As someone who embraces technological advances, I felt genuinely excited by an invitation last year to submit a construction bid proposal over the Internet. The client, a blue-chip firm for which we had previously worked, told us the deal during a conference call with three other invited bidders. We were to participate in a new process called "auction bidding." We listened carefully to the rules.

"Although each bidding contractor's identity remains guarded, the low bid is immediately posted on the auction site...for all invited contractors to view," the rules stated. "Contractors are allowed to underbid...by any dollar value and in decrements as low as one dollar. Although there is a posted closing time, the bid may remain open if a contractor submits a bid within two minutes of the closing time, thereby forcing a five-minute overtime, permitting contractors to further underbid...There is no limit to the amount of overtimes...the winning bid is awarded when no contractor wants to further underbid."

BID SHOPPING. Halfway through hearing the rules, I realized that this was less about technological innovation and more about utilizing technology for ease in good old-fashioned "bid shopping." The client inquired if my firm would take part in the auction bidding. Mentally caught off-guard and still stunned by the bidding rules, my colleagues and I indiscriminately agreed.

Although reluctant to engage in this auction bidding, my colleagues and I haggled among ourselves in ethical and business terms about how we would bid this work. We agreed that we would determine our lowest bid prior to entering into the auction. We decided not to engage in a bidding war with the other competitors.

Bid day arrived. We logged onto the auction site at bid start time, 10:00 a.m. Within a few minutes, a high-priced bid was displayed on the computer screen. As time pressed on, we observed one contractor after another systematically underbid each other. With one hour left in the auction, bids were rapidly approaching our predetermined low bid number, which we had yet to log in.

We finally typed in our lowest bid, only to watch a contractor underbid our number within minutes. We saw no reason to persist in undercutting our predetermined low bid. Unfortunately, what followed was the intended premise of auction bidding. The remaining contractors continued to underbid each other with dollar ranges from a few thousand dollars to one-dollar decrements. The undercutting prolonged into overtime, 45 minutes after the stipulated closing time of noon.

The auction finally closed at a dollar amount that was less than 1.5% above my estimated cost for this project. This was only a $300,000 project for an interior corporate fit-up. The low bid was exactly one-dollar less than the second low bid. Later, through the grapevine, I heard that the winning bidder had taken the job at cost, to stay in good graces with the owner. But that didn't earn the winner any good will either, since the client used auction bidding for the next job as well.

Upon reflection, I realize that our initial reasons to enter into this auction were threefold: to experience the process over the Internet; to maintain a relationship with a blue-chip client; and to actually get the job. Will we continue with auction bidding? It's difficult to say. We refuse to engage in a bidding war with other contractors and to suicidally cut our bid during an auction just to beat the competition. But we also don't want to alienate a client by refusing to engage in auction bidding.

A few months ago, a year after our first "auction bid" experience, the same client invited my firm to bid in another auction. Internally, we revisited the issue. Fully conscious of the repercussions, we decided not to. We telephoned our client and respectfully declined, gracefully explaining that we doubted that we could maintain the quality and service of our work by cutting our bid during the auction.

We have not heard from that client since. Another contractor, which participated without winning in the bidding last year, also declined to auction-bid again, and apparently lost that client for good, too. In my firm, are my colleagues and I pounding our chests proudly in self-righteousness for declining? Hardly—after walking away from a hard-earned client.

FOOLISH GAMBLING. But in my opinion, based on just this one experience in auction bidding, this is bid shopping in its purest form. The psychological pressure to drop below one's originally intended bid number is immense. Auction bidding is no longer estimating and bidding, but estimating and foolishly gambling. This practice is unhealthy, if not unethical. Auction bidding will squeeze every living cent of profitability out of a job. The contractor foolish enough to engage in this type of bidding will only magnify the increased probability of failure.

Our industry already suffers from a reputation of lack of quality workmanship and deficient service to the customer. I cannot pick up an ENR without reading about some project suffering poor quality construction, cost over-runs with inflated change orders or claims, inadequate substitution of materials, catastrophic failures and bankrupt contractors. For what appears to be instant gratification—for an owner achieving the lowest improbable bid—will in time result in an unfavorable demise for all participants engaging in this cannibalistic bidding process.

Walter H. Lehner is the director of operations
at Gar-San Corp. in Watertown, Conn. He may
be e-mailed at wlehner@garsan.com