The Perfectly Competitive City
September 18th, 2007Procurement problems plague the City’s ability to pay for goods and services at a competitive rate.
Their bonding policies chase business away. The City makes it so hard to do business. Sure it is easy to enter the City’s bidders list, but in order to secure any work they expect unreasonably high insurance; thus the supply is reduced.
Economics 101 tells us that when supply is constant and demand is reduced the price per unit increases.
In simple terms, they can have a million dollar contract out for tender and if you’re the winning bid they require a “letter of credit” or bond for the amount of the contract or sometimes even more. This L.C. can be held in escrow for several years after the work is done.
Why would any business person agree to such terms, unless the profit margins are really high?
And indeed, the profit margins are often excessive because of this high barrier to entry.
The City’s procurement policies are in effect the anti-thesis of a perfectly competitive market place; hence, the city ends up paying a premium for many many goods and services and services.
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