Indiana Enacts New “Buy Local” Preference Law

By: David B. Vornehm and Scott P. Fisher

During the 2011 session, the General Assembly passed and the Governor signed House Enrolled Act (HEA) 1004, which goes into effect on July 1, 2011.  There are many provisions in HEA 1004, but one in particular stands out: a new “buy local” requirement for public procurement in IC 5-22-15-20 which is then carried over into IC 36-1-12 and applies to most public works projects in Indiana and particularly those at the local level.

As enacted, if a business qualifies as a “local Indiana Business”, that business will get a price preference for contracts on supplies of 5% for purchases less than $50,000, 3% for purchases between $50,000 and $100,000 and 1% for purchases over $100,000.  There are certain criteria in order to qualify as a “local Indiana Business” such as having a principal office in the county or adjacent county where the contract is located (referred to as “affected counties”), paying a majority of its payroll to residents of affected counties, employing residents of affected counties as a majority of its employees, making significant capital investments in affected counties, having a substantial economic impact in the affected counties.  If a business wants to claim a preference it must satisfy certain pre-bid notice requirements such as claiming the preference in its bid and providing certain documentation related to the above criteria to the purchasing agency.

The essence of the local preference revision is the modification and conditional abandonment of the long understood requirement that a contract be awarded to the lowest, responsive, responsible bidder.  Notwithstanding provisions of Title 5 and 36 that previously required the award of a contract to the lowest responsive and responsible bidder or the lowest responsive and responsible quoter, a contract now must be awarded to the lowest responsive and responsible local Indiana business that claims the preference.

How will this actually be applied?  Assume that there are two bidders on a Title 36 public works project.  Bidder A is not a local Indiana business, and Bidder B is.  Bidder A bids $90,000, and Bidder B bids $92,500. Bidder B is entitled to a 3% local business preference (provided it claims the preference and fulfills the requirements), so its adjusted bid is $89,725.  Bidder B is the lowest, responsive and responsible local Indiana business that claimed the preference and is awarded the contract.  Note that the contract amount is not $89,725; it is $92,500.  Now let’s apply this to a mega project such as the Indianapolis deep tunnel job that, by some estimations, is projected to exceed $300,000,000.  For a bid of that size, the 1% preference could be equal to $3,000,000!

The new law pushes several key policy questions down to the agencies.  Note that the phrase “as defined in rules adopted by the political subdivision” appears in such key sections as how “local Indiana business” is defined.  Businesses seeking to submit bids on public procurement projects falling under these new statutes will need to contact the public agencies involved, on an agency-by-agency basis, in order to determine what rules may be put into place.

Other questions also remain unanswered at this stage, including how this local preference will apply to joint ventures where one member is out of state.  These questions must be answered before bids are received for award beginning July 1st.  This means addenda must be issued in the very near future to include the new language in the contract documents. The awarding agencies have a lot of work to do before July 1st, and businesses intending to bid on these contracts must also work to educate themselves regarding these new requirements in order to retain their competitive edge in the bidding process.