Competitive Contracting Is the Taxpayer's Best Friend

Suppose that you need to have some major repairs done to your home. You don t have any idea how much the job should cost and you certainly don t want to spend more than necessary to get the work done right. What do you do?

The smart homeowner that you are, you d solicit bids from several firms you believe to be reliable and then go with the best one. You certainly would not arbitrarily exclude some reliable contractors from the bidding-after all, one of the excluded contractors might come in with a lower bid and save you plenty of money. That's economic rationality at work. You try to get the most value for the money. Individuals have a very strong incentive to behave this way because if they don t, they lose their own money.

When government officials spend taxpayers money, however, the incentive to strive for the best value is much weaker. Not infrequently, political decision-makers find it to be in their self-interest to restrict bidding to a favored few, or at least to exclude the unfavored. Funneling government money into the pockets of supporters may be good politics- it's been going on for centuries-but it's poor economics. Stifling competition in bidding often means that the taxpayers will pay more for the same work than they otherwise would.

One example of this is the project labor agreement (PLA). Under a PLA, work on a government facility is reserved for union labor alone, usually in conjunction with a no-strike promise. Non-union contractors who might be able to do the work or parts thereof are not allowed to bid. Two recent Michigan projects where PLAs were entered into are the Lansing minor league baseball stadium and the Calhoun County Jail.

How much does a PLA raise the cost of government construction?

Obviously, there isn t any one right answer, but we can say with confidence that it raises costs significantly. In New York, the experience with the Roswell Park Cancer Institute comes as close to a controlled experiment as we are likely to get. Roswell Park comprised several construction projects, several of which were done with PLAs and several of which were not. An analysis of the winning bids in each revealed that construction costs were 26 percent higher in those where PLAs were in effect compared with those where they were not.

In another study, done by the Construction Labor Research Council, the data indicated that the Massachusetts Water Resources Authority could have reaped significant hourly savings on its Boston Harbor project if it had not entered into a PLA. It is not an act of compassion to pay more than is necessary to get a job done when that means that those who earned the money in the first place are worse off as a consequence.

PLAs aren t just economically bad, however. There is an important moral dimension here, too. PLAs necessarily entail government discrimination against those citizens who are excluded from a chance to bid on projects. Just as it would be morally wrong for a governmental official to say, I won t enforce the law even-handedly because I like certain groups of people and dislike others, so it is wrong to say, I will see to it that government contracts are only awarded to people I like. Officeholders ought to be scrupulously impartial in all their dealings with the public. They have no right to favor some citizens and disfavor others just because the former are political supporters, a practice made all the more odious because it increases the tax burden on the populace in general.

The solution to this problem is simple. The Legislature could pass a statute requiring open, competitive bidding on all government contracts in the state. Or, if that remedy is thought to intrude unduly on local self-rule, the Legislature could at least exercise fiscal prudence by requiring open bidding on all projects funded wholly or partially by state money. That would affect many projects, the Lansing stadium among them. The state is kicking in $1.28 million toward that project's $10 million cost, a figure inflated by the presence of a PLA. The Legislature owes it to the taxpayers from all parts of the state to ensure that their tax dollars are not being frittered away by local officeholders in political favoritism.

Open, competitive bidding for contracts is your best friend as a consumer and it is also your best friend as a taxpayer. We insist on it out of self-interest in the former and ought to insist on it in the latter case, too.