Wednesday, April 2, 2014

Are Bid Preference Laws Counter Productive?

Many states and local governments have adopted bid preference laws that give bidders from within the agency's boundaries a competitive price advantage against bidders from outside the boundaries.  

Why do we have bid preference laws?  Bid preference laws are touted by political leaders as a way to keep public dollars local.  While they may accomplish this objective, bid preference laws often end up costing public agencies and the taxpayers more money. 

Reciprocal bid preferences:  In response to bid preference laws, some public agencies have adopted reciprocal bid preference laws, meaning they only apply a bid preference against a firm who bids from a different area that does have a bid preference law. 

When are bid preferences applied?  Some local bid preference laws or reciprocal bid preference laws apply only to the purchase of goods, supplies, materials, and equipment.  Others extend to services or to public construction projects. 

Florida's experiences:  In a March 19, 2014 opinion article published in Miami Today, Michael Lewis has written about how bid preference laws result in loses for both taxpayers and businesses.  He describes current laws and proposed legislation in Florida and Miami.  It's a well written piece that points out some of the problems with bid preference laws.  He cites a 2012 briefing on in-state bid preferences from the National Association of State Procurement Officials:
"The costs of goods or services are increased for all taxpayers when a percentage differential is allowed; meaning that the state will not get the same value for the dollars spent...This practice discourages firms that don't meet the preference from participating in the procurement process...Experience has shown that when restricting a market, or implementing a preference, prices increase."
Washington state's law:  Washington state has adopted a reciprocal bid preference law for public works construction projects, meaning it puts contractors from the four states (Alaska, New Mexico, Wyoming, and Nevada) that have a local bid preference at a competitive disadvantage when bidding on public works projects with any government agency in Washington.  The result is often that projects end up costing more.  Click here to read more from various blog postings I've written about local bid preferences and Washington's reciprocal bid preference requirements.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC

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