Commissioners are right: stamp out those no-bid contracts
Written by Michael Lewis on November 21, 2017
It’s wasteful that one-sixth of all Miami-Dade product and service contracts have no competing bids. Government contracts without competition cost taxpayers more.
The trend is for most governments, not just Miami-Dade, to contract more frequently without competition. But that shouldn’t make residents feel better.
A government that plans to buy what a business is selling and won’t look elsewhere is likely to pay more or get less quality or service. Conversely, the greater the competition, the lower the price and better the quality and service.
So why, members of the county commission’s Government Operations Committee asked last week, are 17% of all county contracts not bid competitively? “It feels to me like we have a least 54%,” said Commissioner Jean Monestime.
The county’s Internal Services Department, which oversees purchasing, vowed in the future to “better describe” its efforts to get the best deal.
Still, Rebeca Sosa wants more than descriptions. She said she would write legislation to reduce the number of contracts the county ever signs without bids.
Good for her. The county needs to steward our money and maximize what it gets.
The principle, as Nobel prize-winning economist Frederik Hayek noted, is that “the market price cannot be known until there is competition.” Dealing with only one vendor, therefore, can’t determine what the market price is – only the highest price that one uninformed buyer is willing to pay.
Government is only buying because it “needs” something, and you pay far more for a necessity than on impulse. If you’re wandering lost in the desert and someone turns up with cold bottle of water, you’ll pay more than if you could just open the tap.
Not that governments are lost in the desert, but it seems that way:
νIn fiscal 2013, $164 billion in federal government obligations for goods and services – about 36% – were not competed, up from $115.2 billion the prior year.
νAn audit by the New York State Comptroller eight years ago found that of 2,488 New York City Department of Education contracts that could have been awarded competitively, 291 were awarded without competition. And 59% of those non-compete contracts took effect even before they got a required approval to be offered.
νIn testimony last month, the head of the Federal Emergency Management Agency testified to Congress that his agency didn’t know about the $300 million no-bid contract to renew Puerto Rico’s electrical grid until after it was awarded and probably would never have approved it.
Experts cite several musts before a government issues a contract without bidding. Others seem to be common sense.
We’d suggest that Commissioner Sosa’s legislation consider these nine guidelines:
1. Require written justification why bids can’t be sought. Ms. Sosa’s efforts might have the commission’s own auditor review each justification for the almost 200 no-bid contracts that the Internal Services Department says are now in effect. Why weren’t other firms given the chance to save the public money?
2. Have a single county official vet every justification in advance. Was that done in every case?
3. Require government to post notice of each new or renewing contract to let others compete. To get smaller or startup firms involved, the county might publish notices in more than a single publication so would-be bidders can see opportunities. County purchasing experts might not know of some bidders who might offer a better deal.
4. Publicize an appeal process to let those who think they could fill a county need but weren’t clearly alerted because of no-bid offerings make an offer.
5. Make a list of all non-bid contracts in the county available.
6. Put strict time limits on no-bid contracts. New providers, processes and products that become available could compete next year for a contract that isn’t locked in for years.
7. Require that contracts be offered early. A $3 million contract for the California High Speed Rail Authority was presented just 17 days before the old one expired. Surely the date didn’t take anyone by surprise.
8. Limit contract amendments, which commissioners are constantly being asked to approve for many millions of dollars more. An amendment can’t be competitively bid and is a frequent way to skirt bidding.
9. Disallow contracts that start before they have been formally approved as procedures require. Look at that 59% in New York.
In a county of small businesses, no-bid contracts tilt the playing field toward large, long-established vendors that purchasers know well. But newcomers might offer the best price. Without testing via bidding, the county will never know.
The smaller the pool of vendors, the more likely the county is to overpay or not get the best products. No-bid contracts assume the county knows just who should provide what. The public should not accept that assumption when we provide the dollars that are at risk.
As Ms. Sosa crafts her legislation, she might also request from Internal Services a breakdown of no-bid contracts not just by percentage of all contracts but by percentage of the value of all contracts. She’s likely to learn that the value of no-bid contracts exceeds 17% of the value of all county contracts because they tend to be bigger. The question is, by how much?
It’s poor business to ignore potential vendors by assuming that the one you like is the best. The county needs to formally limit its one-supplier offerings to protect taxpayers.