Stites & Harbison, PLLC

Bidders on public contracts in Kentucky this year have no doubt noticed a new addition to the standard clauses: the notice of Kentucky’s reciprocal bid preference for resident bidders. Kentucky joins the majority of states that provide for preferences of resident bidders. Kentucky’s reciprocal preference is to be included in all public agency contracts, which includes county and city governing bodies as well as school districts and municipal corporations. Resources have come online in 2011 that help further explain what the new law means. Due to its potential for confusing scoring, bidders would be well served to ensure the proper process was followed in the scoring of bids.

In 2010, Kentucky enacted the “Preference for Resident Bidders” law. Stites & Harbison advised the Kentucky chapter of the Associated General Contractors of America, a client and supporter of the bill, about the content of the bill. Under the new law, resident bidders are to receive a matching preference if a higher-evaluated non-resident bidder’s home state provides its own resident bidders a preference. Further, in the case of a tie between a nonresident bidder and a resident bidder, a preference is to be given to the resident bidder.

The statute defines a “resident bidder” as one that is authorized to do business in Kentucky at the time the solicitation is advertised, and has for one year prior to the advertisement filed Kentucky corporate income taxes, made payments to the Kentucky unemployment insurance fund, and maintained a Kentucky worker’s compensation policy.

In February 2011, the Finance Cabinet issued a regulation on how the preference is to operate.  Click here to view that regulation.  Bidders claiming resident status are to submit an affidavit affirming that they meet the statutory criteria. A sample affidavit is available on Kentucky’s procurement website.  If requested by the public agency, a bidder failing to provide supporting documentation will be disqualified or have its contract terminated.

A nonresident bidder’s state of residency will be determined based on its principal office identified in the bidder’s certificate of authority to do business in Kentucky. If the bidder is not required to have such a certificate, the mailing address provided in its bid will be used.

The regulation outlines the process for applying the preference: (1) all responsive, responsible bids are scored, ranked, and then their residency is identified; (2) a preference equal to the highest evaluated non-resident bidder whose home state gives its residents a preference shall be given to all resident bidders; (3) the bids are then re-scored and re-ranked. If there is a tie, the resident bidder receives a preference.

The statute charges the Finance and Administration Cabinet with maintaining a list of states providing preferences for their resident bidders. While that is being compiled, the Cabinet's Office of Procurement Services has provided a link to the Oregon State Procurement Office’s listing of state preferences, available at this link. 

The Office of Procurement Services also has posted a presentation with an example of how this process is to work, accessible at this link.  In the example, a Kentucky bidder is ranked against three nonresident bidders, each from states with resident bidding preferences. On the initial ranking, the Kentucky bid is fourth out of the four bids. The highest ranked bidder’s home state provides a 10 percent preference; upon reevaluation, applying that same preference causes the Kentucky bid to outscore the initially highest ranked bidder. However, when the Kentucky bid is then evaluated as compared to the nonresident bidder who was initially ranked third out of the four bids, the non-resident bid still beats the Kentucky bid. This is so because that nonresident bidder’s home state only provides a 2.5 percent preference. Even with the matching preference applied, the Kentucky bidder still loses out to the third ranked non-resident bid, who is to be awarded the contract. This example shows how scoring with the new law depends on the preferences each non-resident bidders’ state provides.

The Kentucky General Assembly justified this new statute as equalizing competition with other states that provide preferences to their residents. The example, however, shows that the new law also will pose challenges for scoring bid evaluations correctly. As this is already an area that is often subject to challenge, bidders will want to verify that scoring was done correctly.

Mark W. Leach is a Member in the firm's Louisville office where his practice focuses on health care law, construction disputes and public procurement matters.