Should the City Give Preference to Local Businesses When Awarding Contracts?
The City of College Park recently went through the process of identifying a company to redesign the city's web site. Since my company, which is located in College Park, builds web sites for non-profits, associations, and small businesses, I decided to submit a proposal. The budget for the web site was about half of what we usually bid for something of the scope outlined in the city's RFP, and as such, I offered a 50% discount in our proposal—I wanted to give back to the community that I've called home for 30+ years, more than I wanted to actually make any money on the project. But my company hasn't done any municipal work before, and that was one of the factors listed, so I didn't have very high hopes of winning the contract. I was recently notified by the project manager that we didn't make it to the top two for the project, and was a little disappointed, but we have a ton of other work, so I moved on with life, and all was well.
As I was reading through the agenda for the city council worksession on 3/20, I discovered that despite stating a preference for an open source content management system (CMS) in their RFP, the city staff was planning to recommend a provider that will use a proprietary CMS for the web site. That may not be a big deal to the average person, but I've had plenty of clients get burned by using a proprietary CMS, and so I commented on it here on the Patch. Another commentor apparently took my comment to be sour grapes for not winning the project, focusing more on my statement that my company is local, than my dissatisfaction about the choice to go with a proprietary CMS. His comment was, "So, you have no municipal experience and you cost more then the other company but expect to get the contract because you are local? If you worked for the gov what would your criteria be for selecting vendors?"
That got me thinking, and when I think I tend to also do research. Should the city give preference to local businesses when awarding contracts? Yes! And here's why:
- Giving preference to local businesses will help stimulate economic growth within the community
- Keeping business in the city will help create new jobs in the city
- Awarding contracts to businesses in College Park will keep at least some of the money from those contract in the city
- It helps promote good will to local businesses, and might encourage other businesses to move to College Park
- Who knows the city better than the people that live and work here?
So what can the city do? Let's take a look at what other cities are doing, to help stimulate their local economies by giving a preference to local businesses. This is just a small sample of the hundreds, if not thousands of municipalties, around the US that have local preference ordinances:
- Los Angeles, CA has a Local Preference Ordinance. In a low-bid scenario, it reduces the local business bid by 8% (so if the local business bids $1 million, the bid used for comparison would actually be $920,000). For RFP situations, the ordinance awards additional evaluation points to the local bidder. According to a press release from Santa Ana, CA, which also offers a Local Preference Ordinance, 92 cities in California have similar local preferences.
- Lancing, MI, also has a Local Preference Ordinance, which requires getting a quote from at least one Lancing based business on purchases over $1,000 when possible. It also lowers the bid price for Lancing based businesses by 5% for purchases over $15,000.
- Philadelphia, PA gives a 5% bid preference for certified local vendors.
- Yuma, AZ also gives a 5% bid preference for local contractors.
A 5-8% difference in price wouldn't have given the bid that my company submitted any competitive advantage, plus we still don't have municipal experience, so it probably wouldn't have mattered in the case of the city's web site. But it might matter the next time the city needs to hire an architect, caterer, marketing firm, or graphic designer. And by asking the city's staff to at least think local first when it comes to purchasing, we'll help keep that money local.
What do you think? Would it help the city to enact a similar ordinance?
Lee Havis
7:14 am on Friday, March 30, 2012
Sorry.
There's a saying that goes like this: "hard cases make bad law" It's not sound policy to give preferences for any other reason that the sound judgment of a job well done. Your "hard case" is not due to a failure to give "preference", but to judgment that is out of your hands. You are not on the council,and so you can't force others to agree with your judgment of what is a job "well done" and "deserving" To try to make the issue into "local preference" would be to institute "bad law."
How many local businesses would not simply add to their price, because the more competitive outside business is denied. Doing things for "favor" is, regrettably, too common political practice that has become "business as usual" in places like Annapolis; and PG county. It is bad policy, because it subsidizes waste, greed, and corruption. In the end, local preferences is the same bad idea of giving people more money then their work produces. This leads to deficit spending, and crushing burdens of taxing to spend for over-priced and unnecessary things we can't really afford. People who look for "preferences" are those who really can't or don't feel they should have to compete in the open marketplace. They feel "entitled" to special treatment. This is how corruption enters into government, and it breeds trading votes for "favors" Jack Johnson, our former county executive, found this concept readily acceptable to many in this country. But it is a concept that must change.
Chrissy Rey
9:17 am on Friday, March 30, 2012
No "hard case" here :-) My issue with the content management system is completely separate from the "local preference" issue. And it's an issue that at least one council member is also concerned about. The only reason I mentioned it in this post was to give some background on why I did the research in the first place.
Regarding the real issue here (local preference), you didn't address any of my reasons for it. Do you disagree that awarding contracts to businesses in College Park will keep at least some of the money from those contract in the city? The reason I think that's important to this particular issue is because the 5-8% edge that a local business would get is actually money that would be returned to the city in the form of taxes, licenses, fees, etc... Because of the relatively high cost of doing business in the DC area, it's very, very possible that the 5-8% would never make a difference. I know for the bid my company submitted, we couldn't have gone any lower without losing money on the project.
Chrissy Rey
9:29 am on Friday, March 30, 2012
I also don't think that a local preference would cause businesses to raise their prices. In a low-bid scenario, bidders aren't typically aware of what everyone else will be bidding. Businesses are still going to put forth their "best price" in the bid, regardless of where they are located.
How do you feel about outsourcing work offshore? Are you alright with US workers losing their jobs because it's cheaper to have someone in Bangalore do their job for a fraction of the cost?
Lee Havis
10:33 am on Friday, March 30, 2012
Chrissy,
"Keeping money local" is just a clever way of saying "favoring the local talent" -- Money is a national currency at present. You don't have to exchange your Maryland dollars for those in Virginia. The problem with "local talent" issue is that it is highly subject to abuse -- because politicians typically gouge money from local tax-payers and get campaign money from "local" businesses, and so there's a natural bribery graft system set up; a vote buying scam. (It reminds me of the argument for "safety" of the children to put up speed cameras -- it's really about money, in case you're asking)
Now, on the question of "foreign talent" I must admit I use a Bangalore web-designer, as do a lot of others. (Isn't the internet great). For those who want to "keep jobs in US" the answer is to enforce immigration laws; lower taxes on businesses; lower regulations; abolish minimum wage so people have to earn for real value. Close the government schools, so the education of children will increase. Economy will boom everywhere with freedom - and no country on earth can compete for quality that comes from competition rather than protection and censorship from government.
US needs to learn from Greece economy, that you can keep driving up the prices by "special favors" that distort the free economy. I would prefer to hire local, if the quality and value is right - and "local talent" has a natural advantage for many logical reasons.
Chrissy Rey
11:00 am on Friday, March 30, 2012
Let me see if I can make the "keep money local" bit a little more clear. If the city hires a company in Virginia, the tax dollars, business license fees, and occupancy permit fees paid by the Virginia business go to the local municipality in Virginia. If the city hires a company in College Park, those dollars go to the city.
Imagine that the city requested bids from catering companies for a large event. And then imagine that Company A, which is located in Alexandria, VA bid $10,000. And let's further imagine that Company B, which is located in College Park, MD, bid $11,000. Both companies have great food, rave reviews, and they are offering the exact same menus. Without a local preference, the city would choose Company A. And if there was a 5-8% local preference for bids, the city would choose... Company A, because $1,000 is greater than the preference amount, which means that Company B would still be too much.
Chrissy Rey
11:12 am on Friday, March 30, 2012
Now imagine that Company B's bid (which was in all other ways identical to the other) was $10,500, which with a 5-8% local preference for bids would make them the preferred bidder, so they won the contract. Then imagine that Company B has to pay the county a U&O permit fee ($75 minimum) and the city non-residential occupancy permit (I believe we paid $120 last year for an office suite, and I think the occupancy permit fees are based on square footage) every year. Also imagine they are filing a personal property return for the business (the fee for that, which goes to the state, is $300). And most likely the business will also have to pay a personal property tax to both the county and the city. Plus depending on whether or not the company owns their property, they might also be paying real property taxes, a portion of which also goes to the city. If they are renting, they are paying that rent to a landlord, who then uses at least a portion of that money to pay those real property taxes, so either way the city is getting that money. Also depending on the type of business, they might be paying for licenses to the county and/or city to run their business.
Chrissy Rey
11:20 am on Friday, March 30, 2012
And now... imagine that the catering company is also owned by someone that lives in the area. Depending on the structure of the company (let's just imagine it's an LLC or a single-owner corporation) the owner of the company is taxed on the profit from the company. Where do those tax dollars go? Yes, some go to the IRS, but a large chunk of it also goes to the state, county, and municipality where that owner lives.
Lee Havis
11:17 am on Friday, March 30, 2012
If the purpose of business were to enrich government, there might be some benefit to giving preferences on government contracts as you suggest to "local talent." but your example really makes the case very well. The Virginia company delivers the same quality for $1,000 less -- even if they are further away. Using that company means that CP taxpayers get to keep more of their tax dollars which don't need to be paid to enhance some "preferred" inefficient, costly local contractor (who can't compete in a fair, free market -- he needs "government bail out")
Think about the CP residents who work in Alexandria, and brings back VA dollars to pay CP city property taxes; and income taxes besides. The reason the CP resident works in Alexandria in the first place is because that is where the jobs are. Why do you suppose that is? Could it be that government there is more favorable to business and employment?
If PG county keeps gouging taxpayers and giving special preferences for inefficient businesses, it will start to look like Detroit -- which is the poster child for the socialist model that so many of the political leaders and their followers seem to favor here. Let's get government out of the "protection" racket, and we'll all be better off. Heh! Maybe you can even bid successfully for contracts in Virginia! Wouldn't that be something?
Chrissy Rey
11:46 am on Friday, March 30, 2012
In my first example, the *VA company* would have won the contract if the price difference was $1,000, not the local one. It was only if the price difference was much smaller, and the return on investment for the city from fees and tax dollars would more than make up the difference, that the local preference would apply. I'll have to research the numbers, but I think in that case, there would be no effective increase in what taxpayers are spending on the local option, because the money returned to the city by the local vendor would more than make up for the small difference in price.
Also there are a few "local preference" ordinances that don't give a competitive advantage to local companies, they simply require the city to seek a minimum number of bids from qualified local vendors, in addition to vendors from outside of the area. Those would get the staff to at least think about using locally-owned vendors, when such options exist, but allow everyone to compete on equal footing.
Lee Havis
11:42 am on Friday, March 30, 2012
In an economy controlled and operated entirely by government (socialism), it would be logical to reason and "game" the system based on government contracting alone as you suggest. However, socialism is a wasteful and inefficient system, given to equal poverty to all, killing incentives for individual initiative, full of corruption bred by artificial incentives - in this system of slavery dependency on government, your reasoning makes good sense. But if you hope to compete outside of government, you have to delivery quality for the best price, based on actual value - not artificial by government "incentives"
Free economies are more efficient because competition forces excellence that you never get from government "businesses", such as, for example, the government school system, or the US post office. So, in the end, even the CP government would have to bid jobs from the free operating, capitalistic companies that thrive in China and India -- because even the CP government can't survive for long on slip-shod, inferior goods and services. Look at Russia and eastern europe.
If there is a choice, quality will find a balance between buyer and seller. You are talking about a controlled economy. So, we come to different conclusions. The way of freedom works better than the slavery of government -- but we each have to think this out on our own. And your millage may differ.
Lee Havis
12:04 pm on Friday, March 30, 2012
Chrissy,
Government fees, penalties, and taxes, are artificial incentives to do business -- the higher the fees, the more the incentive to "compensate" the local businesses that are gouged. Then, you set up the spiral of inefficient business that "need" government bail outs. What you are suggesting is the same slippery slope that, at the national level, we experienced in the economic collapse of 2008. We are in this fix now, because the only economic sense of businesses was to "game" the system provided. The answer is not to try to out-think (game) the system of high taxes and fees to do business, and instead think "outside the box" in a free marketplace where local businesses have a NATURAL advantage of being close and having ready access to NATURAL efficiencies. You are looking to "game" the system, which began in small ways like the minimum wage law. Now, it's gone way out of control to some "living wage" as if government should protect everyone from failure. This creates a "moral risk" that human nature always leads to poverty, monopoly, and sistemic crisis. You are looking at the trees (the hard case) and missing the forest.
Socialism is the enemy of freedom. Government charging higher fees to delivery poorer quality services than the free marketplace could provide at higher value. When you think from a freedom context, you stop trying to "game" a corrupt system of all-government control of the market.
Lee Havis
12:08 pm on Friday, March 30, 2012
I think there are some "free market" young people in Maryland -- because Ron Paul only came to speak in CP because there were enough young people who signed a petition. I understand his lecture was well attended. That makes me proud and a little more (not much) confident that there are some young people in CP at the University who are open to the idea of functioning in a free society -- rather than the artificial promise of socialism. Maybe there is hope yet for freedom in the free state.
SF
10:05 am on Monday, April 2, 2012
Chrissy. Yes. (and, I give a preference to local businesses when I am buying a product or services for all the good reasons you articulate).
Laura Nelson
9:57 pm on Monday, April 2, 2012
Chrissy's company has a lot of experience and offers outstanding service, and I think her point of basing the new website on an open source CMS is a very important one. I really think that a whole lot of good taxpayer money could be wasted here by going with a proprietary CMS. It the site or service doesn't work out, for whatever reason with the company with the proprietary CMS, you've got to start from scratch with a new company and site. You're stuck with them. Not a wise way to do business.
Ass Eater
10:14 pm on Thursday, April 5, 2012
Do you also think that taxpayer money is wasted when they buy Microsoft products - cause they are also proprietary. In fact most "business" related software is proprietary.
Lets say the gov went with Chrissy's small company. She did an open source CMS. But then her business closed shop. What should the city do then when they have a multi year contract?
I dont think the city did anything wrong.
Chrissy Rey
10:51 pm on Thursday, April 5, 2012
Actually, yes, I think they might be wasting money on Microsoft products when they could be using Google apps instead, or even Open Office ;-) I'm not actually anti-proprietary-software, I'm just wary of proprietary content management systems from small companies. I've had way too many clients get burned with them.
The CMS that we proposed (WordPress) has an extensive user and developer base, and is not going to go away if any single company goes out of business. If my company suddenly closed up shop, there are thousands of other developers that could step right in and take over management of a WordPress site we built, because they already know the system.
Plus there's no ongoing license fee associated with the WordPress core, so the city wouldn't have to pay to update to the latest version a year from now, five years from now, or 10 years from now. If I remember correctly, Revize is going to charge $1,800/year for licensing. They could change that down the road; they could charge the city $18,000/year, and they would be totally within their rights to do that since it's a proprietary CMS, so they can charge whatever they want for it. But assuming they keep the price at $1,800 for the next 10 years, that will be $18,000 worth of *just* licensing fees that the city will pay, versus $0 for licensing WordPress (or Drupal, or Joomla, or another open-source CMS).