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August 29, 2014

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Low bidder loses out to county workforce

One commissioner calls decision ‘ridiculous,’ says process undermines concept of free enterprise

Steve Sisolak

Steve Sisolak

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In what one Clark County commissioner called a classic example of the sometimes ridiculous way government operates, the county solicited bids for a project only to decide Tuesday to do the work in-house at a higher cost.

But the part that really threw Commissioner Steve Sisolak — the only commissioner who voted against doing the work in-house — and the bidders was the admission by Richard Mendes, Clark County Water Reclamation District general manager, that he intended to contract for manhole inspections only if the bids were way below in-house costs. He said he sought the bids to establish a baseline cost.

Mendes contended that because government expenses rise more slowly than private sector expenses, it would cost the district less in the long term to do the work itself.

Sisolak, a businessman, scoffed at that. “This is the first time I’ve heard someone make the argument that we can control our costs better than outside companies,” he said.

The county has about 40,000 manholes, which the county calls “access structures” because “manhole” is politically incorrect. Whatever the preferred name, the first wave of inspections will look at 1,827 of them. Inspectors use cameras and other equipment to identify structural damage in and around the covers needing repair.

The district will need to buy the equipment and plans to promote two people to do the inspections, leaving two entry-level positions to be filled.

Hoffman Southwest Corp. submitted the lowest eligible bid to do the first wave of inspections — $394,835, or $216 per manhole.

Mendes said the county’s in-house cost is $238 per manhole.

So awarding the bid would have saved valley residents and business owners at least $40,194 on the inspections. If the work were to be performed on all manholes at that rate, the Water Reclamation District would save more than $800,000 by using Hoffman Southwest if the company’s costs remained the same.

The district is funded solely through fees paid by all water customers. None of the county’s general fund, which comes largely from sales and property taxes, pays for district operations.

Sisolak called the district’s approach to the contract and bidding processes “ridiculous.” It “takes away the whole argument of the free enterprise system,” he said.

Mendes argued that short-term projects are more appropriate for outsourcing. Long-term projects such as this — the first 1,827 manholes are expected to take up to two years to inspect — are better suited to in-house work.

E. Lee Bernick, interim dean of UNLV’s Greenspun School of Public Affairs, said in some cases that is true. To figure out which services to privatize, government often looks first at equipment costs. Government might not want to get into the long-term business of garbage collection, for instance, because of the enormous expense of buying and maintaining garbage trucks.

“If a service doesn’t cost very much to get into, it may be better for government to do it,” Bernick said.

Handling work in-house can sometimes be a better way for governments to go because a private contractor can often tie government’s hands, he said.

“It isn’t always the case that the private sector is more cost-effective,” he added. “Right now, they might be coming in with a low bid and less than what government can do. They might be willing to do that because the economy stinks.”

But in two years if things pick up “they might say, ‘I don’t need to do this anymore and if you want me to do it, you have to pay me more,’” Bernick said.

Commissioner Larry Brown, chairman of the district’s board of trustees, said he sided with Mendes because “when it comes to water and wastewater, that infrastructure is fundamental to what we do as local government.”

One rejected bidder, who wished to remain anonymous out of fear his company could lose future chances to win county projects, used the same word as Sisolak: “ridiculous.”

The company spokesman was stunned that a county official would say the bids were likely to be rejected from the outset, given the expense for the county to bid out a project and for the companies that responded with bids.

“I have a hard time believing that they are that arrogant,” the bidder said. “They don’t have to go through these kind of gymnastics to find out where the numbers should be. You can get reasonable estimates without going through all this.

“It’s really off the wall,” he added.

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