, trade associations, and legal, financial, and surety organizations and firms. Although there is no Federal. legislation requiring that names of subcontractors be submitted by prime contractors with their bids, two agencies--the General Services Administration and the Department of the Interior--have administrative regulations requiring such information for certain construction contracts. In addition, some States, notably California and Massachusetts, have had such requirements by State law for many years. We found that the Federti agencies hating listing requirements were generally following their stated procedures. We noted that these pro- cedures permit the requirements to be waived pursuant to administrative determination, and we found instances wherein such waivers were made. The Department of Defense, which awards more construction work by far than any other Federal agency and does not require subcontractor listing, has received, according to Defense officials, very few com- plaints of bid shopping. -2- We were given the following assertions, pro and con, regarding the desirability of requiring bidders on Government construction work to list the names of their subcontractors. --The subcontractors would be protected because their bids to the prime contractor could not be lowered unilaterally, --More subcontractors would submit bids and the increased com- petition would result in lower subcontractor bids and in turn lower prices, --Better wortianship would result because the subcontractors would not have to "cut corners” to make reasonable profits, --Subcontractors would not be forced into financial distresses caused by price squeezes from the prime contractor, --The practice of bid shopping would be curbed and more ethical conduct in the bidding process would result, and --The awarding authority would have more control in the selec- tion of subcontractors. Con: --Competition would be reduced because of the complexity of a listing procedure, thereby presumably increasing construc- tion costs, --The time required for preparation of bids would be extended because bid shopping would tske place before rather than after award of the contract, I --Some otherwise valid low prime contract bids would be rejected, --As the proposed law would permit subsequent substitution of subcontractors, with cause, the Government would be inter- jected into disputes between the prime contractor and subcontractors, --Subcontractors could make it difficult for a particular prime contractor to bid by collusively withholding all of their bids, and - 3 - --Higher prices would result because of the prime contrac- tor's exposure to more risk and more complicated procedures and also because the prime contractor would not be able to anticipate getting lower subcontract costs through bid shop- ping in determining the bid price. We were unable to document or prove any of the assertions pro or con regarding the effect of having a subcontractor listing requirement for construction contracting. Our Office has, however, received com- plaints of bidders whose bids were rejected because of failure to comply with listing requirements. During this current review, although bid shopping was generaLLy acknowledged by Government contracting personnel and by State officials and responsible IndividuKls in the construction industry to be a prevalent practice, we were not furnished etidence of any specific case of bid shopping hating occurred. We conclude, therefore, that our review disclosed insufficient evidence to support a position for or against legislation requiring sub- contractor listing in bids under construction contracts. We believe, however, that the lack of uniform2ty among the Federal agencies as indi- cated by the diametrically opposed procedures--some agencies with and others without listing requirements --may warrant consideration. Sincerely yours, 9v 4-L Aesistant eneral of the United States The Honorable l3manuel Celler Chairman, Committee on the Judiciary House of Representatives -4-
Hearing Relative to H. R. 3345 and H. R. 11245 Requiring That Certain Subcontractors Be Identified on Bids for Public Works Contracts
Published by the Government Accountability Office on 1971-04-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)