What Is a No Bid Contract?
A no bid contract is a non-competitively negotiated contract that a federal contractor enters into without competing with potential bidders. This means the contractor proposes a contract to be negotiated between the contractor and the government without any advertised opening for other contractors to enter into a competitive bid process. By contrast, competitive bidding implies that the contract will be awarded to the lowest bidder who submits a proposal or an offer within the time frame set by the request for proposal (RFP) and meets the specifications of the proposal.
No bid contracts are allowed through the Federal Acquisition Regulation (FAR) , which is the promulgated regulation that governs the acquisition process within the federal government. FAR has the authority to allow for a government contract to be awarded without competition if it falls into a set of categories that it considers a valid reason to forego a bidding process. The categories that likely qualify for a no bid contract are:
In addition to these circumstances of need, FAR contains a specific set of authorized procedures for awarding a no bid contract. In order to enter into a no bid contract, the regulation requires that the contracting officer with the agency has the authority to enter into a contract without competition, that the contract requested is to be placed on the Federal Supply Schedule, and that the contracting officer determines that the contract is both in the best interest of the government and is priced in the manner required by the Federal Supply Schedule.
Regulatory Framework Governing No Bid Contracts
No bid contracts are subject to various federal and state legal frameworks that seek to govern their use. These legal frameworks generally require government entities to provide adequate transparency and financial controls with regard to the award of no bid contracts.
Federal law. The Government Accountability Office (GAO), which is responsible for resolving bid protests, does not consider an award to be improper solely because it did not result from competition. The GAO has stated that it does not review the agency program office’s decision not to compete a procurement unless there is evidence that the agency had gone against its own rules or the requirements of any applicable statute or regulation, including those involving delegations and cost or market price analyses.
State law. Under state law, varying requirements govern the procurement process and award of contracts. For example, under the Uniform Procurement Act, which governs contracts by state and local government entities, all agencies are required to establish written policies and procedures for purchasing supplies, services, construction, or professional services, including a public notice of the availability of all specifications shall be issued. The Agency Head is required to offer all interested vendors an opportunity to review the specifications in person and obtain copies. The Agency Head must also keep on file the name of all prospective vendors who have obtained copies of specifications and a copy of all requests for qualification of bidders. In addition, an opinion of the Attorney General is required when an agency intends to award a contract without soliciting competitive sealed bids or proposals and except as specifically permitted by the act; contracts where the cost of the product, service or construction to the government entity exceeds $75,000.
All of the laws discussed above involve transparency requirements.
Pros and Cons of No Bid Contracts
Efficient procurement and lightning speed are a huge plus to no bid contracts. No competitive bidding typically means a quicker process, which is why many instructors of public procurement favors this method. This is not just a problem of being more efficient, there is often a necessary time sensitivity related to the contract. Sometimes the safeguard of a competitive bidding process takes too long and the agency can’t afford to wait to have the service rendered.
The flip side to a no bid contract can be higher costs. Since there is no competition for the procurement, the vendor may charge up to one and a half times as much. This is not to say throw your hands up in defeat. The vendor knows this allocation and will often negotiate a price reduction to satisfy his personal ethics. Additionally, the vendor may not think there is a cap and will charge whatever he believes is necessary until questioned by purchasing. A vendor with less integrity may not be privy to one’s ethics and may charge a high price. It’s important to do a reasonable amount of research in order to determine if the vendor is cooperating during the process.
Another thing to consider when dealing with a no bid contract is the placement of adequate controls to avoid fraud. For example, often an employee is sent to retrieve bids from various vendors. He calls up one vendor who responds positively to his request. He then calls several other vendors that he’s purchased materials from using his agency credit card. When he picks them up, he simply adds in all the extra purchases for personal items to the bill and pays with his purchasing card. In this way, he makes money off of the agency’s need for supplies and avoids any consequences associated with getting caught. The placement of strict controls can avoid these types of schemes.
Common Industries and Circumstances for No Bid Contracts
No bid contracts are often found in industries that require rapid responses or specialized services. Among these are the defense sector, emergency services, construction and technical industries. In these sectors, there may be a limited pool of qualified contractors. Or the work is specialized or urgent enough that the contracting officers seek rapid responses to avert potentially critical problems.
Among the defense sector, agencies have been pushed by Congress to use competition whenever feasible, however there are notable exceptions to competition. Competition is limited for Sensitive Compartmented Information Facilities (SCIF) when it can be obvious to adversaries what is going on and it’s in the national interest to keep bids secret. There are other exceptions, such as foreign military sales. An order is placed because a country must be trained on a system that they have purchased from the U.S. In addition, operations in hostile environments are sole sourced, with order being placed quickly.
Emergency and other services with an immediate response requirement are often sole sourced. An example might include a hotel or convention center that has a fire and needs an emergency service company to come in and secure the building. Use of term "no bid" is common, but it is really a sole source contract. Since it has serious consequences, the contract is done with urgency.
Construction contracts in the commercial sector are often "no bid." This is where an architect may design a facility and manage the project. A prime contractor is then brought in to deliver the outcome. Often, the project has a short time frame and a large scope of work that is complex, which makes bidding quite difficult. In many situations, the location also presents issues, such as if the project is to take place in another country or in very remote or dangerous area.
Technical industries, especially where there is classified information, can also be sole sourced. This might include a situation where a contractor has a unique ability or expertise to take a project through to completion. Even if there are other companies that have the capability, it can take too long to gain remediation or certification to ensure the project is safe.
No Bid Contracts: Issues and Controversies
In recent years, there has been a perception among the public and the press that no bid contracts are not transparent and are entered into in a way that suggests favoritism. Some argue that no bid contracts are designed to conceal an improper relationship between the contractor and the client. The practice of awarding no bids to friends or family of governmental officials has been used by many, including, with some notable examples:
- Hamilton County, Tennessee Sheriff Jimmy G. "Jimmy" Arnold faced a federal indictment in 2008 for awarding dozens of no bid contracts valued at more than $1 million to a friend in exchange for receiving thousands of dollars worth of trips, guns, jewelry, and furniture.
- In 2002, the House Appropriations Committee recommended that the Defense Contract Audit Agency investigate members of Congress who were found to have accepted gifts from contractors.
- In 2006 , the Federal Bureau of Prisons spent $3 million on a helicopter hangar for convicted defense contractor David H. Brooks at the JFK facility in Coleman, Florida, even after the U.S. Department of Justice filed a civil suit against him for defrauding the government of $17 million.
Without a doubt, the most high profile and critical concern about no bid contracts is waste and potential fraud in how government contracts are awarded. In recent years, the Pentagon has been criticized for spending as much as $599 to purchase a single bolt, and $640 on a single wrench, from independent contractors. In addition, the U.S. Army Corps of Engineers wasted $5.22 billion on its financial reporting system. It failed because the Army Corps did not consider the underlying need for a new system, and instead sought a new system to address problems with the previous accounting system it developed.
Maintaining Equity in No Bid Contracting
While no bid contracts have their place and advantages, there remain a number of controversies surrounding them. Transparency in the procurement process is key. As such, governing authorities are urged to supersize their use of these contracts and subject them to the same strict criteria, both beforehand and afterward. They should also be subject to review by an outside party. Again, transparency is number one in the procurement process when it comes to no bid contracting. The policy regarding no bid contracting should be clear, accessible, and unambiguous. It should guide the grants awarded when no bid contracting. The procurement policy should also identify the officer, committee, or body that will determine the sufficiency of the justification for granting an exception. Application of the policy should be uniform; every transaction should be treated alike, with equitable treatment of every party involved in the bidding process. Whether there are no competing bids or not, competitive pricing should always be sought. An authority cannot use a no bid policy as a way of ignoring competition and then paying more than a fair price. A policy which compels procurement officials to document the rationale behind awarding contracts to persons with a financial interest in the vendor organizations should be in place. A record must be kept of every transaction if the procurement is to be reviewed by an independent corporation, party or committee. Without a record, the purpose of procurement and disclosure of material facts are easily defeated.
Future Developments in No Bid Contracting
As the nature of government contracting rapidly changes, so too will the practice of no bid contracting. Changes in the administrative practices and rules that apply to all government contracting will have an impact on no bid contracting. As the number of government contractors continues to evolve, there will be fewer guaranteed contracts available for bid. The evolution of the federal workforce will also influence the practice of no bid contracting. For example, changes in OPM policies regarding retirement and relocation will only speed the evolution of the business model for government contractors, making no bid contracting a more attractive alternative.
No bid contracting may actually increase as the Federal Acquisition Regulation (FAR) continues to evolve. The FAR will continue to be amended to expand the circumstances where contracts can be awarded without any public solicitation. Changes to the FAR and the Defense Federal Acquisition Regulation (DFAR) will eventually streamline the rules governing no bid contracting. In addition , as the FAR and DFAR continue to streamline procurement regulations, it will likely become even easier to operate in this space. As with anything else, some of the more ambitious rule changes may not be signed into law, but the trend is that the regulatory environment will force a larger number of awards into the world of no bid contracting.
Whatever the future holds for no bid contracting, one thing is certain: the days of simply spinning up a bid system to meet the bureaucratic requirements for a bid will go away. The lines between traditional procurement and the world of new, agile contracting streams will continue to blur.
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