Local Preference in Procurement

A local preference in procurement is a state or local government policy that provides a competitive advantage to businesses located within the jurisdiction, the state, county, or city, over out-of-area competitors when awarding government contracts, intended to support local economic development and tax base.

What is a Local Preference in Procurement?

Local preferences take several forms: a price preference (where a local vendor's price is adjusted downward, e.g., by 5%, for evaluation purposes before comparison to out-of-area bids); a tie-breaking preference (where a local vendor wins if pricing is equal to an out-of-area competitor); a set-aside (where specific procurements are reserved for local vendors); or a scoring advantage in qualifications-based evaluations (where local presence earns additional points).

Most states have enacted some form of local preference statute, though the specific rules, including what counts as "local," the magnitude of the preference, and which procurements it applies to, vary significantly. "Local" may be defined as within the state, within a county, within a metropolitan area, or within a specified radius. Many local preference statutes apply only to state and locally-funded contracts and are prohibited on federally-funded contracts, where the Buy American Act and federal competition requirements may preempt local preference provisions.

The legal status of local preferences is complex. Local preferences that discriminate against interstate commerce may face constitutional challenges under the Dormant Commerce Clause, though courts have generally upheld preferences when they serve legitimate local economic interests and are narrowly tailored. Federal grants, FHWA-funded projects, and other federally-assisted contracts typically prohibit local or state preferences, requiring full and open competition without geographic restrictions.

Why Local Preference matters for government contractors

For locally-based vendors, local preferences can provide a meaningful competitive advantage, effectively allowing them to win contracts even when their price is moderately higher than out-of-state competitors. For out-of-state vendors, local preferences are a market entry barrier to understand and account for when deciding whether to pursue opportunities in a new jurisdiction.

Example

A county implements a 5% local preference policy for service contracts. An in-county vendor bids $100,000 and an out-of-county vendor bids $97,000. Under the local preference policy, the out-of-county bid is evaluated at $97,000 × 1.05 = $101,850 for comparison purposes. The in-county vendor's $100,000 bid wins, even though it is nominally higher than the out-of-county bid.

Frequently Asked Questions

Are local preferences legal in all states?

Most states authorize some form of local or in-state preference by statute. The legality of specific preference policies depends on their structure and the funding source of the contract. Preferences on federally-funded contracts are generally prohibited. Out-of-state vendors can challenge preferences under the Dormant Commerce Clause, but courts have generally upheld preferences that are non-discriminatory and serve legitimate state interests.

Do local preferences apply to federally-funded contracts?

Generally no. Federal grant requirements and federal procurement regulations (particularly for transportation, education, and community development grants) typically prohibit state and local preferences on federally-funded contracts and require full and open competition without geographic restrictions.

What is a reciprocal preference?

A reciprocal preference is a state policy under which the state applies a preference equal to the preference that another state imposes on the first state's vendors. If State B gives its in-state vendors a 5% price advantage over out-of-state vendors, State A will apply a 5% disadvantage to State B vendors competing in State A.

Can "local preference" be defined as in-state rather than in-county or in-city?

Yes. The geographic scope of the preference varies by statute and jurisdiction. Most state-level preferences apply to businesses with a principal place of business in the state. Some local governments (counties, cities) have narrower definitions covering only businesses within their specific jurisdiction. Check the solicitation for the specific definition applicable to each procurement.