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Wednesday, December 17, 2014

Procurement controversy -- District of Columbia streetcar deal

Note: As I am wont, the following procurement controversy case study for today was cut, rearranged, and otherwise "edited". You are strongly urged to click the link to read the article in its original form if this subject tickles your interest.

The District’s streetcar deal leaves taxpayers holding the bag
IN THE market for streetcars for a planned trolley line, the District of Columbia undertook a lengthy procurement process in 2010.  Inekon, a Czech company that had built the District’s first two streetcars, a company with a proven track record in designing and manufacturing streetcars got the highest ranking in the year-long open competition. But the $8.7 million contract went to Portland, Ore.-based United Streetcar, a firm that had never produced an operational streetcar, had major problems delivering the vehicles and today no longer makes them.

When the contract was awarded to United Streetcar, Inekon protested to the Contract Appeals Board. The case was dismissed after the city acknowledged missteps and agreed to a series of corrective steps.

But instead of continuing that process, it used a provision in procurement law to buy the cars from United Streetcar through the existing contract of another jurisdiction.
I have not been a big fan of the so-called "coop purchasing" method. In my view, it is too often used as a cop out purchasing method. It outsources one jurisdiction's responsibility to another jurisdiction, leading to a large funneling of government funds to one centralized procurement agent who has no accountability back to the purchasing jurisdiction, and makes it problematic for the purchasing jurisdiction to to administer the contract. This case appears to be an example of that.

The theory behind cooperative purchasing is that bulk buying gets the lowest price possible. For instance, the federal supply schedule purchases allow any federal department to purchase from the schedule, as well as states, territories and some NGOs. The schedule acts like a cross between a catalog house, like the old Montgomery Wards or Sears Catalogs, and Amazon.

The theory is good for increasing buying power at the expense of increasing the pool of competition. We encourage competition over monopoly, but we turn around and diminish competition by monopsony.  As Steven Schooner has shown us, here and here, even a fundamental principle of procurement must be balanced against other competing procurement principles. 

Sometimes, the crush to make government contracting as convenient as private contract crowds out the governance principles. Government contracting without governance principles, like fairness and application of principles such as encouraging small or local businesses, does not create an ideal procurement system that satisfies the needs and aspirations of the political base of the purchasing government.

Somewhat related recent articles:

MPs warn over new train contracts
Taxpayers have been left with all the risk over two multibillion-pound contracts for new trains, a report by MPs has said.

The Department for Transport (DfT) decided to lead on procurements of new trains for the Intercity Express programme and for the Thameslink project "despite having no previous experience of doing so", the House of Commons Public Accounts Committee said.

The report continued: "These two major projects also demonstrate yet again that the department has limited capacity and capability to manage large-scale procurements, and that it remains overly reliant on consultants."

The committee's chairman, Margaret Hodge (Lab: Barking), said: "The department decision to buy the new trains itself has left the taxpayer bearing all the risk.
$1.2 billion contract OKd for new Muni Metro light-rail cars

When Muni bought its current fleet of light-rail cars from Italian manufacturer Breda in 1996, Haley said, it didn't buy enough cars and tinkered too much with customizing the design. Its reliability requirements also were too lax and it didn't take maintenance costs into account.

"We tried to learn the lessons from the previous procurement," he said. So the MTA plans to buy more rail cars this time, let the manufacturer handle most of the design, require better performance from the vehicles and consider the costs and time requirements of maintenance.

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