Encouraging Competitive Bidding For Public Contracts

By Amin Modad

The Perspective
Atlanta, Georgia

March 11, 2004

A reference to Mr. Josephus Gray's Article "Chairman Gyude Bryant's Transitional Government Spent Over Three Million US Dollars On Vehicles"

According to Mr. Gray, Mr. George Haddad has charged the government US$2,649,243.70 for 76 Cherokee jeeps. If it is true, several questions race through my mind. However, the most prominent concerns the outrageous over cost this represents and the negative implications regarding the process the Government used in awarding Mr. Haddad the contract.

First and foremost, US$2,649,243.70 for 76 Cherokee Jeeps averages down to approximately USD $ 34,850 per vehicle. This is an outrageous overprice; the invoice price for a (full optioned) 2004 Grand Cherokee Laredo is US $25,820 and the retail price is $28,055. Considering this is a wholesale deal, this amounts to almost $ 10,000 in excess per vehicle and approximately $760,000 in total. This also represents approximately 28% gross profit.

Granted, Mr. Haddad, is in business to make profit and the government does need vehicles, it should be the objective of the Government to ensure that its procurement process maintain transparency, reflect the interest of the people, and represent the best economic return.

Unfair and imprudent allotment of public procurement contracts to individuals without competitive bidding negatively impacts the economy and the political system. Least to mention, it increases the risk of poor product quality and avoidable over spending.

Benefits of Public Bidding
Transparency. Transparent competitive bidding can withstand public scrutiny, avoiding accusations of corruption.

Lower tariffs. Competitive bidding can attract several qualified bidders. The competitive process obtains the lowest tariff a private company can charge while achieving its objectives.

Better information. Competitive bidders can produce up-to-date information on the condition and value of the assets.

Curbing monopolies. In some scenarios, a monopoly is unavoidable-for example, water distribution and electricity. However, like in this case regarding the vehicles, if the Government puts in place the proper public bidding mechanism that awards contracts on the basis of the lowest tariff, and the quality of the items, a company cannot exploit its monopoly to impose high prices.

For competitive bidding to work, there should be a strong commitment from the government, and an established legal structure for private sector participation. The mechanism for public procurements provides perfect conditions for such a competitive environment.

The legislature should design and put in place firm public procurement laws that will ensure that every business entity (especially Liberian owned) is given equal opportunity to vie for public contracts such as the procurement of vehicles, stationery, and all other needs of the government.

In selecting the proposal that will yield the greatest benefits to the Government and the Liberian People, a public body or committee should be established to look for the best value for money, that is to say the optimum combination of cost and quality.

In this case, if the report is accurate in least, the government or the authority that arbitrarily awarded Mr. Haddad the contract did not consider the best quality for the money. This, I don't have to imply, has been a key contributing factor to the Liberian crisis.

Some may call it nepotism while others may call it corruption. These take many forms - the petty bureaucratic variety, corruption in police and the judiciary, corruption in the election process, the appointment of individuals to key positions without merit, to name just a few. But probably none is more pervasive or has higher costs to a nation and people than corruption related to procurement: government buying of goods, works, and services. The reasons are simple. If one sets aside government salaries and social benefits, procurement typically accounts for the largest share of public expenditures at all levels of government.

What are the real costs of corruption in procurement or unsystematic procurement practices? One way to measure this is to compare actual prices of similar goods and services delivered under different conditions; for example, like in this case with Mr. Haddad and the 76 Cherokee deal, contracts awarded through direct negotiations or restricted bidding in comparison with open and apparently properly conducted competitive bidding produce price differentials on the order of 20 to 30 percent, sometimes substantially more.

In taking such considerations, authorities will take the time and effort to examine both quantifiable and non-quantifiable costs and benefits, quality and special properties of the offered goods or services and even integrate considerations that include socio-political and economic objectives.

The government should provide:

· Public notification of bidding opportunities;

· Documents that clearly set out the needs, describe the bidding process and contract terms and conditions, and give the criteria for choosing the winner;

· Submission of secret sealed bids that are opened in the presence of the bidders at a specified time and place;

· Impartial evaluation and comparison of bids by competent evaluators without influence or interference by bidders or other parties;

· Award of the contract to the bidder complying with all requirements and offering the best bid, as defined by the published selection criteria.

I also would tentatively conclude that the Government should select a competitive bidding mechanism that minimizes corruption, foster a competitive market environment, and ensure the most economic return.