Georgia State Senators Chip Pearson (51st), Jack “Tax The Strippers” Murphy (27th), Jim Butterworth (50th), Jeff Mullis (53rd) and Lee Hawkins (49th) have co-sponsored SB 29. This legislation seeks to keep the Georgia Department of Transportation unable to effectively issue contracts to those companies deemed to provide the highest quality for the lowest price, instead opting to erect inefficiencies in the market system to ensure that “the department shall, whenever reasonable and practicable, award at least 10 percent of all contracts to a small business.”
For GDOT, which is already laboring under myriad problems, this legislation will do more harm then good and limit the ability for contracts to be issued, in some cases, to the best bidder.
This is not to say the answer is in “no-bid” contracting. Far from it. But the essential question is why must contracts be directed to companies simply because they employ fewer employees? Why must bidding for contracts using the people’s money be trying to supplement some fevered dream to sustain small business?
Inherent in capitalism is the concept of ‘freedom of contract.’ This allows all businesses to compete for the same dollar a buyer has or, in this case, a government agency must spend in order to maintain transportation infrastructure. Contracting should be accomplished through full and open competitive procedures at all times.
Does this mean that, at times, small business may be unable to accomplish large tasks? Yes! But there is nothing wrong with that. Every day, businesses small and large must each compete and, every day, businesses small and large succeed and fail. It is not the government’s job to encourage small business by spoon feeding them contracts even when their quality of product may be deficient. Indeed, government must be a wise steward of the people’s money and keep that as their sole goal in its disbursement.
SB 29 should be left on the trash heap of failed “feel good” ideas and market capitalism should be left to reign.
[UPDATE] As Senator Jack Murphy is involved in this legislation, I contacted Kiki and Bambi again to gauge their reaction to same as Murphy had previously considered taxing entrance into their clubs to be a good revenue generator under legislation he conceptualized but has yet to file. Both Kiki and Bambi are adamently against this legislation, and, because of all the weenies who complained about their original picture in a previous post, have forwarded their new portrait which they hope will not offend the tender and gentle sensibilities of some Peach Pundit readers.
{ 33 comments }
Dr. Rogue seems not to have done much study on the concept of “barrier to entry” in his many economics courses.
Dr. odinseye2k seems not to have done much study on the concept of the “life cycle” of business.
This not only calls for 10% of the contracts to go to small business, it also calls for 10% of the budget. Since the largest projects are the most expensive, and can not be performed by small businesses, GDOT will have to set aside much more than 10% of the contracts. If you insist on set asides, pick one, either the number of contracts, or the dollar value, pick your percentage, and be done with it. By picking both, you will make things very difficult to manage.
joe:
Regardless of which they pick, it will still be difficult to manage and will not save the hard-earned money of the taxpayer.
If low bid is good enough for most all state contracts, what is the wisdom in this new DOT bidding procedure? Joe has a good point.
Whatever, I still consider Butterworth and Pearson(my State Senator) very sensible people. As to Hawkins, I wish Mark Musselwhite had beaten him.
And Andrew Miller should have beaten Murphy.
Isn’t this replacing some of the past laws?
I think the point is that “pure” free market situations give a situation where the big players can engage in loss leaders on will in order to effectively starve out nascent players and then raise their rates later to recoup that cost. Meanwhile, the new small guy that may have had the innovative idea (which is why we do this life-and-death market thing, after all) has just died not due to the merits inherent in the two business models, but just because the big guy can perform a tactical maneuver to squeeze the little guy out of business.
10% is a pretty small amount of money to put into seed, and the actual difference is probably much less, as it has been pointed out that the small business contracts are relegated to auxiliary and smaller tasks that they have not worked themselves up to.
It appears to be modifying them just so small companies can bid , but I assume that they will still have to be bondable at the same standards (amounts) which may exclude many small businesses.
so i have thought about this legislation and find a couple of things interesting
1. if the concern is that large companies will use it as a loss leader then why not just change the law that says if a contract awarded is ever increased by more than 5% the contract is void and the work will be rebid. Force the bidders to provide honest contracts.
2. Do not allow more than one automatic renewal of contracts for services
3. there are many jobs that a small business is much more agile and able to handle that bigger firms can’t and won’t do
4. doesn’t pearson onw a small business that is involved in roads and such?
Well, I mean we can also ask for enforcement of anti-trust laws w.r.t. monopolistic practices, but when’s the last time one of those lawsuits was brought by the DOJ?
My friend odinseye2k is right. In fact Adam Smith was very clear that too much control in few hands hurts capitalism.
Your analysis of Adam Smith is incorrect. Smith believed in the “invisible hand” of competition that allowed businesses which were the most competitive and profitable to win the day. By freeing up markets and not parsing out contracts to certain groups irrespective of competitive bidding, the very goal of keeping as many hands in the market is achieved, which is what appears to be odinseye2k’s and your goal. This legislation would go against the very ideals you espouse.
Barriers to entry for asphalt paving contractors are not exceptionally high, and as a matter of fact the paving market niche is very competitive. The “barriers to entry” argument is a red herring in this context.
Additionally, there are a large number of firms competing in this market area. Therefore the “loss leader drives out competition” argument lacks empirical support and is a red herring in this context.
Why don’t they look at who’s subbing out what to who among the big players? And then, when they ask themselves why didn’t the little guy deal with us directly? Too many rules and regs. But it does say “whenever reasonable and practicable.”
Rogue109
FYI
…..Adam Smith was a firm believer in the virtues of laissez faire capitalism. He is often quoted and referred to by economists and monetary gurus. Adam Smith was in his day, and often since, criticized for having no sense of feeling for the violent swings and displacements that could be caused should capitalism be allowed to run along its merry untethered way. People would suffer unemployment. The cost of goods or seed grain might fluctuate wildly. People might play speculation games in the market that would create havoc in an otherwise stable system. Crashes in the market would leave people devastated. Now there are those who will tell you that such bubbles and dashes of market vagaries wouldn’t happen in a truly pure and unfettered market economy.
Surprisingly, the often misquoted Adam Smith was not among them. Adam Smith believed that there should be limitations on what corporations should and shouldn’t be allowed to get away with. He thought that the English South Sea Bubble scandal of 1711 was an outrage and exactly the kind of thing the public should be protected from. During it’s run of power, members of parliament took bribes, and members of the corporation got rich, and members of the public got bilked while the worthless stock rose from 128 pounds to 1700 pounds and plummeted back down to 128 pounds again in a single year, purely from speculation urged on by the South Sea Company. The South Sea Company was one of the first corporations ever founded and one of the earliest examples of manic greed speculation. The company was supposed to have been preparing to trade with the new world, when in fact the treaty rights it held with Spain only allowed for one or two cargo loads per year. The company had grand schemes, but really nothing to do with itself. So the worth of the company existed on paper and in the hype of it’s owners, trading and reissuing new stock, much like Enron today.
Smith also believed that monopolies were the death of the free market, and that the government should do whatever it could to step in and break up monopolies when they formed to insure just competition for the worth of labor. But even more than government regulation, which he believed should be kept to a minimum, Adam Smith was a deep believer in something he called “the unseen hand” – a magical force that would somehow curtail man’s baser nature and insure mostly just dealings for most people most of the time…….
FYI
Adam Smith’s Dead Hand
http://www.tuppenceworth.ie/Politics/smithhand.html
Its always unfortunate when Republicans think that they are smarter than the markets.
Keynesian Republicans are now in the majority.
Get back to the thread about DOT contracts. The idea should be to attract companies with the expertise to do the jobs-not to repell them.
Even if a DOT job asks for a RFP – you still want a company large & skilled enough to handle the project.
10% of DOT’s project budget is a significant amount.
Clone Of B. Plyler
Why does a company have to be large to be skilled? I have used many vendors and size does not always equate to skill or good service. Also the lowest price does not always cost you less in the long run. Many times you pay for what you get.
John,
Everything you are saying is true. It’s just that DOT projects are large. RFP’s can get you around the low bid procedure. However, a small company will have to become large in order to do DOT projects.
Small companies are often more innovative, as they have to do the same – typically, far better – work with less resources available. So they get creative in how to accomplish the task.
That said, I personally HATE the ‘innovation’ of concrete roads rather than asphalt. It makes driving on a cloudy day or in rainy situations an absolute NIGHTMARE for those like me with any kind of eye trouble. Just throwing that out there in case anyone with any kind of authority in GDOT is looking at this.
back on topic: not a fan of earmarks for ANYTHING. If the small business can outbid the larger business, GREAT. If not, tough luck. But if the larger business gets the deal because the owner knows someone with influence, that corruption needs to be eliminated.
Let’s say the GaDOT bid for contracts specifies for the construction of a 20 mile stretch of highway, to GaDOT standards from guard rail to guard rail.
The bids will be restricted to large companies capable of the complete project.
Let’s say there is a small business that specializes only in guard rail installation and is able to install guard rails more efficiently and at a reduced cost to the State. The small business wouldn’t be able to bid on guard rail installations because bids were only accepted for the complete project, even though they could install guard rails cheaper than the large company.
If this bill causes the GaDOT to alter the bid process in a way to save money, I support it.
bowers:
Using your scenario, would it not be more efficient to pass a law forcing GDOT to break projects up into the smallest possible task, then seek a new bid for each task?
In such a system, the small business that only does guard rail installation could win on that piece, even if the larger company wins out on all the rest.
Of course, that could just be the way my brain works/the way I was trained.
How do you build a multi-million line of code program?
One piece at a time.
There may not be enough small businesses to handle each task broken down as you describe for all ongoing and future projects, I don’t know. I’m assuming that’s why the bill reads whenever possible, but again, I don’t know.
Just to stimulate the conversation, here’s a posting from a gentleman in Scotland who also disagrees with me (take a number!):
http://adamsmithslostlegacy.com/2009/01/blogger-attacks-others-for-not-knowing.html
Rogue109
I still love you and would use as my lawyer anytime!
John Konop:
Adam Smith was a firm believer in the virtues of laissez faire capitalism.
Then I, again, am not sure where the lectures are coming from both with you, the professor in Scotland, and elsewhere. At its core, my comments and position stand true and in line with Smith’s. You can talk about Smith’s belief in the destructive power of monopolies to the free market, but that is not what is at issue here because I don’t see only one construction company handling all road work in Georgia.
What we are talking about is introducing market inefficiencies into the system through this Senate Bill.
I still love you and would use as my lawyer anytime!
Shucks, thanks! Since Bill Simon is always so concerned about my “receivables” and “accounts,” for you I’ll work pro bono.
Rogue109
The point is not to promote consolidation of industries. The bill made sure the companies could do the work and it help break up the influence of large companies. Smith warned about undue influence of large companies. If a small company cannot do the work they should not get the business and it is a small percentage anyways.
As a skilled lawyer I am sure you will have a great come back!
As a skilled lawyer I am sure you will have a great come back!
Your premise is flawed due to the fact that I have few skills (grin).
Great lawyer under sell and over deliver!
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