Question

Case 17.3 – The Bidding Wars

Scenario:  Kendahl Plastics Corporation contracts with NASA to manufacture component parts used in communications satellites. NASA reimburses Kendahl on the basis of the actual manufacturing costs it incurs, plus a fixed percentage. Prior to being awarded a contract, Kendahl must submit a bid that details the estimated costs associated with each project. An examination of Kendahl’s job cost sheets reveals that actual costs consistently exceed cost estimates quoted during the bidding process. As a consequence, NASA ends up paying considerably more than the bids Kendahl submits.

A Kendahl representative was recently quoted as saying, “We really aren’t overcharging NASA for the work that we do. The actual costs shown on our job cost sheets seem high only because we are forced to understate our bid estimates in order to be awarded contracts. It’s a common practice, and everybody does it. The truth of the matter is companies that quote realistic bid prices are not awarded contracts.”

Let us assume that it is common practice to purposely underestimate bids in order to win NASA contracts:

(MUST POST FIRST) Initial Post – As an employee, write an internal memo to your manager addressing the following:

Is it wrong for Kendahl to take part in this activity as long as it does not overstate the actual costs it incurs?

If you were part of Kendahl, would you have personally have issues using this bidding practice?

Research and cite common ethical bidding practices. What other bidding practices have your read about that you would be ok with using, even though they may be unethical or push the boundaries of being ethical.  

Answer 1

1. Unethical bidding has become one of the biggest challenges of the industry nowadays. Kehdahl Plastics Corporation has also promoted the same by quoting understated rates to gain an edge over the competitors and later on overcharging NASA. Implying it as a common practice does not make this any less unethical. It is completely wrong on the part of Kendahl Plastics to indulge in this kind of practice. The bid should be given closest to the actual figures. Either the company should state the actual expenses or it should abstain from such practices.
2. Being of part of the Kehdahl group personally this practice would be condoned. If this unfair means is being adopted Kehdahl should forward proofs of such bidding to NASA and then present them with the actual costs that it would have to incur. It could suggest the ways to NASA to stop these practices. NASA could adopt some othe costing methods which would cause loss to contractors who willfully misstate the amounts in the bid. Collusive biddings like Complementary Bidding, Bid Rotation, Bid Suppression,
3. Common bidding practices can be:
   1. By developing impartial specifications like not being focused on one particular contractor or product specification.
   2. By Developing objective supplier selection criteria like not just focusing on the costs as the main driver. For example considering the user interface, functionality, Experience etc as other drivers to select the final contractor.
   3. By opting online bidding where the names and specifications are not disclosed and are kept anonymous and just their bids are disclosed. It prevents favoritism.
   4. By not allowing the related parties of the company asking bids to take part in them.