Competitive Bidding: The ‘politics' of awarding bids
(from Maine Townsman, November 1997)
by Jo Josephson

In Augusta (pop. 20,384), recently the city council went with the lowest bidder for design work and permitting on its landfill. In doing so, the council rejected the recommendation of the solid waste management committee, the mayor and the city manager to not only go with the second highest bidder but to disqualify the lowest bidder. The second highest bidder argued that the city would save millions over the lifetime of the landfill by the design work performed early. The council’s vote followed an executive session with the city’s attorney.

In Rockland (pop 7,972), the city council initially did not go with the lowest bidder, in awarding a contract for street paving. In doing so, it rejected the recommendation of the city manager, who under the city’s purchasing ordinance, had the authority to make the award. The council argued that its choice, while not located in the city (just across city lines), did considerable business there and many of its employees lived there. After the threat of a lawsuit, the low bidder got the contract.

Welcome to the wild and woolly world of competitive bidding. A world buffeted by pressures from local businesses and stretched taut by unworkable guidelines. A world where an award to the lowest bidder may not necessarily be in the best interest of the town in the long run, but neither is a preference for local bidders. A world where sometimes it is in the best interest of the town not to bid out a contract at all.

It should be stated at the outset of this article that for the most part there are no statutes mandating competitive bidding at the local level (see 5 MRSA, section 1743-A). Which is to say, competitive bidding and the policies and ordinances that guide it are pretty much a home rule affair.

However, mandate or not, it is safe to say that most municipalities regularly engage in competitive bidding for large projects or costly equipment purchases. It is also safe to say most of them do not have a written policy, or ordinance guiding the process.

This article looks at seven Maine cities and towns that do have written policies and/or ordinances governing their purchases big and small. Risking the charge of committing an oxymoron, the article focuses primarily on the "politics" of competitive bidding. Which is to say, this article looks at how municipalities, especially small ones, deal with the ever present pressure of going with the local bid. It also looks briefly at the relationship between the manager and his or her elected board in terms of who has the authority to award the bid.

Written but Flexible Policy

As noted above, while most municipalities do competitive bidding on large purchases, most fear tying their hands when it comes to adopting procedural guidelines governing the process, other than going with the "lowest bidder". Hence, most towns prefer to operate without written guidelines. Hence, they prefer to operate with informal, unwritten policies.

When towns have written policies, such as those reported on in this article, they are often given the flexibility needed to ensure the town gets the best bid as well as the lowest bid. And if they do, say those who have, they can avoid a lot of expensive trouble and wasted time.

Jim McMahon, town manager of Bridgton (pop.4,213), is a strong advocate for written purchasing policies. In his opinion, policies do not have the force of state or local law; therefore, they are inherently more flexible and can be deviated from, when necessary. But they must be written, he says. "If it is not in writing, then it doesn’t exist," says McMahon, whose board of selectmen is guided by a five-page written policy.

While the principal arguments for written guidelines are that they standardize procedures, save taxpayers’ money, increase public confidence in the process, promote fair and equitable treatment of all suppliers and set forth the duties of those involved, this author would argue that, after studying guidelines in operation in places like Bridgton and elsewhere, written guidelines can also allow for a realistic, flexible, and accountable approach to competitive bidding that does not impinge on the integrity of the process .

Carl Betterley, town manager of Scarborough (pop. 14,800), uses the words not rigid in describing his town’s flexible purchasing policy. By not rigid, he means the policy does not tie the hands of the town. Scarborough’s six-page policy contains several clauses that give the town what Betterley calls "its out".

One clause states, "Competitive bidding shall be required for all purchases in excess of $2,500 unless specifically exempted by this Policy or by the action of the Town Council." Another clause allows for informal (as opposed to formal) bidding when the total purchase price is less than $7,500, unless the manager recommends the use of formal bidding procedures. Other clauses waive the requirement for competitive bidding in cases of emergency or when the purchase is inappropriate for competitive bidding due to the nature of the item, time constraints, or other factors."

Or other factors.

As Betterley told the TOWNSMAN, sometimes it is not in the best interest of the town, in the long run, to go out to bid. It should be noted that Scarborough’s policy requires that any waiving of competitive bidding be accompanied by a "full and complete statement of the reasons" for doing so by the manager.

Local Preference

Flexibility. For some towns, the word is synonymous with the term local local preference clauses that enable the municipal officials to give local businesses a preference. Three of the seven policies/ordinances reviewed for this article contained competitive edge and answer the question: "What do you do when you go out to bid and one of the bidders is a local business and their bid is just that close to winning?"

"I’ve seen local bidders losing by as little as $100 and when it happened, there was real consternation over what to do" Gene Conologue, town manager in Fort Fairfield (pop. 4,026), told the TOWNSMAN.

What to do about it has often, but not always, resulted in a policy that gives a preference to local businesses. It’s usually a measurable preference. In Fort Fairfield and Presque Isle, it’s a two percent preference; in Rockland, it’s five percent.

Pro

The most common argument in favor of local preference is that local vendors pay property taxes, so why shouldn’t they reap a bit of what they sow. They also spend their incomes locally and support local institutions. Another standard argument is that it is an inexpensive form of economic development. And last, but not least, is the argument that you get better and faster service when you do business locally.

For Presque Isle’s Conologue, a local preference policy is more psychological than anything else. "It tells those who have invested in the community that we appreciate them being here. It’s almost like a recognition. It says to a local business, it may be true that some of our dollars go out of town, but we do have a local preference policy."

Conologue says if you create a local preference, you should make it so that it does not discourage outside vendors as it encourages local vendors. He calls the two percent local preference he currently operates under in Fort Fairfield a good compromise and notes that in the seven years he has been in municipal government, local preference has only kicked in twice.

Conologue says places like Bangor and Portland don’t have to be concerned with local preference, as they have such an array of local vendors. That’s not the case in small communities, like Fort Fairfield.

Con

The most common argument against local preference is that by giving local businesses an advantage you are compromising the integrity of the bid process. That you are discouraging competition. And when you discourage competition, you do not necessarily get the lowest price, which is what competitive bidding is about in the first place.

As Ralph St. Pierre, finance director in South Portland (pop. 23,055), sees it, what you are really doing when you award a bid under a local preference policy is giving a tax break, using taxpayers’ money. And, if providing a local business with a subsidy is what your intentions are, there are better, more direct and open ways of doing it, says St. Pierre.

St. Pierre says one of the problems with local preference is that often there are no clear definitions of what was meant by local and he’s not sure one is possible given the fluid and global nature of the economy these days. Is a branch office of a bank local? Is a car dealership local? St. Pierre points out that large contractors, no matter where their home office is, usually hire locally rather than bring in their own crews.

As to the multiplier effect of local preference, St. Pierre says, "Just because people work in your town does not mean they live there and spend their money there." To shore up his argument, he notes that based on the 1990 Census, 46 percent of the residents of South Portland work in Portland while only 22 percent work in South Portland.

And last but not least, there are those who question the legality of local preference ordinances, arguing that they may violate the equal protection clause of the U.S. Constitution. It is not the intent of this article to debate this issue. Suffice it to say, state and federal courts have come down on both sides of the issue.

Local Preference Policies

That said, a look at the local preference policies of Fort Fairfield and Rockland follows:

Fort Fairfield’s two percent local preference policy is applicable to all bids between $500 and $100,000. On bids of over $100,000, a one percent local preference is given. The policy defines local as "any bidder whose business is located and operating within the town limits of Fort Fairfield." Location and operation is defined in Fort Fairfield’s policy as "owning, leasing, or renting space in the town limits and staffing the same for at least twenty hours a week during a period commencing thirty days prior to the bid deadline and continuing throughout the completion of the bid agreements."

In Rockland, where the local preference is five percent, local means "bidders whose company headquarters are in Rockland and/or who pay excise tax on vehicles in Rockland." Rockland’s policy also states, "If the two lowest bids are within five percent of each other and have each been submitted by companies located in Rockland or individuals living in Rockland, then price, quality and the reliability of past or expected services shall be the only consideration in awarding the bid."

It should be noted that in South Portland, there is a token preference for local bidders. The policy reads, "If all bids received are for the same total amount or unit price, quality and service being equal, the bid shall be awarded to the bidder whose principal place of business is located in the city." St. Pierre says to his knowledge that has never happened.

In the Best Interest of the Town

While Fort Fairfield, Presque Isle and Rockland give local businesses preference by percentage, Bridgton and Scarborough approach the issue of local preference indirectly, or some might say on a more subjective basis. Their policies never mention the term local preference. Instead they allow their municipal officials to award bids that are in the "best interest of" (Bridgton) or "most advantageous to " (Scarborough) the town.

In Scarborough, a bid that is "most advantageous to" the town means a bid chosen on the basis of price, as well as quality of merchandise, suitability of merchandise, and service reputation of the vendor, and therefore may not mean the lowest bid received.

As in all things, Scarborough does not bypass its low bidder lightly. Which is to say, town officials believe strongly that they are accountable for their decision. As such there is a section in its ordinance that notes, "If an award is made to other than the low bidder, the Purchasing Agent (Manager) shall file a full and complete statement of the reasons for determining that the low bid was not the bid most advantageous to the Town, together with all papers relating to the bidding process."

In Bridgton, factors considered in awarding a bid that would "benefit the town" are as follows: "quality of product/service; service of the product after the sale; price of the product/service; guarantee of the product/service (including the location of the bidder); and any other factors the Board deems necessary to the bidding process."

Bridgton’s McMahon admits that in small towns it is politically difficult to ignore local businesses. As such, the town’s policy forces the board to go through a meaningful exercise when not giving to either the lowest bidder or when giving or not giving to a local bidder. Which is to say, the exercise forces them to justify their decision. McMahon notes that the language of that section of the policy was "hashed out" with the local businesses; it was a collaborative effort.

Lowest Responsible Bidder

 South Portland’s ordinance, while not providing for local preference or bids in the best interest of the town has its own variation on the issue of flexibility when it comes to awarding bids. In addition to price, they also consider:

Who Awards the Bid

Given the fact that the criteria for awarding bids is a varied, albeit flexible, affair, it comes as no surprise that the authority to award the bid is also a varied affair. In Bridgton, Presque Isle and Fort Fairfield, awarding bids is the responsibility of the elected officials. In Rockland and Portland, it is the responsibility of the city manager. While in Scarborough and South Portland, it is a shared responsibility.

In Scarborough, the manager makes awards on purchases up to $25,000; the council makes awards on purchases in excess of $25,000. In South Portland awards over $10,000 are made by the council; awards between $5,000 and $10,000 are made by the city manager; awards under $5,000 are made by the city’s purchasing agent

Administrative Procedure

Those who argue that the manager and not the elected body should make the awards, say the awarding of bids is an administrative affair. Among those in this camp is South Portland’s St. Pierre who argues that there is no need to go to the council if you have a well-defined policy and process in place and if the item has been approved in the budget by the council.

"Not only does it delay the award, there is no good reason. It’s an administrative procedure," says St. Pierre, adding that "the state doesn’t go back to the legislature for approval of its purchases." But then again the state has clear and detailed procedures.

When asked to speculate as to why the authority rests with the elected officials in so many municipalities, South Portland’s St. Pierre says there could be several reasons, including the fact that there is no well-defined policy to begin with, and as such, it really is a matter of policy and not administration.

But just because there is a policy or ordinance in place does not necessarily mean it is workable or that it is adhered to. As noted above, such was the case in Rockland where competitive bids were required on all purchase in excess of $500. While the purchasing agent had the authority to make the awards, it had become the practice of the council to make the awards.

When some members of the council wanted to formalize that practice, by amending the ordinance, it was pointed out that not only would such an amendment lead to potential conflicts of interest, but it would also mean that the council would be spending a lot of its time awarding bids. Given the fact that the city issues more than 5,000 purchase orders a year, if the council were to vote on only half of those, it would mean that 25 bid awards would face the council each month. (In South Portland, where the council acts on bids in excess of $10,000, it acted on 34 bid awards in 1996-97 and 24 in 1995-96, according to St. Pierre).

Since the defeat of Rockland's amendment and another to give the council authority on purchases over $50,000, the city council has increased the workability of the ordinance by requiring competitive bidding on purchases in excess of $1,500 and clarified the wording of the ordinance, substituting "city manager" for the term "purchasing agent". Meanwhile, the city manager has created a 34-page purchasing manual to serve as a guide.

Political Procedure

Lack of a policy or lack of a clear and workable policy aside, St. Pierre speculates that another reason why elected bodies get involved with awarding bids is that they simply do not want to delegate the decision-making.

Scarborough’s Betterley, whose municipality does have a well-written policy and where the council has the authority to award bids in excess of $25,000, points out that while it may not be practical to bring the bids to the council for approval, by doing so you have provided a check that the process was indeed followed.

Fort Fairfield’s Conologue, whose municipality also has a well-written policy and where the council awards bid on purchases in excess of $5,000, says that by having the authority vested in the council it is a "way of allaying citizen fears that the non-elected officials are not being properly supervised. Like Betterley, Conologue sees it as a check on the system.

In fact, Conologue seems to prefer having the town council involved. "I like the idea of oversight by the council; I like the idea that our policy says that the elected officials are looking out for the community’s interests," says Conologue. "It is especially important in today’s world where so many feel alienated from government to be reassured that their representatives are watching out for their interests."

To those who say vesting the elected body with the final authority to make the award could be dangerous and lead to cronyism and favoritism, Presque Isle City Manager Tom Stevens says that could be a valid charge if the council were developing the bid specs. But as in Presque Isle and other municipalities, Stevens points out that "the specs are developed internally and with great sensitivity for not cutting anyone out."