Does local preference cost an arm or a leg up?

Several local areas in South Carolina, USA, as with many places elsewhere, are debating whether to give "local preferences" to their local businesses.

Contracting on many public jobs is blind to ties

The struggling economy has hit the construction industry particularly hard, and with government contracts making up a significant amount of available work, some local governments are discussing adding local preference rules.

Horry County, Myrtle Beach, North Myrtle Beach, Georgetown and Conway only give preference to a local company when the government receives two identical bids, in which case the local company would be awarded the contract. Georgetown County is the only local government to have a local preference, but Horry County considered it earlier this year, Georgetown discussed the issue this week and Myrtle Beach will discuss it next week.

Columbia last week discussed adding a local preference ordinance that would give companies in Richland and Lexington counties a greater chance of winning contracts worth more than $10,000. If a local bidder is within 5 percent, or $10,000, of the low bid, then the company would have the option to match the low bid.

Bluffton, in Beaufort County, also recently considered a local preference ordinance. The town will reduce the price of the bid submitted by a local contractor - defined as a company that has an office in Beaufort County, has held a town business license for two years and signed a local preference certification statement - by 5 percent, but won't reduce the bid more than $2,500.

Even Myrtle Beach, which hasn't discussed the idea of local preference, has added it to the agenda.

Larry Schilling, procurement officer for the city of Conway, said that every bid must be evaluated carefully, but ultimately the best value is going to determine the winning bid.

"We have to be careful where we have taxpayer money involved here," he said. "We need to get the best value for the dollar. ... It has to be competitive."

Ron Herrmann, the owner and president of Elvis Welding Service Inc., who has worked in the area for more than 20 years, said that he has seen some good contractors who have helped build the Grand Strand go out of business as the government contracts go to companies from out of town.

"I've lost my five best customers. They've all gone out of business. They're out of business because most of the people doing business have gone out of town," he said. "It's just unbelievable."

The County Council asked for a review to determine how Georgetown County's policies compare to others.

"There certainly is value to that to employ local people and have the revenue come through the county," Prufer said. "It's certainly a legitimate consideration, just somebody has to determine how much extra we pay for that."

The city of Georgetown is reviewing its purchasing policies and presented an updated version, which does not include a local preference, to the City Council this week.

"I think it's just a challenge of finding a way to make that work," said Chris Eldridge, the city administrator, adding that even companies outside the city do contribute to the local economy.

Earlier this year Horry County Council members considered adding a local preference to the procurement codes.

"The reason why we didn't include it is because our legal staff said that there could be constitutional implications if you provide a preference," said county spokeswoman Lisa Bourcier. "You have to keep fair and equitable procurement codes ... and that is why it was not included."

Under the current ordinance the county must award the contract to the qualified lowest bidder. With the expansion of the Myrtle Beach International Airport, the largest county project, the projects have been broken down into pieces, which should allow some of the smaller, local companies to submit bids, she said.

"We found we had more response and got better pricing when we were able to do that," Bourcier said.

Rick Ott, a senior executive vice president of M.B. Kahn, which is managing the airport construction, said that he can understand that there is political pressure to keep jobs local but that local preference laws aren't the way to go.

"Generally we're opposed to local preference laws in the construction industry," he said. "Ultimately it increases [the] cost to do business and it removes an opportunity."

Read more: http://www.thesunnews.com/2010/08/22/1647413/no-leg-up-for-local-companies.html#ixzz0xOA1ZhZg

Meanwhile, it is worth noting that local preference provisions can have unexpected consequences, amongst which includes the creation of business critically reliant on local government largess, as this report from the UK suggests:

Companies that supply public sector feel heat of latest wave of cuts

Some 168 companies in the health and social services, education and defence sectors collapsed in the first half of 2010, compared with an overall business failure which has dropped by 5 per cent in the same period.

"Those companies that have become too dependent on the public sector are beginning to feel the pain," said Anthony Cork, a director at Wilkins Kennedy. "It is not just the actual cost cuts that are causing problems but the delay by public-sector bodies making spending decisions."

That kind of economic distress then becomes political distress at a time when politicians are least likely to need to make tough fiscal decisions.