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POLICY HIGHLIGHTER
 Volume 12, Number 12
August 14, 2002 Overpriced contracts: going, going . . . gone! Imagine an auction: Several companies are vying for a contract to fill an office furniture order for Pennsylvania's state government. The value of the contract is appraised at $12.9 million. Within two hours, as companies struggle to underbid their competitors, the bidding is closed and the winning company takes the job for $8.8 million. Pennsylvania taxpayers have just saved $4.1 million thanks to online reverse bidding. All told, Pennsylvania taxpayers have saved more than $220 million since 1999 by using FreeMarkets.com, an online auctioneer. At FreeMarkets, bidders compete for state contracts through "reverse bidding." Instead of submitting speculative bids based on what they think other companies may charge, they watch real-time as competing companies submit lower and lower bids in an attempt to win the job. Holding the bids online also reduces overhead for preparing and submitting bids, allowing companies to pass their savings on to the taxpayers in the form of lower quotes. When Pennsylvania used FreeMarkets online to bid out a telecommunications installation contract, the price dropped from $3.2 million to $2.7 million in just ninety minutes with a total of 208 bids submitted. Texas taxpayers have also benefitted from online reverse bidding. In 2001, the Texas Department of Transportation (TxDOT) began using the service for highway construction and maintenance contracts, saving $623,000 in the course of the fiscal year. State officials predict they will save more than $3 million in their Texas State Highway Fund by 2006. Other Texas agencies followed TxDOT's example, and state legislators were able to reduce their budget by $3.4 million as a result of the savings. FreeMarkets lists the following benefits of online reverse bidding: • Reduced costs for a broad range of services (2-25 percent savings) In light of these clearly documented savings, we encourage Washington's
General Administration Department to immediately adopt online reverse bidding.
Basing state contracts on free market principles—like open and visible
competition—will not only help identify savings in our current budget
crisis, but will result in ongoing savings.
Prepared by Hans Zeiger, Research Assistant. For more information contact
Jason Mercier, Budget Research Analyst
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1 Part Honesty; 2 Parts Arrogance At a March 23, 2005, House Appropriations hearing on a bill to gut the voter-approved I-601 spending limit, Rep. Jim McIntire (D) asked a supporter of I-601’s two-third supermajority requirement for the legislature to raise taxes the following question: "Can you name a time when we [legislators] have actually not just set it [supermajority requirement] aside by majority vote? I mean, this is in many respects a procedural motion that has no bearing. It’s a statutory constraint that cannot constrain any legislature that chooses as a majority to set it aside . . . have we ever used a supermajority [to raise taxes]?" - Rep. Jim McIntire (D - 46) Despite the arrogance of some state officials, Washington's constitution is clear: "All political power is inherent in the people..." |
