No bid contracts – seems a contradiction of terms and their other name
“sole source contract” sums it up even more. It is a contract where
only one company is being considered for the contract to undertake the
This usually happens when there is only one company that is available or able to undertake the work. Large government contracts for ships, submarines, army tanks etc. are commonly no bid contracts.
No bid contracts are sometimes controversial and should be used sparingly. They are common when:
The USA has a law colloquially called “Cronyism” which makes no bid contracts particularly difficult in that country and there are several investigations currently under way on some these awarded contracts.
They seem to be particularly popular in defense and building and many large companies have won this type of contract, simply on their reputation and contacts in high places.
Sometimes the particularly unappealing contracts are awarded on the basis of the receiving company having little option but to accept the contract. In this case, the government usually offers other deals, loans and rewards for undertaking the project.
This may be the case where a company is asked to merge with or bail out another company in the same industry that is having financial and operational problems. In this case loans and financial assistance may be offered. This option can often save a country's key assets. This was quite common at the height of the worldwide financial and banking crisis in 2008.
Great care must be taken to ensure that these no bid contracts are fair and seen to be fair and that no inducements are received or offered.