There are people who think three bid systems actually work? Everyone I've ever talked to about three bid systems knows they mostly exist to give a faint dusting of propriety to the fact that somehow the mayor's brother in law is always the guy winning the contract.
Are there roads in your town? Do you think they were paved by the honest lowest bidder?
I used to be in an elected position and would sign off on stuff like this. The "lowest bid" thing does actually tend to be enforced, at least where I was, and it was a huge pain in our butt for totally different reasons.
You're presuming that every deal is a gladhanded corruption thing. Sometimes, but not most of the time. Often we would know what we wanted, have a good deal for it, it's not a very significant purchase (like a $500 piece of equipment or somethign), but we have to spend hours of employees' time getting ahold of 3 options so that we can get the one we were going to get anyways.
The way worse situation is on big ticket items, like your example of roads or other big capital projects. Where I was they are actually done by the lowest bidder, by law. But we'd wind up paying way more than that, because in order to become the "lowest bidder", the contractor would have to unrealistically underbid and then run way over on the contract. At that point, we'd be screwed and it's usually a better idea to pay a little more to finish the project than to sue and have a half-finished project sitting there while you burn 6-7 figures on legal bills. Contractors with the professional integrity to give an honest estimate were unlikely to get the gig, because of the lowest bid law.
The lowest (or highest, in this case) bid was also enforced in this case. I totally agree with your point about small purchases, I've also dealt with it in the situation where you could walk down to Staples and buy something for $200, but we'd spend $300 because that was the best offer from an approved vendor.
Also, I'm more familiar with commercial than federal contracts. Did your contracts have not-to-exceed clauses or any penalties built in to manage overrun issues?
If I bid $100 and you see it, you can bid $99 and win. The theory is that if you can't see my bid, you'll bid $80 instead because you don't know how low to go.
Of all the ways that municipalities and hospitals and whatnot get cheated, banks skimming a little interest is among the least interesting. What would have been interesting is a nice shiny pie chart showing where all the graft goes, but that would relegate this particular scandal to a sideshow.
My understanding is that it is simply a closed bid system where three separate banks submit bids (interest rate that will pay on sums invested with them) with the highest one winning.
In general, you want to buy something. You have to get a quote from at least three vendors, then you pick the lowest. For contracts, like to build something, paint city hall, whatever, you solicit bids by publishing a notice in the local paper. Usually the bids are sealed, which "guarantees" people make a fair bid without undercutting their competitor by a dollar.
Are there roads in your town? Do you think they were paved by the honest lowest bidder?