Jonathan Morgan is a School of Government faculty member.
On February 17, 2010 Governor Beverly Perdue signed Executive Order No. 50 that will give North Carolina-based businesses an opportunity to match the lowest bid on state contracts for the purchase of goods. The order authorizes the Secretary of Administration to allow North Carolina firms whose initial bid price is within 5 percent or $10,000 (whichever is less) of the lowest bid to match the price of the lowest bid offered by an out-of-state company. The Governor expects that this purchasing preference for in-state firms will help North Carolina businesses secure a larger share of state contracts and promote homegrown job creation.
This in-state purchasing preference has the potential to boost economic development by giving North Carolina businesses a second chance to compete for state contracts. By steering more dollars to North Carolina companies, the order intends to leverage the substantial purchasing power of state government in order to support job creation and economic growth within the state rather than elsewhere. The idea of taking fuller advantage of the state’s purchasing power to stimulate private investment at home in tough economic times makes a lot of sense. However, the new order could invite legal and constitutional challenges from out-of-state firms who, after submitting the lowest bid, lose out on state contracts to “resident bidders”. Even if the law is settled on such a preference for in-state businesses, some will question its fairness. Also what does it really mean to be a “resident bidder” in an era of multi-national corporations?
North Carolina is certainly not alone in trying to use the purchasing power of state government to support the economy at home within its state borders. A 2009 survey conducted by the National Association of State Purchasing Officials reported that 27 states give preference to in-state businesses for government contracts. As more states adopt in-state purchasing preferences, North Carolina businesses may find it increasingly difficult to secure out-of-state government contracts.
At the local level, some jurisdictions are building on their consumer-focused “buy local” campaigns and are looking at ways to encourage large institutions such as local governments, universities, and hospitals to purchase more goods and services from locally owned and operated small businesses. Governor Perdue’s signing of Executive Order No. 50, makes me wonder how many local governments in North Carolina are granting formal preference to local vendors and/or small firms in the procurement of goods and services or are otherwise attempting to shift a greater share of institutional purchases to homegrown companies.
This is, of course, two edged.
I’ve looked at all forms of this over the years.
If other states offer the same local procurement advantage then those same contractors might start losing contracts in other states.
It’s then up for grabs, but it may actually cost jobs.
And price is not the only determinant in procurement.
I looked once at “strategic procurement”. This involves procuring services / good that will help a local supplier build a capability to export out of the trading area. This might not have the same prospect of counter action.
School of Government faculty member Eileen Youens, who specializes in purchasing and contracting law, recently published a blog post discussing Executive Order No. 50 at the following link: http://sogweb.sog.unc.edu/blogs/localgovt/?p=2271.
The governor’s office recently announced that the preference allowed 52 in-state companies to win contracts totaling $2.7 million in 2010 (press release: http://www.governor.state.nc.us/NewsItems/PressReleaseDetail.aspx?newsItemID=1613). It would be interesting to compare this information with the number and amount of contracts that North Carolina companies lost in 2010 due to the preference policies of other states.