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Saturday, June 29, 2013

The Desiderata of the value of local preference rules

Local preference rule on government contracts an ineffective gimmick
The Hernando Commission just can't resist feel-good, but ineffective, public relations gimmicks. It is again considering skewing its procurement rules to benefit local bidders. It is at least the fifth time since 2008 that commissioners have considered rewriting their rules even though their own attorneys and the previous purchasing staff frowned on this poor public policy which has the potential to raise taxpayers' costs.

The county's standards include promises: To deal fairly and equitably with all suppliers wishing to do business with Hernando County; to maximize competition for all procurements; and to purchase goods and services at the lowest price, consistent with quality, performance, and delivery requirements from capable suppliers meeting the county's requirements. Except, under the proposed ordinance, none of that matters if you have a local zip code. Fair treatment, maximum competition and lowest prices no longer apply.

The misguided plan calls for giving local companies a 5 percent credit on contracts up to $500,000. Local companies bidding on projects exceeding that amount can get a 3 percent discount and other considerations by documenting local vendors to be used as subcontractors. Essentially, a local company bidding within 5 percent of the lowest bid coming from an out-of-towner can be awarded the contract.

Commissioners, charged with the duty of being stewards of the public purse, need to ensure the public receives the best product for the best cost, regardless of the address of the supplier.
This article succinctly summarizes the main points in opposition to local preferences, such as "Buy American" rules of the federal government. It does not even mention what some might say are benefits. The author might consider the observations of Prof. Steven Schooner.

Desiderata: Objectives for a System of Government Contract Law, by Professor Steven L. Schooner, George Washington University Law School, Washington, D.C.
Sometimes the most simple questions prove the most vexing. For example, what does your government hope to achieve through its government procurement law? It is possible to draft and enact a new law without answering the question, and experience demonstrates that this is often the case. (Arguably, it is equally challenging to sustain a commitment to these objectives over time, but that is a topic for another day.) Nonetheless, it seems reasonable to attempt to describe general aspirations for a procurement system before drafting begins.

Unfortunately, it is difficult to articulate objectives for a procurement system. There are many options, and most are contradictory.

At a macro level, the author prefers to begin with three “pillars” that, in my opinion, underlie the United States procurement system: system transparency; procurement integrity; and competition. In the United States, we believe that, as a general rule, our government enjoys access to the best contractors, lowest prices, most advanced technology, favourable contract terms and conditions, and the highest quality goods and services. We think this is so because our system, for the most part, encourages participation by the widest possible pools of potential competitors; it consistently demonstrates that competitors will be impartially considered for award of our contracts; and it treats all contractors in a manner that balances appropriate risks with meaningful profit incentives and rewards.

There are plentiful exceptions to this description, and a number are identified below. [You will have to read the article, at the link above, for the full discussion; here I just cut to the chase run in the lead article above.]

Historically, our elected representatives have viewed our procurement system as a vehicle to distribute wealth. For example, our government has chosen to leverage its purchases to support domestic firms and, more specifically, small businesses.29 At the same time, our procurement dollars may be directed towards specific manufacturers to maintain sufficient expertise or industrial base capacity in anticipation of future contingencies. You may target your buying towards contractors located in geographical areas of high unemployment. It is axiomatic that government spending can influence behaviour and infuse growth in communities and economic sectors. Conversely, efforts to redistribute wealth through the procurement system – by their very nature – restrict competition.

No system can achieve all of these goals. Nor can a state expect that its objectives for its system will remain constant over time. Determining which goals are most important is a daunting, ever-evolving challenge. Because no system can achieve all of the goals here (or the many not discussed), your desiderata entails important tradeoffs. There are significant transactional, economic, and social costs associated with maximizing transparency, integrity, and competition. Nonetheless, the author believes these costs are an excellent long-term investment.

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