No-bid contract
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No-bid contract is a popular term for what is officially known as a "sole source contract." A sole source contract is one awarded usually, but not always, by a government after soliciting and negotiating with only one firm ( see 48 CFR ยง 2.101 ). These contracts can be negotiated much more quickly than a typical Competitive contract but they are often fraught with suspicion that the company used illegal or immoral means to exclude competitors ( usually cronyism or bribery ). Nevertheless, U.S. law permits the government to award sole source contracts under specified circumstances ( 48 CFR Ch. 1, Part 6 ) but no-bid contracts are illegal under European Union commissioning law.
Urgency is often the rationale for sole source contracts, and cost uncertainty the rationale for cost-plus contracts. They permit the government to get contractors working as quickly as possible. Competitive contracts have been awarded in very short times. However, such speedy procurements are not easily done and are thus relatively unusual.
Legal reasons for sole source contracts include:
- (1) only one firm has a product that will meet the projects needs or only one firm can do the work;
- (2) the existence of an unusual and compelling urgency;
- (3) for purposes of industrial mobilization or expert services;
- (4) an international agreement;
- (5) sole source is authorized or required by law, e.g., socio-economic programs;
- (6) national security; and
- (7) the public interest.
Use of such authorities requires written justification and approval at specified levels. See 48 CFR Ch. 1, Subpart 6.3.
The Bush Administration, for example, has made several no-bid contracts. After the 2003 war in Iraq, the Halliburton Company, previously headed by then vice-president Dick Cheney, was issued a $2 billion no-bid contract for fuel distribution. Just days after Hurricane Katrina, in September, 2005, the Bush administration awarded similar no-bid reconstruction contracts to companies such as Fluor Corp., Bechtel, Shaw Group, CH2M Hill Cos, and Halliburton's Kellogg, Brown and Root.
Both the much-disputed Iraq reconstruction no-bid contracts and those awarded after Hurricane Katrina contained "cost-plus" provisions "that guarantee contractors a certain profit regardless of how much they ultimately spend," according to the Wall Street Journal. Critics claim that such agreements remove any incentives for private companies to control expenses, which are paid for by the government.
Commerce Bank and Commerce National Insurance under the leadership of Vernon Hill and George Norcross have received several no-bid contracts from the state and local governments in New Jersey and Pennsylvania after making massive political contributions.
