No-bid contract is a popular term for what is officially known as a "sole source contract." A sole source contract implies that there is only one person or company that can provide the contractual services needed and that any attempt to obtain bids would only result in one person or company being available to meet the need. It is awarded usually, but not always, by a government after soliciting and negotiating with only one firm (see 48 CFR § 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. While competitive contracts have been awarded in very short times, such speedy procurements are not easily done and are thus relatively unusual.
Legal reasons for sole source contracts include:
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. 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 tax-payer." '