Doing Whose Bidding?
Prop. 224 aims to change how state contracts are awarded to private firms.
Thursday, April 23, 1998
Californians are paying through the nose for costly state engineering contracts awarded to private firms who have given millions to Governor Pete Wilson''s election campaigns.
So say backers of the so-called "Competitive Bidding Initiative," Proposition 224, which will appear on the June 2 ballot. The measure would require that all engineering, architecture and surveying contracts appropriated from state funds be awarded to the lowest bidder, eliminating the current system which initiative supporters say rewards firms that can afford to make big political contributions.
"Some of these contracts are costing taxpayers twice what they are worth," says Bruce Blanning, executive assistant to the Professional Engineers in California Government, the initiative''s sponsor. Unlike construction contracts, the current no-bid system for contracting "professional services" like engineering, awards contracts to those firms deemed "most qualified" according to experience and the resources to complete the work. Price is discussed only after the contract has already been awarded.
By making price the last consideration, says Blanning, the state is throwing away over $100 million a year on private contracts that could be done more cheaply by state agencies themselves. CalTrans engineering contracts are the most heavily impacted by the measure. That agency awarded about $3 billion in engineering contracts last year.
According to Blanning, CalTrans engineers typically make only about two-thirds the salary of those in the private sector. The cost of contracting out is further increased by private sector overhead and the need to make a profit. "State engineers believe they can do the work at less cost," says Blanning, adding that private firms submitting lower bids would naturally receive more contracts. "Either way, the taxpayer wins," says Blanning.
Although backers of the measure claim it will save taxpayers millions of dollars, two of California''s high-profile tax reform groups, the Howard Jarvis Taxpayers Association and California Taxpayer''s Association, have come out against the initiative.
The measure has also divided the labor community. The California Federation of Teachers is supporting the initiative while the California Teachers Association is not. The measure has broad support among unions representing state workers, such as the SEIU, but the State Building and Construction Trades Council, as well as several local labor councils are opposing it.
Polls conducted by Prop. 224 backers indicate that about 80 percent of those polled believe all state contracts should be competitively bid. Nevertheless, opponents say that while Prop. 224 looks good on paper, it will actually will hurt both small businesses and California taxpayers by adding another layer to the state bureaucracy.
"It''s not competitive bidding at all. It''s completely anti-competitive," says Al Lundeen with Taxpayers Against 224. Lundeen adds that the measure is simply a way for state engineers to feather their own nest and calls the competitive bidding measure "a rigged system," that would shift thousands of jobs from the private sector to the state payroll.
As Lundeen sees it, the problem is that state agencies would not be required to consider their overhead when submitting a bid, while private firms would have to include such costs. "So it''s really an apples-to-oranges comparison," says Lundeen, who claims the new law would actually cost taxpayers $1.7 billion a year by adding some 12,000 employees to the state payroll.
"It creates a completely uneven playing field. This initiative will only make government larger" he adds.
Lundeen also claims the measure does nothing to keep state agencies from going over budget or from missing deadlines, and creating costly overruns and bottlenecks that would delay important public safety projects like seismic retrofitting.
Although competitive bidding makes sense for construction contracts, Lundeen says professional services are completely different. "In construction contracts, the parameters are clear. You know what something is going to cost." Professional services like architecture and engineering, says Lundeen, are more difficult to pin down. "To a certain extent, when you design a building, you are getting paid for you ideas," he says.
While he admits that the current system could be made to work better, Lundeen says other states use a similar process and that California is not doing anything strange. "What is clear is that taxpayers will not get a fair shake under Prop. 224 because the state bureaucrats are only looking out for their own interests," he says.
But backers of Prop. 224 claim that the current system leaves contracts open to political pressure and rewards firms that make large campaign contributions, particularly those who have contributed to Gov. Wilson.
Tony Miller, who founded the Californians for Political Reform Foundation and authored Prop. 208, the campaign finance reform measure now tied up in court, conducted a study that he says shows that many firms receiving lucrative no-bid contracts also made significant contributions to Wilson''s campaigns.
Nearly half a million dollars has flowed from these companies into Wilson campaign coffers since 1988, and about $125,000 has come from the giant Bechtel corporation--one of the leading recipients of state contracts. Miller, who has taken no position on Prop. 224, says the current system "provides the appearance of buying contracts with contributions," and adds "generally, most people believe that contributions buy access. At the very least, there is a perception of wrongdoing."
While Miller is careful to point out that there is no direct evidence of quid pro quo in the awarding of state contracts, he said that competitive bidding could eliminate the possibility.
"Those who make decisions regarding contracts work for the governor. Human nature being what it is, there is a tendency to want to please. If awarding a contract means rewarding a friend of the boss, that certainly isn''t going to hurt your career," says Miller.
The contracts-for-contributions scenario becomes more troubling on the local level, says Miller, where elected officials are often the ones awarding contracts. "There are probably more problems on the local level because there is less visibility." Local transit authorities, for example, are likely to be more accessible to potential recipients of government contracts. "Often they are dealing with the same people they play golf with or have drinks with," says Miller.
Locally, almost all county contracts are put out to bid, but that, says one local official, does not mean such a contracts-for-contributions system doesn''t exist.
"I''ve honestly never seen it, but the opportunity might well exist," says District 5 Supervisor Dave Potter. "Anytime we have a contract at the county level of any significance, it has to go out to bid. If you don''t do that on a regular basis, you do end up with contracts on a good-old-boy basis."
While Miller''s study focused on the known Wilson contributors who received large state contracts, it is not clear how many companies that received contracts did not make contributions. However, said Miller, it appears as though contributions are the rule rather than the exception.
"My sense is that very few contractors who received no-bid contracts had not made contributions," says Miller.
Lundeen maintains there is no connection between contributions and contracts. "The governor simply does not have the power to award these contracts," says Lundeen, adding that the measure would concentrate more power in the state controller''s office. "Under Prop. 224, you will have unelected bureaucrats controlling the process who can''t be held accountable," says Lundeen. "If there were any evidence of wrongdoing, voters could simply kick [elected officials] out of office."
Both sides claim the measure will have a significant impact on small contractors in the state. While opponents say the measure will cost about 80,000 jobs in the private sector, the measure''s backers claim that small businesses will be able to compete more effectively. Edmundo Lopez with the Hispanic Contractors Association says that, under the current system, large firms like Flour-Daniel and Bechtel have established a pecking order that locks out smaller companies who are just as qualified to do the work.
"In today''s system, small business doesn''t stand much of a chance against the big boys," says Lopez. If contractors were required to be competitive on costs, Lopez maintains more contracts would find their way to small businesses. "Our overhead is much lower and we have much more flexibility. So overall, small companies would fare better and the taxpayer would fare much better."
More contracts for small firms also means more jobs for California women and minorities. "If you take a look at the work force of your major corporations, it''s typically not representative of the rest of the state," says Lopez, adding that only about 2 percent of state transportation contract work currently goes to Latinos. "The big companies have simply not come around to increasing the diversity of their work forces."
Lopez also shares Miller''s concern that the process is open to political pressure. "How else can you explain the distribution of these contracts? No one knows what goes on behind the closed doors but it makes me wonder if there is that hand there in the shadows," he says. "The process is definitely flawed because it lends itself to that temptation." cw