Who Needs Competitive Bidding For Government Purchases?

Sen. Brandt Hershman (R-Wheatfield) has introduced a state procurement bill which, if enacted, could undermine competitive bidding for government purchases of goods and services and could place taxpayers’ money at risk. SB 359 allows advance payments to vendors without limitation, makes it easier for state agencies to use requests for proposals to award contracts rather than competitive bidding and removes the requirement that retained amounts on state public projects be placed in escrow for safeguarding.

Indiana’ existing procurement law allows state and local governmental agencies to make advance payment for goods and services only in some circumstances; it does not allow advance payment for equipment and software maintenance agreements in annual amounts of more than $1,500 for each piece of equipment or software license. SB 359 would remove the $1,500 cap altogether for equipment and software maintenance agreements “if there are appropriate contractual safeguards for refunds as determined by the budget agency.” What this means is that if a governmental agency signs a software maintenance agreement with a private vendor and pre-pays that vendor $100,000 for the services and the vendor goes bankrupt, the government is out the $100,000 and without a provider for the services. The taxpayers will have to foot the bill to double-pay another vendor to provide the services promised by the bankrupt vendor.

The reason for the $1,500 limitation in the current law is to safeguard taxpayers’ money from these very circumstances. SB 359 opens up taxpayers to substantial risks. It has been all too common for businesses with which the state is doing business do go bankrupt or otherwise go out of business without much warning. For the vendors this change is great because it allows them to receive free financing of their businesses to undertake the goods or services they are furnishing the governmental agencies. This also means that financially marginal businesses are more likely to bid for government contracts, knowing that they can get paid in advance.

SB 359 completely erodes the protections in the procurement law that ensures that supplies are purchased through a competitive bidding process. SB 359 leaves it to the discretion of the governmental procurement officer to determine whether to purchase supplies through a competitive bid process, and it permits the procurement officer to add other requirements to the bidding criteria in addition to those set out in the statute.

No longer will a governmental body be required to make a written determination that “the use of competitive sealed bidding is either not practicable or not advantageous to the governmental body” in order to award a contract through a request for proposal process if SB 359 is enacted. This latter requirement has meant that purchase of supplies are typically acquired through competitive sealed bidding, while services are procured through a request for proposal process.

Under the RFP process, the lowest bidder does not have to be chosen as is required under competitive sealed bidding. The RFP process is also weakened by SB 359 by allowing information in one offeror’s proposal to be used in discussions with other offerors, which is strictly prohibited by the existing law. By allowing an offeror’s proposal to be shared with a competing bidder, the agency can unnecessarily aid one bidder over another.

SB 359 also allows other criteria to be used in evaluating a bid other than those set out in the statute (i.e, inspection, testing, quality, workmanship, delivery and suitability for a particular purpose). The procurement officer can use criteria which will favor one vendor over another, thereby undermining the competitiveness of the bid. That is the reason the statute specifies the bidding requirements.

With respect to public works contracts, SB 359 no longer mandates that retainages be placed in an escrow account for safe-keeping, instead leaving it to the discretion of the governmental body. It does, however, increase the base amount of retainage in such contracts from 3% to 5%.

There are several other provisions in the bill as well which are not covered by this discussion. Lawmakers should take a hard look at this proposal, which presumably came from the administration, before moving it forward. Better yet, it should give it a proper burial. The bill has been assigned to the Governmental Affairs and Interstate Cooperation Committee, which is chaired by Sen. Marvin Riegsecker.