Deal or No Deal?

Posted July 08, 2009, at 6:17 p.m.

When the state buys goods and services, it must balance diverse interests. On one hand, being prudent with taxpayer money leads to buying the lowest cost item. At the same time, the public often feels that state government should do business with local vendors. Sometimes these two interests don’t align.

Such is the case with a flag vendor in Corinth. World of Flags USA did not win a contract to sell U.S. and Maine flags to the state last year. In fact, its bid, when ranked by cost, was the fourth lowest. There was nearly a $1,000 — or 13 percent — difference between the winning bid and the bid from World of Flags. A Pennsylvania company now has the contract.

Requests for quotations, the system used for commodities such as flags, are mostly driven by cost. If a low bidder can meet the state’s needs, it gets the contract. Requests for proposals, which are used for services and more complex transactions, are based at least 25 percent on cost. Cost is a primary concern because the Division of Purchases is expected to get the best value for the state’s taxpayers.

World of Flags owner Walter Lougee decried the state’s decision as unfair in a recent article, although he did not appeal the decision when it was made in December. It was unfair, he said, because Maine should do business in Maine.

In fact, state government mostly does business in Maine; 86 percent of its contracts go to in-state companies, according to the Division of Purchases.

The idea that state government should favor in-state companies is appealing, but from a broader perspective it would hurt Maine businesses. Maine is a small market, so most manufacturers here have to depend on sales in other states or countries to prosper and expand. If these businesses want to sell their products in other states, they must expect companies from other states to sell their goods here.

In the 1980s, when the state gave preference to local companies, Maine companies lost large contracts in other states that responded with their own in-state preference clauses. Imagine if Maine’s paper companies and large construction companies no longer could win government contracts in other states. Thousands of jobs — and paychecks — would be lost in Maine.

There also can be costs associated with buying from local contractors. Should the state be willing to pay 13 percent more to patronize local businesses? Would the state’s residents support a 13 percent increase in their tax bills to do so?

Given the popularity of efforts to restrain government spending and reduce taxes, the answer is a resounding “no.” This leaves state purchasers to find the best deals, which sometimes come from out-of-state vendors.

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