County competition drives down prices that taxpayers pay
A new study of county bid and purchase preferences shows a mishmash of rules among four South Florida counties that freeze out bidders from across county lines – if you aren’t based in the county, you usually can’t win the contract.
Commissioner René Garcia sought the study, aiming to add firms in nearby counties to the pool that can compete successfully for Miami-Dade government work if those counties would lower their barriers to Miami-Dade firms seeking business over the county line.
His aim is on point: the more competition for government work, the less cost to taxpayers because competition drives down prices.
The reverse is also true: the more barriers to competition, the higher prices rise as a handful of potential competitors tend to split government business.
South Florida has barriers galore to competition. As Mayor Daniella Levine Cava wrote in sharing the study of local preferences in the region, “the myriad of preferences cannot be equitably extended to vendors of each prospective county without significant harmonization of each county’s policies.” She estimates it would take a year of negotiations with local counties followed by legislation in each county to level the playing field for South Florida bidders. In other words, it won’t happen.
In Miami-Dade alone, firms headquartered here get a 15% margin to win a bid or contract – if a firm across the county line bid 15% less than a local bid, the local firm can still rebid for 15% less and win the contract. If it’s a local branch of a national firm, it has a 10% window to fudge a bid. If it’s a local certified veteran’s preference bid, 5% is subtracted from its bid price in the battle but it doesn’t have to cut its true price 5%.
Every other county has complex preferences too, and they’re not the same.
That complexity drives up the cost to bid for out-of-towners and often drives them out of the bidding before they start – why pay to prepare a bid for a project they can’t win?
Local firms know in advance they won’t face top-quality outside competitors so they can game the system by raising their initial bids. It’s good business for them but bad for the public, which pays more. National studies show local preferences raise the cost to the taxpayers – the bigger the percentage, the higher the extra cost.
County officials want to make sure local bidders usually win because it keeps the spending at home, which is very nice. Unfortunately, because other governments erect their own barriers, it keeps Miami-Dade County companies out of their territories.
That system of barriers at county lines results in everyone doing business at home everywhere but fails to reward the most efficient and low-cost companies both elsewhere and at home that could grow more if competition was fair and open on a level playing field.
Whenever you tilt the field, competition declines. The less the competition, the high the costs for everyone. It’s Economics 101.
But while that artificial lack of competition means local governments pay a premium for goods and services, the same is not true in private enterprise. In the business world, it’s the lowest cost for best product or service with full competition, no barriers.
So, what if Miami-Dade government were to eliminate local preferences not just for South Florida but across the nation, or even the globe? Remember, the fewer barriers the more competition, and the more competition the lower the possible cost and the higher the possible quality.
Officials have two reasons they don’t want to do this.
The reason they will discuss is that Miami-Dade firms will still be penalized elsewhere for not being local, so we have to penalize firms from elsewhere in retribution. It takes good politics to be the first county to tear down trade barriers and get other governments to follow suit.
The invisible reason is that commissioners get votes and campaign contributions from local businesses, not so much across county lines. The more the county favors certain businesses, the bigger the campaign fund will be. That’s good politics but bad public policy.
The county study shows all the red tape involved in harmonizing barriers to business in just South Florida. Which commissioner will follow Sen. Garcia’s lead and seek to remove all barriers to competition for county contracts everywhere, which would save taxpayers tens of millions yearly?
Doing so would be not only a bonanza for the county but a symbol of modern governance. It would also be a huge relief to local businesses, which would no longer have to play costly games with county bids.
The alternative, as the county’s study proves, is to keep on rewarding inefficient bidders with extra money that needlessly inflates the cost of county government for zero added benefit to anyone.