First step in levelling government-contract playing field? Define ‘local’

Mayor Scott Gillingham, with the first pledge of his re-election campaign, has promised to create a level playing field for local businesses to compete with national and multinational bidders on city contracts for goods and services.

It’s not a bad pledge, per se. There are a lot of Winnipeggers who are keenly interested in seeing government do business with other Winnipeggers and Manitobans.

But Gillingham’s newest campaign policy fails to answer two key questions: what, exactly, is a “local” company? And it is beneficial to give government business to local companies over those headquartered elsewhere?

Two recent controversies illustrate the difficulty in obtaining definitive answers.

In April, the shrill cry of the “buy local” lobby resonated around city hall after it was learned that Aramark Canada — the Canadian branch of the U.S.-based global hospitality giant — won a relatively modest $70,000 contract to provide food and beverages to the city-owned Kildonan Park and Windsor Park golf courses.

This would not normally be a huge deal, but Aramark was taking over contracts fulfilled for many years by Salisbury House, the iconic Winnipeg restaurant chain.

Then, a couple of days later, the Aramark controversy shifted to the legislature, where the opposition Progressive Conservatives flogged the NDP government for awarding the same company a three-year, $36-million contract to provide bakery products to hospitals and jails.

In both instances, the contracts were awarded after a competitive bidding process. In both instances, government officials overseeing the bidding awarded the contracts to Aramark.

Would Gillingham actually do something different if given the chance to revisit the golf-course contracts? The mayor said last week he wants to create “as many opportunities for local companies to benefit from work the city procures.”

OK, but how?

Gillingham said he wants city staff to study procurement policies in other municipalities, and create a permanent list of pre-qualified bidders to help local businesses compete for city business.

At this point, it should be noted that it is abundantly unclear that Gillingham’s suggestions are fundamentally different than what the city does now. And, more importantly, that there is at least one egregious example of the city massaging the bidding process to help local companies that backfired in spectacular fashion.

The inquiry looking into the scandal-plagued construction of the Winnipeg Police Service headquarters found that former chief administrative officer Phil Sheegl unilaterally lowered the value of performance bonds posted by bidders to help a local company, Caspian Construction, compete for the nine-figure contract.

History will show that Caspian got the contract, the building went wildly over budget and — the inquiry has revealed — the project was riddled with fraudulent billing and corruption, including kickbacks to Sheegl and former mayor Sam Katz.

The Caspian debacle is not an argument against giving local companies a boost to compete for lucrative city contracts. It is proof, however, that local does not always mean better for taxpayers.

Government doesn’t have the luxury of being nostalgic or romantic about the entities with which it partners for goods and services. Ultimately, its job is to find the best good or service at the best price to provide the best value.

That is effectively what the city did in awarding an $800-million contract to a consortium of companies — most of which are headquartered in other parts of Canada or the U.S. — to build a biosolids recovery facility at the North End sewage treatment plant.

Gillingham actually cited this contract as an example of how buy local could work, arguing that 92 per cent of the people working on the project would be Manitobans. And that creates a problem.

If employing Manitobans is part of the definition of a “local” company, then why are we disparaging Aramark? I’m quite certain 100 per cent of its front-line workforce in Manitoba are Manitobans.

The most powerful argument in favour of an enhanced buy-local policy is the theory that local suppliers mean maximum economic benefit for the local economy, which means maximum benefits to government revenues. That overly simplistic argument, embraced early on in the golf course controversy by some observers who are definitely not economists, does not justify the awarding of additional weight to local bidders.

Yes, if a company supplying government with goods or services is headquartered in Winnipeg, and all of its highest-paid employees live and pay taxes in Manitoba, then theoretically, government at the municipal and provincial level get maximum economic benefits.

But that calculus is not definitive.

Large companies that employ larger numbers of people than smaller, local companies eat into the economic benefits of buying local. Those benefits are further eroded if smaller, local companies cannot compete on overall cost and value.

Current bidding processes try to be all things to all possible interested parties, balancing cost, value and local presence to come up with the best possible option. Unfortunately, procurement is often an inherently unfair process and too much manipulation can — as the WPS headquarters project shows us — create bad outcomes.

Kudos to the incumbent mayor for tackling this uncomfortable issue. Voters should hope that, if re-elected, Gillingham can not only help local businesses compete for more city contracts, but also define what the heck qualifies as “local.”

dan.lett@freepress.mb.ca