Saturday, November 28, 2015

Idiot's Guide to No-Bid Contracts

It's Our Money: Acting Sheriff Barbara Deeley wants to award a no-bid contract to a politically connected company to rebuild the computer system. Is that a good idea? How do no-bid contracts work anyway?

Idiot's Guide to No-Bid Contracts

Mayor Michael Nutter shows off newly purchased solar powered trash cans<br />
Mayor Michael Nutter shows off newly purchased solar powered trash cans staff

Records at the Philadelphia Sheriff's Office are in such bad shape, the agency is planning to delay sheriff sales until at least March. Acting Sheriff Barbara Deeley's solution? She wants to award a $650,000 no-bid contract to a politically connected company to rebuild the computer system.

 Considering that the problems at the Sheriff's Office partially stem from no-bid contracts it granted to an outside company called Reach Communications, awarding another no-bid seems like a strange way to clean up the mess.

It's all very confusing. And you know what that means: Time for an Idiot's Guide.

We still have no-bid contracts in Philadelphia? I thought every contract had to go to the lowest bidder.

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Back in 2005, city voters approved a charter change that requires most expenditures of $30,000 or over to be competitively bid. That means the city is required to award the contract to the lowest responsible bidder. These rules apply to purchases of supplies, construction, repair, maintenance or specific types of services. Every city agency, including departments and independent elected officials, are required to follow these guidelines.

"Lowest responsible bidder?" What does that mean?

“Lowest responsible bidder” is a legal term that means a company has the lowest price but also the qualifications to perform the services outlined in the contract. That judgment is based on past performance, financial condition, and professional reputation of a company.

So why don't all contracts work this way? What types are granted without competitive bidding?

Contracts to deal with emergency situations, contacts with vendors who are the “sole source” for a service or product, and professional service contracts can be awarded without a competitive bidding process. These types of contracts, also known as no bid contracts, are still posted online by city officials, but the award doesn't have to go to the lowest bidder.

OK, the emergency thing makes sense. Sometimes the city needs to do things quickly, especially when it comes to public safety. But what the heck does “sole source” mean?

A “sole source” contract means that only one company is qualified to perform the service. For example, there is only one manufacturer of the solar trash cans that were installed in Center City.

What about professional service contracts?

The city uses professional service contacts for work that isn't easily competitively bid. Comparing prices of vendors who want to sell the city light bulbs is fairly straightforward -- the city knows how many bulbs it needs to purchase and can easily find the best price. That's tough for a service the city hasn't used.

For example, the city awarded a $30,000 professional service contract in 2007 to Philly Car Share. It had never used car sharing before, but wanted to experiment to see if it could help reduce fleet costs. The experiment worked, and as a result, the city issued a competitive bid contract for the services the following year. Another company -- Boston-based ZipCar -- wound up winning the contract with a lower bid than PhillyCarShare.

Professional service contracts are also used when insisting on the lowest price might not be best idea. For example, two different law firms might both try to a get contract, but the one that charges a higher price might also have a higher level of expertise. In that situation, the city might want to pay a higher price to get better results.

So what keeps the Mayor from just giving no-bid contracts to friends and supporters?

That's how business used to be done. However, the city passed campaign contribution limits in 2006 and included special rules for companies seeking city business. As a result, no company with employees who have given more than $10,600 to a candidate for city office can receive a no-bid contract worth $30,000 or more.

Are there any other rules or restrictions on no-bid contracts?

Companies seeking no-bid contracts are not allowed to give gifts to city officials or their family members. Businesses must also disclose their subcontractors, participation of minority contractors, and consultants. And there are rules that require companies to list contact with city officials that have direct oversight of the contract.

Does anyone have oversight of all these no-bid contracts?

Every year, the Mayor is required to file an annual report that summarizes every no-bid contract awarded by the city. That document is submitted to City Council and posted on

So how do we keep things on the straight and narrow?

Ultimately, any type of contract -- competitively bid or not -- can be abused if someone wants to rig the process. The most important thing is that city officials always have a clear rationale for why a specific contract is needed and why a specific vendor is selected

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Every year, city government spends slightly more than $4 billion. Where does all that money come from? More importantly, where does it go? Are we getting the most bang for our tax buck? “It's Our Money” is a joint project between Philadelphia Daily News and WHYY, funded by the William Penn Foundation, designed to answer these questions.

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