By Kristen M. Daum
Despite public outcry last month over revelations that the “Pure Michigan” travel guide
is put together in Iowa, an analysis of current state contracts found that the
overwhelming majority of the state’s business actually stays here in Michigan.
The State Journal reviewed nearly 1,200 contracts overseen by the Michigan
Department of Technology, Management & Budget, which houses the state’s central
As of Aug. 1, those multi-year contracts were worth more than $32 billion, covering
everything from state employees’ health insurance to vehicle maintenance to
office supplies. The contracts were awarded to more than 900 companies from
39 states and four Canadian provinces.
The State Journal found that more than $25 billion worth of the contracts — or
78 percent — was awarded to Michigan-based businesses. That includes about
720 contracts for more than 500 Michigan companies, ranging from Blue Cross
Blue Shield of Michigan to BS&A Software in Bath Township.
The magnitude of the dollars staying in the state is significant for Michigan’s economy
and for the businesses themselves, although political leaders disagree on whether
the State Journal’s findings are an acceptable level for state government operations.
Nonetheless, the dollars mean money reinvested in local communities and money
to employ workers.
“We see our relationship with the state as very beneficial to keeping tax dollars in
Michigan and supporting the growth of health care jobs and our local economy,” said
Andy Hetzel, spokesman for Blue Cross Blue Shield.
The Detroit-based insurer has the largest contracts with the state of any company,
the State Journal found. The Blues have three multi-year contracts worth nearly
$6 billion altogether to provide health and vision insurance to current and
retired state workers.
The monetary benefit to Michigan companies is greater than a basic geographic comparison can show, because Michigan businesses still reap tangential benefits from some of the $7 billion invested in out-of-state contracts even though the addresses listed on the contracts indicate otherwise.
For instance, Atlanta-based Home Depot USA Inc. has a $3 million, two-year contract to provide building materials for state agencies. While the contract is with the corporate headquarters, the actual benefactors of that contract are Home Depot locations here in Michigan.
The same goes for the state’s $315 million, five-year contract with Illinois-based Wheels Inc., which manages the state’s fleet of vehicles, said Jeff Brownlee, the state’s chief procurement officer.
“All of the purchasing of vehicles, all maintenance is done with Michigan dealers or vendors,” Brownlee said, “but if you look at it simply on the spreadsheet, it looks like all the money is going to Illinois.”
Brownlee said his office strives to keep state business local and the 78 percent figure isn’t surprising. But he and other DTMB officials also said it’s practically impossible to show favoritism under current law.
“All things being equal, Michigan (companies) will get the business, but if you go farther than that, you’re actually hurting the businesses,” DTMB spokesman Kurt Weiss said. “It’s really not an area that you want to be playing in.”
‘Pure Michigan’ controversy
In July, critics lambasted the Michigan Economic Development Corp. for awarding a $1.5 million contract to an out-of-state business to create the “Pure Michigan” travel guide.
MEDC officials said Iowa-based Midwest Living offered “the best value for the price,” but some — including Democratic gubernatorial candidate and former U.S. Rep. Mark Schauer — balked at the idea of something so iconically Michigan originating elsewhere.
Schauer, in particular, chastised the Republican-led state government for “outsourcing” Michigan’s tax dollars to Iowa when, he argues, businesses here could have performed the same task.
But the process of awarding state contracts isn’t as simple as picking companies based on their locations, because state laws regulate how the state can conduct its business. There’s also the quandary of what business services are and are not available in Michigan.
“There are certain instances where maybe there are not vendors or businesses in state that can do what you need done,” said TimDaman, president and CEO of the Lansing Regional Chamber of Commerce and a former business marketing director for the MEDC.
Businesses only need to register on the state’s procurement website, and they’re eligible to bid on state projects.
The state advertises for projects or services it has available and decides among a pool of applicants. Generally, the selection process is the same, but it can vary depending on the type and complexity of a contract, Brownlee said.
State contracts worth more than $25,000 are managed through DTMB — representing the lion’s share of state business — but three agencies have authority to handle their own contracts: The Michigan Department of Transportation, the Michigan Lottery and the MEDC. Officials said because those department’s activities are so specialized, it makes sense for them to work directly with their own vendors.
The MEDC, for instance, has awarded more than 500 contracts— worth about $32.6 million — since Oct. 1 for services such as advertising and computer consulting, agency spokesman Michael Shore said.
Shore said about 95 percent of the value of those contracts are held with Michigan-based organizations.
For its part, MDOT has awarded about $1 billion worth of contracts since Oct. 1 for road construction projects and rail work this year. The department has about 672 active contracts, not including consultants, MDOT spokesman Jeff Cranson said.
MDOT can only include in-state preferences for contracts that don’t have federal aid attached because “federal regulations do not allow for a local preference,” Cranson said.
Michigan Lottery spokeswoman Andi Brancato either would not or could not provide similar information by Thursday afternoon.
How contracts are awarded
In general within DTMB, though, Brownlee said applications are judged based on a technical evaluation first, assessing how well the vendor can provide what the state wants.
Companies that receive 80 points or more on a 100-point scale then are scrutinized on their prices, he said.
There’s no mandate that the contract go to the lowest bidder.
“Awards are based on best overall value,” Brownlee said.
Strict laws govern the awarding of public contracts, with little leeway in showing preferential treatment.
For instance, businesses that are owned by veterans with disabilities can receive a 10 percent pricing preference for Michigan contracts, and a 1937 law requires almost all printing for the state be done in Michigan.
But Brownlee said the state can legally favor Michigan-based businesses only if they “score pretty darn close on the technical evaluation” and they offer the exact same price — down to the cent — as an out-of-state contractor.
“Obviously, we want Michigan businesses to be successful, create jobs and help the economy be successful,” Weiss said. “To the extent that we can do that without harming Michigan businesses, we will.”
In the interest of supporting homegrown companies, some Democratic lawmakers have introduced legislation in both the House and Senate that would allow Michigan-based businesses to resubmit bids for contracts if it turned out they weren’t the “lowest responsive and responsible bidder” for state projects.
But state purchasing officials said those kinds of policies, and others that would give price preferences to in-state businesses, do more harm than good because of what are called “reciprocal preference laws,” which Michigan itself has.
Such laws seek to deter price preferences that benefit in-state businesses at the expense of out-of-state ones.
“If we were to give a 5 percent price preference to Michigan, then the state of Ohio says, ‘OK, if you’re going to give your businesses a 5 percent preference — when Michigan businesses respond to our bids, we’ll add 5 percent on top of their price,” Brownlee explained.
Michigan is among at least 35 states with reciprocal preference laws, which exist to promote free-market competition, according to the National Association of State Procurement Officers.
National experts said there aren’t data available to show nationwide how much of state governments’ business stays in their own states. DTMB also doesn’t track how much business it does with contractors in Michigan, Weiss said.
That leaves the State Journal’s findings up to interpretation, and opinions vary on whether 78 percent of the state’s business staying in state is good enough.
Some state contractors, such as Okemos-based Delta Dental of Michigan, said the record is one Michigan ought to be proud of.
“Supporting local businesses helps keep people here, jobs here, continued building and other investment here, and from a financial perspective, keeps more dollars here, which can help secure an even better economic future for Michigan,” spokeswoman Sarina Gleason said.
Both Republican Gov. Rick Snyder and Schauer, a Democratic candidate for governor, said the findings of the State Journal’s analysis were “not surprising”— but for different reasons.
Schauer said the figure is “disappointing” and ought to be higher, but he would not specify what percentage would be acceptable to him.
“We may never reach 100 percent, but the status quo is simply unacceptable,” Schauer said.
He called for a “a top-to-bottom review of all state contracts to determine if there are services being outsourced to other states that can be provided by businesses located in Michigan.”
Snyder spokeswoman SaraWurfel would not answer directly whether the State Journal’s findings were acceptable to the governor but indicated they were a positive sign.
“We know that Michigan is home to tremendous highly talented, competitive businesses,”Wurfel said.
*Online subscription may be required.
The State Journal analyzed all active contracts overseen through the Michigan Department of Technology, Management & Budget as of Aug. 1 to determine how much of the state’s business goes to Michigan-based companies.
Here are some of the findings:
» 1,196 contracts to more than 900 individual companies from 39 states and four Canadian provinces.
» Of any single city, Lansing businesses have the highest number of contracts, with 87 contracts worth a combined total of $1.2 billion.
» Of any single city, Detroit businesses have the highest monetary value of state contracts with 45 contracts worth a combined total of $11.6 billion.
» The 10 highest-valued contracts - worth $20.2 billion altogether - are all to provide health insurance and pharmacy benefits to current and retired state workers and to provide health care programming through the Michigan Department of Community Health. All but two are with Michigan-based companies.
» Across the tri-county area, 143 local businesses are managing state contracts worth a total of $2.2 billion.
» 78 percent - or $25 billion - of the contract dollars were awarded to Michigan-based companies.
» The remaining 22 percent - or $7 billion - were awarded to out-of-state businesses, including national corporations with Michigan locations.
ABOUT THIS PROJECT
State governments are multi-billion-dollar operations.
And like any large company, the state of Michigan has vendors: Hundreds of contractors hired to provide services or perform tasks that help the state serve its residents.
Using the Michigan Department of Technology, Management & Budget’s list of current contracts, the Lansing State Journal compiled all addresses and locations listed for each of 1,196 contracts and analyzed the data to reveal how much of the contract dollars go to Michigan-based businesses.
The investigation did not include contracts managed through the Michigan Lottery, the Michigan Department of Transportation or the Michigan Economic Development Corp.
*AUTHOR'S NOTE: Also featured in the Detroit Free Press and on www.freep.com.
Review the data I built and analyzed to produce this series of reports: