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Should Detroit Re-Think Its Policy of Preferences For Local Businesses?

The new Detroit City Council has barely been installed, but there's controversy flying already.

Recently, some council members caught flak for suggesting that the city consider amending its policy of offering contract preferences to Detroit-based businesses.

Currently, when the city puts a contract out for bid, potential vendors are judged on the basis of a range of criteria that are measured on a point system. For instance, companies get as many as 20 points for competence. A maximum of 20 points can be given for a competitive price, too. Each bidder is allowed a maximum of 100 points. A Detroit-based business automatically begins the process with 30 points.

And this is where the argument begins.

Those who favor the current system contend that it's necessary to ensure that Detroit businesses, many of them small and minority-owned, are given a fair opportunity to procure contracts with the city. Changes to the system, they say, would disadvantage these and other local businesses and could be a long-term detriment to employment in the city. Many of these proponents also argue that these local businesses need the system to remain as is because businesses based in the city are often shut out of legitimate chances to win contracts in other places in the area, such as Oakland County. Finally, many of them question whether local politicians challenging the current ordinance aren't, in fact, carrying water for business interests outside the city in exchange for political and financial support.

But some members of the council, as well as Detroit mayor Dave Bing and others, are asking that the city re-consider whether the policy means that Detroit taxpayers are spending more for some goods and services than they should. While no one is calling for the abolition of the preference ordinance — such policies are common in many other municipalities around the country — some are saying that Detroit-based businesses now receive too many points for their location.

“As a CFO, I could not offset it even if I wanted to,” Harris said. “I could not offset the advantage that this Detroit-based business ordinance gives to the Detroit-based business. A Detroit-based business can lose 28 or 29 points and still get the contract. They can actually charge more for services.”

Harris said that during his tenure as auditor general he provided a memo to the City Council that showed that a contract would cost $500,000 more each year if awarded to a Detroit-based business.

“They approved it,” he said.

That's the kind of scenario Pugh hopes to avoid.

“We need to be inclusive, but we should not bind ourselves from getting the best deal,” he said.

Cardenas wrote that while Bing believes that Detroit-based businesses should be supported “whenever possible, the city should not be placed at a disadvantage if Detroit-based-businesses are not competitive in price or quality.”

Jenkins said she supports a preference for Detroit-based businesses, but thinks the point level should be lowered, saying that awarding 10 or 15 points for a Detroit-based business could be appropriate.

I'm certainly all for the preferences for Detroit-based businesses (particularly those that make a point of hiring Detroiters). I think any entrepreneur who sets up shop in Detroit proper should be given credit for the investment, and the city only encourages further investment in Detroit with such a policy. But does the current preference ordinance go too far? Is it really saddling the city with inflated contracts? Or are the criticisms of the ordinance short-sighted and motivated by crass political cronyism?

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