Should I Bid Against The Company That Gives Me Work?

Depends on your relationship with the company across town.  If you ask them about their opportunities and put "feelers" out there, you can get a good idea of whether or not you should compete.  Being open/honest can help you build a stronger relationship with them.  If the job is small and they are slammed, they may care less.

Or, don't bite the hand that feeds you.  Pick and choose carefully.

We also do work for other companies.  Our policy on that is to not bid against them.  I can also tell you that if we find one of our suppliers bidding against us then we typically find another supplier.  In your particular situation I would either call the company that you do work for and tell them that you were asked for a proposal, explaining to them that you don't bid against them just to see what they say.  Tell the customer that you can't bid against your other client and tell them in the future if they want to go direct then you could do that. I know from experience that when we lose a bid we do our research to see who won that job.  We then review our pricing to see if we could have done something different.  

Tom

Tell the company across town the situation. Tell them they need to lower their price and give you the install work. 

If your personal and professional integrity does not mean anything to you then, by all means, bid the job.  The fact that you felt the need to come here and ask should tell you something.  "Dance with the one that brung you".

They give you the majority of your revenue and your considering cutting off their legs for one job? Then you think its ok as long as they dont find out?

I hope I dont have any partners like you to be frank.

If I do, they will never be given another dime of business.

I'm sitting in a similar situation. We regularly take sub work. I have a colleague that can't take larger projects, so he hires us as a sub to handle them. He has been in the telecom industry for 20+ years and has tons of contacts and clients. 

However, he is set to retire in the next year or less. He has tried to sell his customer base, but he's found it isn't worth much. I think he will end up simply folding up and retiring.

One of the sub projects we are proposing now is a sub of a sub situation. The prime IT firm is technically savvy, but they just aren't experienced in installs or best practices. They are developers.

They hired my colleague to handle the project after they fired the last sub (slammer) they found online. He quickly realized the scope of the project is too large for him and his crew. So he is subbing to us now.

In order to walk the site and get an idea of what needed fixed and what needed finished, we had to meet with the prime (developer). He kind of hinted at throwing all of his installs our way. My colleague insists on staying in the middle. It would make the whole process a lot easier to cut him out of the middle and simply offer him a commission instead. 

That way, we can simply handle the work our way, maintain the relationship with the prime, and he can cash a check for the lead. 

My first year in business i did a lot of subcontract work for others as well as my own work. I specifically remember bidding an alarm system at a daycare and losing the job. A few weeks later i was contacted about installing the system for another large company. When I arrived to install, they were surprised to see me and questioned why I was there to install it.  I couldn't help but mention that I was getting paid more as a sub then I would have if they accepted my bid. 

Welcome to the carrot farm. Do you have long term intentions and commitment to remain a subcontractor? It is not just the big company across town, it is the whispers within the industry that can make or break you.

If your back log is steady then don't rock the boat. Overtime focus on small infrastructure upgrades that help your business become what you want it to be when that extra cash comes in.

This conversation can go in many directions.