Finance:Suicide bidding
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" (in EN). Engineering Management in Production and Services 9 (1). doi:10.1515/jem-2017-0007. ISSN 2543-6597. http://yadda.icm.edu.pl/baztech/element/bwmeta1.element.baztech-a8fe8ef1-96de-4dc4-b30c-8b762419fce0. Retrieved 21 May 2021.
- ↑ 2.0 2.1 Procurement in the Construction Industry. Chartered Institute of Building. December 2010. pp. 3, 12.
- ↑ 3.0 3.1 3.2 Brown, Carl. "Landlords crack down on 'suicide-bidding'". Inside Housing. http://www.insidehousing.co.uk/finance/landlords-crack-down-on-%E2%80%98suicide-bidding%E2%80%99/6515756.article. Retrieved 2011-05-31.
- ↑ 4.0 4.1 Prior, Grant (28 April 2011). "Government urged to stamp out suicide bidding". Construction Enquirer. http://www.constructionenquirer.com/2011/04/28/government-urged-to-stamp-out-suicide-bidding/. 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". Trans. Bus. Econ 13: 129–137. http://www.wseas.us/journal/pdf/economics/2016/a245807-473.pdf. Retrieved 16 May 2021.
- ↑ Lane, Michael (19 November 2009). "Crossrail discourages suicide bidding". Construction News. https://www.constructionnews.co.uk/civils/contracts-civils/crossrail-discourages-suicide-bidding-19-11-2009/. Retrieved 2011-05-31.
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