Bidding for contracts & agreements between bidders
24 Aug 2011 10:47 GMT
Is it lawful for various companies to bid for a government contract, each company vying for the contract by undercutting their rival company’s price? Can two bidders agree together on a price beforehand and then split the contract between them? Also, both companies placed a deposit with a trusted third party to guarantee their complicity? Is this correct?

Answered by

Sheikh `Abd al-Qâdir Ja`far Ja`far, Associate Professor of Islamic Economics, University Centre of Ghardâyah, Algeria

The vast majority of scholars permit the practice of awarding contracts to the lowest bidder. They compare this practice to auctions, where items are sold to the highest bidder.

In the case of auctions, there is a single seller and biding takes place between rival purchasers. Bidding continues with various purchasers offering higher sums for the item being sold, and it ends when no one is willing to increase the price. The item is then sold to the final bidder.

In the case of these contract bids, there is a single purchaser interested in a particular good or service and a number of rival sellers offering the same. Bidding continues with the various sellers offering lower and lower prices for the products or services that they have on offer. Bidding ends when none of the bidders are willing to put forward a lower price, and the contract is awarded to the final bidder.

This practice has become customary in the building industry, the service industry, and in government contracting.

If two parties agree on a minimum bid price on a contract that can be divided between them, this is lawful Islamically as long as there is no injustice or harm incurred by any party. However, this does seem to go against the principle of competition that underlies the practice of bidding. However, it seems alright if both parties need this arrangement with the other in order to ensure that they will be able to uphold the contractual obligations.

However, it is not lawful for the two parties who wish to share the bid to require a monetary deposit from each to guarantee their agreement. There is nothing like a mortgage here. The matter at hand is one of rights that are intangible and non-exclusive, and as such, they cannot be compensated for by a monetary sum. In such a situation, both parties should work together on a basis of mutual trust.

In the event that one of the two bidding parties breaches the trust of the other, the other party does not have any claim for financial compensation. The party that violates the agreement is Islamically guilty of breaking a promise. However, what that party earns from the contract is lawful, as long as that party rightfully won the bid by being the lowest bidder.

And Allah knows best.

Sourc: Islam Today

-- Al Arabiya Digital