Should You Split Bids?

What exactly is "bid splitting" and is it a good idea for public procurement?

Definition:  Bid splitting occurs when a public agency takes a project, service, or goods and breaks the procurement up into smaller dollar amounts.  There are both good and not-so-good motivations and reasons for splitting bids.

Advantages to Bid Splitting:  Breaking work into smaller dollar amounts is a benefit for many small, minority, and women owned businesses who may not have the capacity to bid on a larger project.  The smaller procurements open the market up to these businesses more, thus increasing the amount of competition received by the public agency, and hopefully resulting in lower prices.  Many public agencies have policies that encourage work to be split into smaller procurements for these reasons. In addition, some federal regulations require good faith effort by grantees to break up the work to benefit smaller businesses.

Problems with Bid Splitting:  Some public agencies, when faced with various bid limits that require them to seek competition above a certain dollar amount, will break up the work into smaller procurements in order to stay under the competitive requirements.  They then make a selection based on less formal bidding requirements or award a contract without any competition, depending on the thresholds.  Auditors frequently criticize public agencies for splitting bids in order to come in less than the competitive bidding dollar amounts, since such practices subvert the intent of competitive bidding.  While this type of bid splitting may be expedient, it does not ensure that the public is obtaining the best prices for the work.

Procurement Cards:  Public employees with procurement cards (government issued credit cards) sometimes split a purchase with their card in order to stay under their per transaction limit for each day.  Agencies who have procurement cards and have established policies for per transaction limits should monitor purchases carefully to ensure that splitting of purchases is not occurring.

Balancing Different Interests:  Does a public agency get the best prices by splitting procurements to benefit small businesses (resulting in more competition), or by aggregating purchases and projects resulting in quantity discounts from vendors and contractors?  The challenge for public contracting professionals is to balance a number of competing issues.  Each procurement should be evaluated individually to develop the best strategy that will result in the:

• Use of small, minority, and women owned business
• Maximum amount of competition
• Most competitive prices being received
• Compliance with the intent of competitive bidding requirements

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

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