The ethics of preference programs
Over time, well-intentioned political figures have sought to “help” businesses they see as disadvantaged in the marketplace by offering preference programs specific to their agency’s public purchasing process. Whether based on geographical location or socio-economic status, these programs seek to offer assistance to a class of business deemed to be at some sort of disadvantage in the public procurement process. However, the existence of preference programs upsets the free market forces that set prices and ensure adequate competition. It can also be argued that establishing any manner of preference in the public procurement process challenges an organization’s ethics by defining a new process to express favoritism in how tax revenues are spent and to establish a market that is no longer fair to all interested parties.
Historically, the management of the public procurement process has been rooted in fairness with public agencies offering a “level playing field” for all vendors wishing to do business with government. Sound policies and procedures govern how public dollars may be spent and how pricing proposals (bids) are received and evaluated. Public procurement professionals work diligently to provide complete bid documents to define clearly what the agency is seeking, the method by which a vendor should provide information and the manner by which the agency evaluates proposals. This methodology assures the vendor community that all interested parties are getting the same information and that, if they respond as directed, they will be evaluated in an equal fashion. This process also assures the taxpaying constituents of the agency that their funds are being spent equitably and fairly. The spending of funds entrusted to public agencies should be fair to anyone wishing to offer services to the local agency. By establishing a preference program that applies to the evaluation of solicitations, the local agency immediately upsets the concept of fairness and equal treatment of the entire vendor community. In action and effect, the agency is stating that a specific class of business deserves an advantage over their competitors when it comes to earning the business of government.
While most preference discussions come from the idea of looking to help develop “local” or (perceived) disadvantaged businesses, the execution of such a policy offers a crutch to affected businesses only when they are competing for the local agency business. When competing for private business among the same field of competitors in the “real world” (outside of government procurement and without a preference), they will be at a disadvantage.
Additionally, the agency runs the risk of putting the preferred class of businesses at a competitive disadvantage when they choose to bid on other governments’ contracts outside the sphere of their base preference. Especially in the case of “local” preference programs, many governments have instituted a “reciprocal” preference whereby a business that enjoys a preference in their home base of operations may be penalized by a similar amount when competing in other localities for that government agency’s business. In an effort to assist the affected vendor class, a local agency runs the real risk of hurting that business as they look for public agency customers beyond the local government that “helped” them via a preference program.
Examining the genesis of preference programs shows that, in most instances, a certain class of vendor is perceived to have a disadvantage in the local agency’s procurement process. But upon further examination, one finds that the vendors in question, more often than not, lack only the experience or understanding of how to compete under the local agency’s rules. The solicitation process for local agencies can be complex and initially confusing, but that process remains the best hope for continuing to offer a fair opportunity for vendors wishing to provide services to their local government. By offering outreach and education on how to provide responsive and competitive bids, the agency can offer far more assistance to the affected classification of vendor than any preference program might, as this education will help them compete in other jurisdictions as well.
In discussing a preference program, a local agency should consider the ethical statement they would make in establishing such a program. In effect, they would be declaring that it is acceptable to upset the concept of fairness in awarding agency contracts in order to assist a particular class of business. Further, they would be declaring that it is acceptable to overpay for services if it is done to assist a specific classification of business. Finally, it would be an acknowledgment or declaration that the affected business class could not otherwise compete for agency business without this assistance. Any such declaration upsets the ethical concept of fairness — to those that would enjoy the preference, those that would compete with those preferred businesses and those responsible for paying the bill.
About the author
Dan Marran, CPPO, C.P.M., is purchasing manager of Sparks, Nev. E-mail him at [email protected]. This article is based on the winner of the NIGP’s 2010 Ethics.