Why does county ignore the folly of its preference rules?
Written by Michael Lewis on November 11, 2015
Do you willingly buy shoddy items or pay extra just because goods are made here? Not likely.
Do you pay a worker down the street more than one who commutes? Also unlikely.
But that’s what we ask government’s buyers to do when we order a local buying preference. Buy-local rules inevitably yield less for our dollar.
That’s not the way preferences are advertised, of course. A rule that Miami-Dade tacked onto vendor dealings last week says that buying locally grows our tax base. But that ignores the far greater added cost of local preferences.
These noxious rules have spread through not just the county but schools and cities, In one way or another, they require that in hiring contractors and in bids, local firms get an edge.
It seems logical: spend at home and it stays at home, so we all gain. But all the experts agree that by trying to help local businesses with bid and purchasing preferences we actually get less for our money and support our most inefficient businesses.
In government bids with local preferences, everyone knows the game is rigged to give a set advantage, let’s say 10%, to local bidders. Knowing of that huge handicap, top out-of-town firms won’t bid if someone local can. Since “out of town” covers the entire globe but Miami, most innovative, high-quality businesses don’t bid – even those that also have big operations here.
Local firms know that not only do they get a 10% edge so they can raise bids, but that they don’t need to innovate or be particularly good. The only people they have to beat are here in town, firms that also know they can raise prices and neither innovate nor offer high quality.
Even good local bidders are deterred, knowing that inefficient competitors who normally couldn’t beat them for quality or price join in a 10% edge that will tilt results.
That leaves a much smaller pool of bidders, who then can all raise prices far above going rates; the firm that doesn’t get this bid gets the next one, and in every case bid prices are far too high. A small group of insiders usually wins. It’s called an oligopoly.
So government not only winds up paying more, it gets less quality. And local companies that specialize in government bids have no reason to push for either low prices or high quality – or get better.
There are subtleties to preference laws. In rules that Miami-Dade commissioners altered unanimously last week with no discussion, all vendors must now list all in-county operations, the number of employees who live in county, the number of residents in counties with which we have reciprocal arrangements, and the ratio of local employees to the firm’s overall workforce.
Anyone ruling on a contract – including commissioners – gets all that data.
That’s more red tape, which in itself deters bids. Worse, it’s an implied threat: if commissioners see too little local involvement they’ll torpedo a contract. They’ve done it before.
Vendors all know the implications of those questions. The more involved they are outside of Miami-Dade, the less likely they are to bid here. That further limits bidder number and quality.
It’s Economics 101 – lack of competition raises prices, lowers quality, or both.
So, did our commissioners skip Economics 101, or are they fully aware of the impact but assume that voters aren’t?
Certainly, professional purchasers know preferences are just plain wrong. The Institute for Public Procurement, the National Association of State Purchasing Officials and the American Bar Association all oppose such roadblocks.
Among reasons the Virginia Association of Governmental Purchasing cites for opposes local preferences are: they cost taxpayers more, distort markets by buying from inefficient sources, decrease government efficiency, reduce competitive bidders, impede creativity, raise prices, and “create a subsidy for a few business taxpayers at the expense of all residential and business taxpayers.”
Internally in government, the Virginia group found, preferences add staff time and complicate picking a winner, increase bid protests, foment barriers elsewhere and breed legal challenges.
So why wasn’t any of that mentioned when the county enacted the latest of our long list of preference rules last week? No discussion, no dissent. And why didn’t the committee that recommended the new barriers discuss anything either?
Without preference rules, government buyers are supposed to take the best offers for the benefit of all taxpayers. Each added preference rule hobbles professionals in doing that, costing us both efficiency and money.
In a global hub that asks the rest of the world to come do business in Miami, when will even one commissioner challenge rules that repel the very businesses that we are wooing?
We are simultaneously costing taxpayers more and posting a “no outsiders wanted” sign on county hall, thus shooting ourselves not just in one foot but in both.