There are always going to be unjust situations in the bidding process. Do not focus all of your energy on who makes up your competitors work force. If a competitor is breaking the rules, soon or later the system will catch up with him.
You said that your labor number is what lost the bid for you. Review your labor component and make sure that you all of your assumptions are correct. Are you carrying more labor than you need? These are tough economic times you are working in. You have to operate as lean and mean as possible.
Lets assume that your labor is where it should be. You sound like what I refer to as a front door contractor. You run your business like a professional. You need to evaluate other areas of your business that will allow you to compete against contractors who are under cutting your bids. Review all of your overhead and costs on a regular basis.
You may not be able to lower your labor but you may be able to eliminate other cost in your operation that allow you to be more competitive.
I feel your frustration! Spend your time managing your operation, praticing cost side management, and selling the intangibles that make your company shine in the market place. In the long run you will win the pricing war
