Competitive Bidding vs. Development Opportunity

Should an option in a light-rail train car manufacturing contract be exercised, rather than going to a competitive bid, because the company says it will move its plant, and 5,000 jobs, into the county?

This dilemma is being faced by the Los Angeles County Metropolitan Transit Authority (MTA), and the recession and the stimulus package are both involved. So is an accusation of conflict of interest.

According to an article in the New York Times, citizens of L.A. County voted last November so spend $40 billion on local transportation, and according to an article in the Los Angeles Times, exercising the option could qualify the project for money from the federal stimulus package that was just approved.

On the other hand, the train car manufacturer is over a year late delivering 31 of the 50 cars already contracted for, people hate the ones they have delivered, and there are compatibility problems with cars from other companies already in use.

On the other hand, the manufacturer blames everything on the MTA, and it insists that the MTA’s general manager for rail operations wants the 100 cars to go to bid because his son works for a competitor. But the son works for another division of the competitor, which is huge, and the general manager doesn’t make the decision.

MTA staff lean toward bidding out the next 100 cars rather than exercising the option. The manufacturer says this will add as much as $15 million to the contract, but considering the current economic climate, it’s hard to imagine that bidding out a contract would be more expensive.

But what interests me most is the manufacturer's purported move to L.A. County. The announcement of this possibility was made only weeks before a decision was to be made on the option. Were the option exercised, the manufacturer would not have to build a facility in L.A. County, and it would be some time before the facility was open and the employees hired or moved to LA. County.

Should a contract decision be affected by a development possibility? Is this situation different from a company that offers an enormous gift (uncertain and in the future) to a county in return for a no-bid contract?

Although this is not a classic conflict between personal and public interests, bidding out contracts is an important aspect of government ethics. And ethical conduct should not be put up for sale. Although it’s possible that exercising the option and getting a factory might be best for the city, there is a strong risk that the factory won’t be built and, even if it were, the deal would set a precedent for future contracts. Contractors would seek options, knowing they could play development interests off against contractual interests.

One interesting wrinkle here is that the MTA chair is the mayor of Los Angeles, who does not want to be seen as turning down thousands of jobs and a taxable factory. (“The hundreds of new jobs would provide exactly the kind of boost the local economy needs right now,” his spokesperson said.) This argues for keeping politicians off of commissions and authority boards.