Considering local business preference policies in bids and purchases: finance officers need to consider the approximate economic benefit the community receives from local preference policies.

• Author: Chang, Semoon
• Position: Best Practices

Many state and local governments give preference to local businesses in bidding and purchasing, but jurisdictions don't always analyze the concept. Finance officials need to know approximately, if not exactly, how much economic benefit the community receives from purchasing goods from local suppliers, rather than from outside suppliers. This article reviews the issues involved with local preference policies, allowing finance officers to take a closer look at the practice.

The term "local preference" encompasses several ways in which local governments favor local businesses. What is meant by a "local business" varies and can refer to a business that is owned by local residents, or to the local branch of a multi-state business that has a local business license, pays all local taxes, and hires all local residents as its employees. There is also more than one type of local preference. One jurisdiction might issue requests for proposals specifying that qualifying businesses have a local presence; another might allow extra points or higher bid prices for local contractors; a higher bid price for locally produced goods or local suppliers in construction and public works projects; and still others might require vendors to employ local residents.

PRACTICES IN CITIES AND COUNTIES

Issues relating to local preference policies at the municipal level vary widely; there are no national surveys of preference policies at the local level. Exhibit 1 summarizes policies in selected cities for local preferences in terms of percentage benefits, types of contracts subject to local preference, any limitation in dollar amounts, and reciprocal laws. The appropriate cells are left blank whenever information was not clearly stated.

Cities that maintain local preference policies usually limit their preference to businesses with city business licenses and locations within the city limits, although some expand their location requirement to include the county in which the city is located. Some cities require the local business to have been in their jurisdiction for at least a year. Most cities, however, do not have an explicit statement of such requirement.

The percentage preference given to local businesses ranges from 1 to 5 percent, with the 5 percent being most popular. Also, some cities set a maximum amount of contracts that their preference will apply to, and others set a minimum amount. Many cities exclude public works and construction contracts from their...