Local Preference

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  • Cheryl Turney Asst Finance Director I am here today to discuss giving a preference to businesses located within the corporate city limits of College Station. We have had a couple of questions come up lately about when we are allowed to give local preference.
  • The first thing I’d like to do is remind the Council of the Statutory Provisions governing the award of bids: Our City Charter says (in part) that the City shall encourage free and unrestricted competition on all purchases, ensuring the taxpayers the best possible return on their tax dollars. Local Government Code Chapter 252 is the Purchasing and Contracting Authority for Cities – and it says that we must award our contracts to the lowest responsible bidder or to the bidder who provides the best value. The statutes offer a list of best value criteria including: purchase price, bidders reputation; quality of bidders goods or services; bidders past relationship with the City; the total long term cost to the City to purchase the bidders goods or services; and any other relevant criteria specifically stated in the bid/proposal. We also rely on Case Law and Attorney General Opinions in interpreting the laws. Prior to 1999 there were a number of Attorney General Opinions written regarding the issue of Local Preference….prohibiting any type of preference in competitive bidding……
  • And then, in 1999, the legislature allowed us to take into consideration the location of the bidder’s principal place of business. If the City receives one or more competitive sealed bids from a bidder whose principal place of business is in the municipality we can award it to the local bidder, as long as it is the within a certain percentage of the lowest bid price received from a bidder who is not a resident of the municipality.
  • In 1999 Legislature established LGC 271.905 –allowing a 3% local preference….on commodity type purchases In 2005 the Legislature created a new statute LGC 271.9051 - increased the percentage to 5% for Cities and added services. 2009 – LGC 271.9051 was amended to restrict local preference on construction contract less than $100k 2011 – LGC 271.9051 was amended to restrict local preference on other purchases less than $500k Other preference bills that I have seen: Historically Underutilized Businesses Small Businesses Minority Owned Businesses Women Owned Businesses Environmentally Friendly/Recycled preferences American made commodities Reciprocal Laws – that require us to add the same percent increase to each out-of-state bidders bid price equal to the percent of preference allowed in the bidders home state. IE: NM allows 5% preference. If NM company bid on a project here; we could add 5% to that company’s bid price in determining lowest, responsible bidder. Recently – Companies that provide health insurance to their employees.
  • These statutes have some limitations and minimum requirements that apply: It cannot be used for telecommunications and information services It cannot be used for professional services – because they are governed under a different statute – the Professional Services Procurement Act – that requires us to select the most highly qualified provider of professional services. It only applies to Cities with a population of 250,000 or less Applies to real property, personal property and services The principal place of business must be in the corporate City limits of College Station….we cannot stretch that out to Bryan businesses or business that might be within the county. And one of the most important pieces of the law requires the governing body to determine that the local bidder offers the City the best combination of contract price and additional economic development opportunities.
  • I thought it might help to provide some definitions. I found an AG Opinion that defines Principal Place of Business – where a bidder maintains an office and a substantial part of its operations are also conducted there And The Statute defines Economic Benefit – as the combination of contract price and additional economic development opportunities created by the award – including the employment of residents of the municipality and increased tax revenues.
  • Some advantages and disadvantages of giving a preference in bid awards: Advantages - Good public relations Disadvantages – Increased vendor protests The advantages are directly related to the economic benefit that must be created by the award.
  • Point of Reference….since 2006 we have had 4 opportunities that meet the statutory requirements brought before Council. 2 of them were awarded to the low bidder; 2 of them were awarded to the local contractors with a principal place of business in College Station. So in those situations this is what we did… We required the vendor to complete an application for local preference: An application could include: years in business; how many College Station residents are employed by the business; did the business pay any business or real property tax for the most recent tax year; and an Affidavit certifying the contractors principal place of business is in the corporate city limits of College Station. We would then present a cost analysis with the application for Council to consider on a case-by-case basis.
  • Local Preference

    1. 1. LOCAL PREFERENCE Presented by: Cheryl K. Turney, C.P.M. Asst. Finance Director
    2. 2. Competitive Bidding <ul><li>City Charter Article VII: Finance Admin Section 68 </li></ul><ul><ul><li>… The City shall encourage free and unrestricted competition on all bids and purchases, ensuring the taxpayers the best possible return on and use of their tax dollars… </li></ul></ul><ul><li>Chapter 252: Purchasing and Contracting Authority for Municipalities </li></ul><ul><ul><li>LGC 252.043 Award of Contract must be made to lowest responsible bidder or bidder who provides best value </li></ul></ul><ul><li>Attorney General Opinions </li></ul><ul><ul><li>H-1086 (1977) May not reject low bid solely because the bidder is not a local merchant or businessman </li></ul></ul><ul><ul><li>DM-113 (1992) schools may not, in the absence of clear statutory authority, adopt procurement policies that reward bidders purely on the basis of a bidders residence or location </li></ul></ul><ul><ul><li>LO 93-73 (1993) prohibits a home-rule municipality from giving preference in awarding contracts for professional engineering srvs </li></ul></ul>
    3. 3. Exception <ul><li>LGC 271.905: Consideration of Location of Bidder’s Principal Place of Business; and </li></ul><ul><li>LGC 271.9051: Consideration of Location of Bidder’s Principal Place of Business in Certain Municipalities </li></ul><ul><li>…” If the Municipality receives one or more competitive sealed bids from a bidder whose principal place of business is in the municipality and whose bid is within (three)(five) percent of the lowest bid price received by the municipality from a bidder who is not a resident of the municipality”… </li></ul>
    4. 4. History of Legislation <ul><li>1999 – LGC 271.905 allows 3% (commodities) </li></ul><ul><li>2005 – LGC 271.9051 allows 5% (services) </li></ul><ul><li>2009 – LGC 271.9051 amended to restrict preference on construction service contracts less than $100k </li></ul><ul><li>2011 – LGC 271.9051 amended to restrict preference on other purchases less than $500k </li></ul>
    5. 5. Statutory Requirements <ul><li>Cannot be used for telecommunication/information services or professional services </li></ul><ul><li>Municipality with population less than 250,000 </li></ul><ul><li>Applies to purchases of real property, personal property (not affixed to real property) and services </li></ul><ul><li>Principal place of business must be in College Station (not Bryan, not Brazos County, etc) </li></ul><ul><li>Governing body must determine that local bidder offers the City the best combination of contract price and additional economic development opportunities </li></ul>
    6. 6. Definitions <ul><li>Principal Place of Business - location of a business' principal office; a business' headquarters; where a bidder maintains an office and a substantial part of its operations are also conducted there. </li></ul><ul><li>Economic Benefit – contract price plus additional economic development opportunities created by the award, including the employment of residents of the municipality and increased tax revenues. </li></ul>
    7. 7. Advantages and Disadvantages <ul><li>Advantages </li></ul><ul><li>Assist local economy </li></ul><ul><li>Create incentives for new business development </li></ul><ul><li>May reduce local unemployment </li></ul><ul><li>Disadvantages </li></ul><ul><li>Increased purchase price </li></ul><ul><li>Discourage competitive bidding – especially from non-locals </li></ul><ul><li>Benefits a few at the expense of all taxpayers </li></ul>
    8. 8. Recommendations <ul><li>Require (prior to award) the local vendor to complete an application for local preference; </li></ul><ul><li>Present all local preference opportunities to Council for consideration; </li></ul><ul><li>Council determine if the award would provide the best combination of contract price and economic benefit to the municipality on a case-by-case basis </li></ul>

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