Thursday, October 7, 2010

FYI: The Lowest Bid Is Not Always The Winning Bid

Contract bids are an essential part of the government process. The government routinely solicits bids from qualified contractors, in order to find the best company or individual to the necessary work at the most affordable cost to taxpayers.  Generally, contractors who are able to fulfill all the requirements of the project and submit the lowest bid are rewarded with lucrative government contracts that offer long-lasting benefits.
But did you know that the lowest bid is not always the bid that is selected?
In New Mexico, a state statute actually gives preference to companies that are based locally. According to Section 13-1-21 of the New Mexico State Code, known as “Application of Preferences” there are certain exceptions that preclude local governments from automatically selecting the lowest bid. 
The statute basically says that if a New Mexico company bids on a project, they get a “preference” in the bidding process.  That “preference” is given in the form of an automatic “discount” off the total amount of the bid they submitted, putting them closer to the lowest bid.  The amount of the discount is usually around 5%, but can vary based on a variety of other factors. 
However, that “discount” only applies to the bid as it relates to other submitted bids.  It does not actually apply to the final cost of the project that the county or city pays.  The “discount” is only intended to be used to help in factoring the bids, in essence, helping to level the playing field for New Mexico businesses.  The city or county is still required to pay the full amount of the original proposal. 
For example, let’s say a business from California wants to bid on a manufacturing project in Catron County.  They submit a bid for $100,000 for the total project.  Another business, from Santa Fe bids for the same project, but at the higher rate of $110,000.   The county applies a deduction to the Santa Fe company’s total bid, and then takes that bid into consideration.  Since that bid now equals or is very close to the California companies original bid, Catron County must award the contract to the company from Santa Fe.  However, Catron County still pays original bid price of $110,000.
Also, the statute only applies to bids which are in a reasonable difference to on another. If the company from California submits a bid for $100,000 and the Santa Fe company submits a bid for $10,000,000 on the same project, the statute would not apply.
The rule was designed to reward local and state businesses and encourage statewide economic growth. During a recession, companies who employ New Mexicans receive preferential bidding status, which can stimulate job growth and economic health.  A big construction or manufacturing contract can be a huge windfall for any region; creating jobs and stimulating the local economy. 
There are drawbacks to the rule.  In a recession, long term economic benefits are harder to see.  A county or city that is under budgetary duress is unlikely to feel the immediate benefits of being required to pay tens of thousands of dollars extra for a needed civic project. 
So what if a county or city decided to ignore the law and just take the lowest bid? Then the losing contractor could sue the county for violating a virtually loophole free statue, and would, in all likelihood win. 
Ultimately, the statute is designed to support and promote New Mexico businesses at large. So while one commmunity doesn’t always benefit directly, in the long run, what’s good for one part of New Mexico is likely good for all.

Special thanks to Adren Nance,  Socorro County Attorney 


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