What Are No Bid Contracts?

There are several things business owners need to know when joining the contracting circle. As we mentioned last week, contract bundling is a big one that many don’t know about, and this week’s topic is no different. Lucky for us regular folk, the government doesn’t create wacky acronyms for every contracting term they use and in this case the name makes sense.

Sole-source contracts, also commonly known as no bid contracts, are contracts awarded when the government feels there is only one company or business that can successfully complete all requirements of the contractual agreement. Another reason Uncle Sam feels these contracts are necessary is because if regular bidding were to be held, only one company would be eligible to successfully complete the contract, making the process last longer than it should.

Typically, the government awards sole source contracts after negotiations with the company and the sole source contracts are considered justified only if a few criteria are met:

a. only one business has a product that will meet the projects needs or only one firm can do the work (for example due to patent restrictions)
b. the existence of an unusual and compelling urgency (emergency, disaster, etc)
c. for purposes of industrial mobilization or expert services (unique or exclusive experience)
d. a sole source award is authorized or required by law, (socio-economic programs, etc)
e. national security
f. the general interest of the public, or
g. the work involved is time sensitive.

While no bid contracts may seem like a negative aspect of government contracting, there is some good to them. For instance, in a pinch, if you’re offering services that the government needs immediately, then Uncle Sam will forego the normal bidding process and award the contract much more quickly. Or, if you have an exclusive product, patent, or licensing agreement or some sort of unique experience or expertise, you are going to be very well-positioned to do business on sole-source contracts. Of course, there are instances where this type of contract backfires and corruption ensues.

In March 2009, President Obama made a promise to help cut back on the number of no bid contracts in order to save money. As mentioned before, the original intent of awarding contacts without bidding is to cut costs and to speed the process up, but not everything always goes according to plan. The President claims that by decreasing the amount of sole source contracts the government can save as much as $40 billion each year. "The days of giving government contractors a blank check are over," President Obama stated.

President Obama asked his budget director, Peter Orszag, to have a reform plan ready by the end of September 2009. The reforms will involve making more contracts open to bidding and, in the process, hopefully saving the taxpayers money by awarding the contract to an independent contractor and their sub-contractors rather than a single company that could potentially inflate the price.

Obviously, there are still circumstances in which sole-source contracts will occur. For example, if you hold the patent on a particular item that the government determines that it needs, a sole-source contract will still be awarded.

The reforms requested are important because in the past eight years the amount of money spent on contracts has increased from $200 billion in 2000 to $500 billion in 2008. Many believe that a large percentage of the increase went to no bid contracts and by eliminating the number of them in 2010, Uncle Sam hopes to create more competition to cut back costs and to help the independent contractors and small business owners gain more work.