Isolationist bid preference plan a lose-lose county handicap
Written by Michael Lewis on July 25, 2013
In a county whose income rests on national and global ties, we act like economic isolationists by erecting contract preference barriers.
On the one hand we labor to lure hubs of national and global firms to add jobs and investment in a county that lives on visitors and trade. We tell companies we love them and want them here.
On the other hand, we make bidding rules that handicap the very companies we’re wooing. If they’re already here, we penalize them on contracts. If they’re not yet here, penalties are even greater, discouraging investment.
The most egregious example is pending in Miami-Dade rules to increase bid disparities on county contracts between local and non-local firms and say that any firm headquartered here isn’t really locally based if it’s affiliated with any outside business.
For example, a construction company with a long-time office and many jobs here that’s linked to regional or global operations would be formally penalized. Most firms capable of big jobs have outside ties, so they’d lose to firms that might not be as good but don’t have outside affiliates.
That could raise contract costs millions Ã± money from taxpayers’ pockets. Yet either way, the same number of jobs would come to Miami-Dade.
Beneficiaries would be local firms that can’t compete plus lobbyists and attorneys who can dream up ways to limit competition for clients and cajole lawmakers to ignore the impact of what they pass.
What happens in the county, which already has preferences, and the schools and City of Miami, which in recent years added less noxious preferences, is that outside bidders aren’t formally excluded Ã± like racial prejudice, it’s more subtle.
In bids, anyone can play. But under preferences, if a local bidder comes within a stated margin of an outsider’s low bid, a second round of bidding allows the local bidder to match the outsider and take the prize.
That sounds like a win for taxpayers Ã± bidders just cut prices. What can be wrong with that?
A lot, it turns out. Local bidders, knowing they can bid high and still win, raise bids. Meanwhile, out-of-towners, knowing they can’t win under these rules, just don’t bid.
That combination excludes some of the most efficient bids and inflates prices of those remaining, national studies have shown.
One found that a 5% local preference raised average winning bids 3.8%. Another found that winners’ profits under a 5% preference were 3.1% lower Ã± not higher Ã± because winners were less efficient than in a free market system that has a level playing field for locals and outsiders alike. A preference becomes a lose-lose.
Even without the preference handicap, many companies, both local and nonlocal, shun county bids for many reasons.
First, there’s more red tape. How many forms do you have to fill out and approvals do you need just to be considered a responsive bidder? And each step raises costs that a business builds into its bid, raising costs to taxpayers.
Second, major contracts in Miami-Dade require lobbyists plus attorneys and other consultants. These costs also go into the bid price.
Third, county contracts take longer to decide. The longer they take, the more uncertain are ultimate contract costs. You have to build an uncertainty factor into contract prices.
Fourth, even if you win a contract fair and square on price and quality and overcome preferences, you still might not get the job. Commissioners this spring overrode a veto to give an airport baggage-wrapping contract to the second-place bidder. If that can happen in so picayune a matter, what about a really big-ticket item?
Fifth, if you expect to win county contracts, you’ll have to give to political campaigns whether you like the candidates or not. It’s a business requirement.
All these factors reduce the pool of county bidders. New Aviation Director Emilio Gonzalez is trying to figure out why no national hotel chain will bid to run the Miami International Airport Hotel. He need look no farther than county hall.
Instead of adding barriers, the county should erase its current preferences. Taxpayers would be the winners.
Former County Manager Merrett Stierheim told Miami Today two years ago that with big local preferences, Ã¬if I were a bidder outside the jurisdiction, I would be discouraged from bidding.Ã®
Ã¬It has been proved over time that competition is the primary factor in keeping pricing competitive,Ã® Pinellas County administrators across the state reported. Ã¬If non-local bidders limit their bidding in this market due to local preference laws, ultimately pricing will increase.Ã®
Looking at City of Miami preferences, Commissioner Frank Carollo noted two years ago Ã¬What I’m afraid of is that there’s an out-of-town firm that is way superior, and now because we have this ordinance, we can’t actually hire them.Ã®
The county’s misguided legislation passed last week on first reading. It comes next to the Economic Development and Port Miami Committee Aug. 29.
That committee has a unique opportunity to not just bury this loser but amend it to eliminate or at worst reduce our local preference percentage differential.
County rules now are anti-competitive as well as costly to taxpayers. By itself, the second bidding round in a preference case raises prices, because the cost of preparing a second bid must be included.
That drives away bidders, and the smaller the bid pool the higher the price. Government should aim for the largest number of bids, not the fewest.
Our local officials handle contracts just like they do hunts for top executives: they run national searches knowing that the winner they really want lives next door. The rest is window dressing.
If we put up a Ã¬No Outsiders WantedÃ® sign, we couldn’t do a better job of keeping investment out of Miami-Dade than we’d be doing by enacting the latest misguided preferences.
But don’t just say no Ã± say no also to the preferences now on the books that not only discriminate but raise taxpayer costs. Reverse them.