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Why Does the Government Sometimes Use No-Bid Contracts?

Owing to the scope of the federal government, the revenue it collects, and the programs that it’s responsible for running, it would make sense that government would look to private businesses to aid in those responsibilities. Note that when trying to select a company or run a service, the government will accept bids from multiple potential companies. Other times, the government will award those contracts through a no-bid process, having already chosen the company that will do the work.

What is a No-Bid  Contract?

A no-bid contract may also be referred to as sole source intended, and it is used to quickly hire a vendor for a certain job. Here, there is no need for a competitive bidding process, unlike contracts that have a formal bidding process. Note that when the government uses this type of bid as the main source model, they are buttressing the fact that the services or terms they want to acquire can only be provided by a single person or company.

Government awards no-bid contracts if there is a national security issue associated with the contract. No-bid contracts are easier to negotiate compared to open-bid contracts, especially since the vendor is the only supplier who can give the government or agency what they need; they almost always get the price they asked for initially. If the agency wants the option to pursue no-bid contracts, they are expected to follow a strict set of rules.

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A lot of agencies understand that no-bid contracts can negatively affect the bidding process instead of helping them, as well as limit the chances for startups and small businesses to win contracts with the government. As more no-bid contracts get issued in the United States, issuing agencies are spending substantial amounts of money to prevent competitive bidding from happening.

To prevent the competitive bidding process, the number of vendors who can bid on government contracts gets reduced, which entails that agencies might fail to get a fair value price for the service or product they acquire. According to reports, President Obama made the argument in 2009 that no-bid contracts were unnecessary and wasteful, but four years later his office spent even more money on no-bid contracts than in the past.

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In 2012, $115.2 billion was spent on them, which was a nine percent increase from 2009. Local and state governments have started to consider that there are so many opportunities that are being awarded without going through a formal bid process. Even with the growth in these contracts, competitive bidding is still alive and well.

In the United States, agencies depend on competitive bidding to help reduce costs and find quality services and products that can be acquired at a reasonable price. Competitive bidding also lets agencies get to know the vendors better and understand what they sell.

It presents an opportunity for agencies to ask dependable vendors to bid on their next contract, and it also gives agencies a guess of how many vendors are available that can provide certain services and products. They will also find out which vendors are interested in supplying their products to the agency and can complete the contract requirements.

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Factors to Consider When Bidding For Government Contracts

There are many factors that affect bids and the contract decision-making process. The effects of the factors depend on varying backgrounds.

  1. Need for Work

The need for work is a result of the contractor’s current workload, the availability of other projects within the market, the financial situation of the company, and vacancy resources such as plants and equipment. The financial situation of a company is very important for a business.

A company that has a bad financial situation would result in company bankruptcy. The rate of return is related to the company’s business return; if the company bids for a low return project they may lose the opportunity for a high return project.

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The companies would accept the lower mark-up level, especially since the general overhead recovery is the first target the company normally needs to achieve. The need for work is the most important category which needs to be considered.

  1. Strength of Firm

The strength of the firm means the ability of the contractor to achieve the tender conditions imposed by the client; the available cash required for the project; the experience in a similar project; familiarity with site conditions; availability of resources; the availability of the subcontractors; material suppliers and percentage of work need to be subcontracted.

The resources of the company include the qualified technical and managerial staff; plant and equipment. The percentage of work that needs to be subcontracted depends on contractor size and type; larger percentage of subcontracted work requires higher contractor management skill. The current workload in bid preparation reflects the bid preparation quality and the chance of winning the project; a higher workload may decrease the quality of bid preparation.

  1. Project Conditions Contributing to Profitability

The project conditions determine the ability of the contractor to perform the work and achieve the profit target. The project conditions include project size, type, location, duration, profit made in similar projects in the past, and the terms of payment.

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The project size, type, location and duration relate to the contractor’s capabilities. The capabilities include the volume of available cash; number of available qualified staff; equipment; plant; management skill; construction technique expertise.

For example, the small contractor may not be able to carry large-size projects, because the larger size project requires more qualified staff, equipment, cash, management skill, and also some type of projects may require some specific technical skills.

  1. Risk of the Project

There are lots of risks involved in a project. The risks involved in the projects can be divided into two: Job related risks and risks due to macro environment. The job-related risks can be grouped into a few subgroups including the job uncertainty, job complexity, contract condition and client and the consultant of the project.

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The job uncertainty means the site condition; the completeness of the bid documents. The job complexity means technique difficulty of project, contractors‟ management experience and site condition. The contract condition factors can be broken down as the procurement method; detail of specifications; the duration for both project and bid preparation; payment conditions; warranty issues; the penalty conditions and dispute solution.

The risks due to macro environment include the economic conditions, the availability of resources and laws, and government regulations in construction. The economic conditions mean inflation and monetary and fiscal policies. The availability of resources includes the resources such as qualified labor, materials, and plants.

  1. Competition

The competitions can be analysed from two points: the competition considering the current market conditions and considering the current project. The competition in the current project that mainly focuses on the number of the competitive competitors involved in bidding and the competitors bid performance.

  1. Strategic Considerations

Every company has different expectations such as expanding the company size; increasing company turnover; expanding company reputation; make relationship with clients and try to survive in the industry. The different company’s expectation determines the company’s business strategy. The strategic consideration includes the considerations on client’s expectations; future market and company financial situation forecast; the long term gains from client and project.

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The future market and company financial situation forecast determine the risks and opportunities which companies may possibly face in the future such as the future market direction; the potential profitable project available in the future; the company financial situation indicating the financial risks.


Typically, the government awards no-bid contracts if there is a national security issue associated with the contract. However, there are various factors that need to be considered by the contractors in order to make the decision on no-bid contracts. The decision is highly related to the specific project and macro environment. It is hard to make a decision in a limited time. The decision generally is made on the basis of experience, intuition, and guesses.