Local Bidder Preference Statute Introduced in North Carolina State Senate

A bill was introduced in the North Carolina Senate yesterday that would give “local” bidders on public construction projects an advantage over “non-local” bidders.  A copy of Senate Bill 232 can be found here.

SB 232 would give the lowest responsible, responsive “local bidder” the opportunity to match the bid of the lowest responsible, responsive “non-local” bidder, but only if the local low bid is no greater than five percent (5%) or ten thousand dollars ($10,000) of the bid of the “non-local” low bid.  “Local bidder” would be defined as a bidder that has paid unemployment or income taxes in North Carolina and whose principal place of business is located within the boundaries of the county or municipality giving the preference.  A “non-local bidder” would be any entity other than a “local bidder.”

Proponents of local bidder preference statutes like SB 232 typically cite the following two advantages of such legislation:

  • Local bidder preferences provide business development opportunities for local companies, potentially resulting in a broader local tax base; and
  • Bidder preference legislation could provide an incentive for businesses to stay in North Carolina, rather than relocate out-of-state.

Opponents of such preferences typically cite the following three primary disadvantages:

  • Bidder preferences decrease competition on public construction project by discouraging “non-local” businesses from bidding in the first place, thereby driving up project costs ultimately borne by taxpayers;
  • Neighboring states will reciprocate, potentially reducing out-of-state opportunities for in-state contractors; and
  • Giving the low “local bidder” a “second bite at the apple” runs contrary to the primary public policies underpinning the public bid statutes: open competition, equal footing, impartiality and best value.

(Incidentally, the National Institute of Governmental Purchasing is hosting a webinar this Thursday about the pros and cons of local preferences; you can find details about the program at Mike Purdy’s excellent Public Contracting Blog here).

Where do I stand?  At the moment, I lack research suggesting that the potential benefits of SB 232 would outweigh its potential costs.  In the absense of such research, my suspicion is that if “non-local” bidders are discouraged from submitting proposals on any given city, town or county procurement, the result will be higher prices on North Carolina school, criminal justice and other public facilities.  That would be bad news for taxpayers, and bad news for prime contractors, particularly if the overall effect of higher per-project costs is a reduction in the total number of public construction projects bid annually.  Then there’s the issue of underserved rural communities that may have few experienced, high-quality commercial general contracting firms within their borders.  Providing a bidding advantage to inexperienced local firms might not only drive up costs, but also compromise quality.

At a minimum, then, I believe that the potential costs and benefits of SB 232 should be thoroughly studied by NCGA’s legislative research service before any votes are taken, in committee or otherwise.  And so for now, and in the absence of research demonstrating that the benefits of SB 232 would outweigh its costs, I stand with North Carolina’s leading trade association for prime contractors, Carolinas AGC, in opposing the bill (full disclosure: Lewis & Roberts is a member of CAGC).  FYI, the organization has made it easy to express opposition to the legislation here.

I’m keenly interested in hearing other viewpoints on this issue.  As always, your comments are welcome.

7 Comments

Filed under Public Bidding, State law, policy & news

7 responses to “Local Bidder Preference Statute Introduced in North Carolina State Senate

  1. Interesting stuff. NC seems to be doing all that they can to mess around with (read tweak) the construction rules. I’ll be interested to see how all of this plays out

  2. Michelle Knockwood

    I don’t feel that a local ordiance is always getting you the best price and certainly not for construction projects. The State of CT does not allow this currently for construction projects. Does local preference really put money back into the town’s economy or the vendor’s pocket? I think the vendor’s pocket. To me it just eliminated competitive bidding.

  3. B. Hemsley

    Interesting as I thought North Carolina already had a provision for a “Reciprocal preference” as a way to punish bidders from other states that have a local preference. See NC General Statute 143.59 (b) Reciprocal Preference

    For the purpose only of determining the low bidder on all contracts for equipment, materials, supplies, and services valued over twenty‑five thousand dollars ($25,000), a percent of increase shall be added to a bid of a nonresident bidder that is equal to the percent of increase, if any, that the state in which the bidder is a resident adds to bids from bidders who do not reside in that state.

    Putting up a “wall” may serve to keep others out but it also serves to keep them in as well and becomes their own prison.

  4. I like the concept, where it is not a broad based exclusion preference, only a bump on a close bid. I think the Bill would:
    1) shave points off the total project price for the Public Owner;
    2) the preference will encourage the Prime to hire local subcontractors and suppliers for their geographic price advantage;
    3) would likely encourage joint ventures between large national builders and local builders, which have been successful on large projects in North Carolina;
    4) would potentially recycle more dollars spent in state instead of out of state;
    5) if North Carolina’s construction market ooks more promising for the next several years, this might encourage movement of offices from South Carolina, or encourage opening subsidiary offices here that meet definition of “local”;
    6) would not discourage out of state bidders if their bidding practices are competitive.
    I understand AGC’s objection to the Bill, so an effective alternative might be to a Subcontractor local preference percentage participation requirement, similar to a HUB percentage requirement.

  5. I absolutely agree. If you can’t show the benefits being greater than the cost, it is not helping. On paper when it shows a true return, there is very little to discuss but when it’s potential or projected, there is always an ‘if’ that can leave things hanging in the senate.

  6. Interesting stuff. NC seems to be undertaking everything they could to mess around with throughout the construction regulations. I’ll be interested to see how all of this plays out

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