Local Purchasing Preferences as an Economic Development Strategy

Community and Economic Development – Blog by UNC School of Government

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Local Purchasing Preferences as an Economic Development Strategy

By Jonathan Morgan

Published March 4, 2010

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.