The Hidden Costs of Social Engineering
One of the clauses in the Preamble to the United States Constitution is "promote the general welfare." The words are general, but when it comes to federal contracting, a specific set of rules has evolved that try to influence society and behavior in a way that promotes the general welfare.
The Federal Acquisition Regulations (FAR) provide direction on how to choose a source for a supplier. The first ones considered are federally-chartered corporations that support the disabled and those in Federal prisons. Pretty much all of the administrative supplies for the Government come from disabled manned companies. The federal prison company provides furniture and so on although they have recently been branching out into bigger, more expansive projects. Next businesses owned by Native Americans and other favored minorities such as disabled veterans, women, African Americans and Hispanics get extra points for their proposals. Often times bigger companies search them out to meet their sub-contractor requirements.
The Obama Administration is now proposing a new favored category of companies -- those that provide better pay and benefits for their workers. This "High Road" program would favor those companies that go beyond what is required by federal labor regulations. Companies with better pay, health care and leave policies would get more consideration of their proposal.
To critics, it looks like this plan would favor those companies with unionized workforces, which often have better pay and benefits than non-union ones. The part that has raised the most hackles is the idea that those employers paying a "living wage" would get the best consideration. A living wage is one that pays enough to lift a family of four above the poverty line. Because this is a rather high wage, few areas have adopted it as a minimum; Washington, DC and San Francisco, CA are two cities with living wage ordinances. Maryland has a regulation that requires wages higher then minimum for their contractors but not at the level of a living wage.
The biggest criticism of this "High Road" is that it will drive up the price of contracting. Companies that pay higher costs for labor will have to pass these on to the Government. Their bids will be more and the Government will get less for their money. That is often the case with these kind of programs that favor one group over another. Price becomes less of a factor in considering the award then whether the right social group or company is represented.
The Federal Government has a law dating from the Depression known as the Davis-Bacon Act; this requires the use of "prevailing wages" (ie, union ones) in contracting. In many cases it is waived as requiring it on contracts raises the cost. In last year's stimulus bill, the home weatherization required Davis-Bacon compliance. In part because of this provision, little work has been done. The Labor Department has spent months calculating the prevailing wage in all different parts of the United States so that local and state governments can decide if the bidders meet those pay scales. Without this guidance, the contracts cannot be awarded and so far few have been. The cost of the contracts are also higher then if minimum wage contractors were used.
The social goals of federal contracting law are worthy and well intentioned. The issue is that they often get in the way of getting contracts awarded and work done quickly and at low cost. A balance needs to be struck. Raising costs even further when the country is running trillion-dollar deficits may not be the best move right now.