- The Washington Times - Thursday, November 21, 2002

Tax reformers have many enemies, particularly those who believe the government should play favorites by putting special preferences and penalties in the tax code. But social engineering and industrial policy can take many forms. Left-leaning politicians and interest groups have now decided that politically unpopular companies should be denied the right to bid on government contracts.

The Homeland Security legislation, for instance, contains a provision designed to prevent companies from bidding for contracts if they have committed the horrible offense of rechartering in a jurisdiction with better tax laws (a process known as “inversion”).

Pro-tax increase politicians apparently think companies should be punished for protecting the interests of workers and shareholders, but taxpayers will be the real victims. If fewer companies are allowed to bid for contracts, it is likely the government will have to pay more and/or accept lower-quality goods and services.

Another example is the union-led effort to prevent Worldcom from providing services to the government. The Communications Workers of America argues Worldcom should not be allowed to bid for telecommunications contracts because some of its former executives have been charged with fraud. Yet what does this have to do with whether the company should be allowed to win government contracts, particularly since the accused executives have been kicked out and are now being prosecuted by the government? The disgraced former executives who drove the company into Chapter 11 bankruptcy certainly won't suffer if Worldcom doesn't get any contracts. The real losers will be taxpayers, since they may get stuck paying more if there is less competition.

Lawmakers and procurement officials should resist all efforts to undermine the competitive bidding process. Government already is too big, yet it will become an even larger burden if fewer companies are allowed to compete for government contracts. Taxpayers will bear the direct costs, but there also will be economywide distortions since additional resources will be drained from the productive sector of the economy.

These anticompetition initiatives also create a terrible precedent. Health-food advocates might want to bar companies from providing food to schools, prisons and the military if they sell fatty food to supermarkets. Antismoking fanatics might want to prohibit tobacco companies from any type of government contracts. And peaceniks might want to bar companies from submitting bids for nondefense contracts if they also happen to produce weapons for the Defense Department.

Government contracting rules should not be neutral and fair.

Companies that make the lowest bid should get contracts if they satisfy the concomitant requirements for quality and dependability. The process should not be distorted by political correctness, and it should not be tilted for ideological reasons.

This does not mean, of course, that contracts should be open to all bidders. An Iraqi company presumably should not be eligible to bid for a defense contract, and it also makes sense to impose restrictions on companies if current employees particularly executives have been indicted or convicted. Needless to say, these sensible rules bear little resemblance to the punitive gestures being advocated by unions and left-wing politicians.

The campaign against competitive bidding also could have an adverse impact on privatization. My Heritage Foundation colleague, Ron Utt, reported in a 2001 study that competition for 2,138 contracts helped the Department of Defense save an average of 31 percent. Indeed, the department told Congress in 1996 that taxpayers saved $1.5 billion because competitive bidding was being used to provide services that previously were in the hands of government. And now that President Bush has announced a major plan to facilitate even more private contracting, this issue has become even more important

The impressive track record of competitive bidding will be endangered if the left imposes myriad restrictions. Indeed, this may explain why unions are active in the issue. They may think that restricting competition and driving up the cost of private sector contractors is an indirect way to expand the government work force and thus create potential new members. Taxpayers, of course, will get the short end of the stick. They will pay more taxes and get less for their money.

During the 2000 presidential campaign, George W. Bush said that he wanted to “open federal positions involving commercial activities to competition from the private sector wherever possible.” The Director of the Office of Management and Budget, Mitch Daniels, has proposed to make President Bush's commitment a reality, but it would be a shame if this effort was undermined by those who want to cripple the competitive bidding process to score cheap political points.

Fortunately, there is some good news. The anti-inversion provision in the final Homeland Security Bill was almost completely emasculated. The federal government's General Services Administration, meanwhile, put the interests of taxpayers first and announced that it was extending a Worldcom contract. These two developments hopefully indicate that the Left will not be allowed to politicize government contracts.

Daniel J. Mitchell is the McKenna senior fellow in political economy at the Heritage Foundation.

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