Nobody should be getting inside track on county contracts
A step to expand the zone where businesses get a local advantage bidding on Miami-Dade County contracts far undershoots the proper target.
Commissioner René García seeks a vote this week geared to add businesses in Broward and Monroe counties to those here that get an inside track on Miami-Dade government bids. Adding insiders is long overdue but should cover the nation and the globe, because if everyone is favored nobody gets an unfair edge.
Businesses seek the best buy at the lowest price. A manager who purposely spends far too much on goods and services won’t keep the job.
But at county hall, spending too much, incredibly, is built into the rules. That’s exactly what commissioners require purchasing officials to do – overspend. It’s put right in the county code. That should make taxpayers’ blood boil.
A memo with Commissioner García’s legislation explains it: when the county seeks bids, any business with a local branch that comes within 10% of the low bid or a firm whose headquarters is here and bids within 15% of the low bid can win by bidding again to equal the low price. No out-of-town firm gets that edge. That means local firms can usually beat out-of-towners in bids.
Mathematics alone don’t show that process raising the final bid cost. The local firm simply cuts its price to what was the best price from out of town and it wins. The price doesn’t change, does it?
Not at that point. But the system is rigged to have local people win. And because it is rigged, any out-of-town company that can’t beat the best local price by more than 15% is unlikely to win and therefore won’t bid at all. Why bother with costly bid preparations if you know you’re going to lose in the end even if you bid least?
What that does is limit out-of-town bids in Miami-Dade buys. And the fewer competitive bids, the higher local bidders can price their products and services. A handful of local firms can all do very well by bidding high on county contracts because they know they will all prosper at inflated prices over time. I’m not saying there’s collusion, but by knowing the rules of the county, companies will use that bidding strategy. It makes economic sense for them.
Adding companies in bordering counties to the advantaged group, as Mr. García proposes, makes good economic sense too. By adding some bidders, prices may edge down. That’s not how he reasons it in the memo with his legislation, but it’s the way the business world works, so he’s right.
Take that thinking farther: why should any company anywhere have the right to a do-over in which it can turn a losing bid into a winning bid merely by matching the low price? Why shouldn’t any bidder anywhere on the globe get the same bidding rights as any other?
That would add bids. To win, all companies would have to sharpen their pencils to squeeze the fat out of offers to the county. Other winners would be the taxpayers, who would spend less to get more – because every time the county spends above the minimum possible, the waste drains a budget that is fueled heavily by our taxes.
Open bidding fair to all – a level playing field – is not what some commissioners want. They want local businesses, which fuel election campaigns, to win county bids. As a locally owned business ourselves, we agree that a strong local business community is vital.
But there are far more equitable ways to strengthen Miami-Dade’s business world than by guaranteeing that relatively few firms that bid regularly will share a bid advantage that allows them to inflate prices to the county beyond standards of the private marketplace. Use the fat in those inflated bids to instead fund technical workforce training or spend that excess on business-oriented technology – or just reduce taxes and fees that businesses pay. Be creative.
As it is, commissioners regularly pressure the county purchasing team to make sure local bidders win more. Even with locals having the advantage of bidding again, some commissioners think those pesky out-of-towners win too often. They try to tilt the playing field to give a few firms an edge at the cost of higher prices funded by every taxpayer.
As the county’s finance officer, Ed Marquez, explained three years ago to tell commissioners why no local firm won a $14 million contract for audio-visual equipment, “In those instances where a local firm is awarded, the cost associated with the purchase reflects a mark-up because the local firm obtains the equipment from a larger non-local firm and resells it to the county.”
Miami is not a small town. Most kinds of business are found here. But we are not, for example, a major manufacturing center. To buy a commercial jet you won’t limit your market to Miami-Dade. Someone local could sell you a plane, but only by buying it elsewhere and marking up the price.
So sometimes a non-local bid will be best. The county can’t rig all marketplaces to make sure a local always wins. The more it tilts the playing field, the worse off taxpayers are.
A decade ago, a national study found that 5% local bid preferences raised taxpayer costs 3.8%. As we have often asked, how much more do our 10% and 15% margins cost in taxes? That’s why government purchasing professionals oppose preferences. Their goal is to save government money, not raise costs.
So while we favor Mr. García’s attempt to widen the small circle that gets preferences in Miami-Dade’s bidding, county taxpayers would be far better off by expanding the circle limitlessly. If everyone becomes preferred, nobody is a preferred bidder and county costs will decrease.
Mr. García’s legislation now seeks to study whether it would be good to widen the circle. Why not widen the study and see how much we could save by having no preferences at all?