Reciprocal Preference

A reciprocal preference is a retaliatory procurement policy under which a state applies a competitive disadvantage to vendors from other states that impose local preferences on the first state's businesses, discouraging other states from enacting preferences that restrict interstate competition.

What is a Reciprocal Preference?

Many states have enacted reciprocal preference statutes as a market-access tool: if State B gives its own in-state vendors a 5% price preference over out-of-state competitors (including State A vendors), then State A will apply a 5% price disadvantage to State B vendors competing in State A for state contracts. The reciprocal preference is triggered automatically based on the preference level established in the other state's law.

The logic is deterrence: by mirroring other states' preferences back at their vendors, a state creates an incentive for other states to repeal or reduce their own preferences, since doing so would also remove the retaliatory preference. Reciprocal preferences also protect the home state's vendors from competitive disadvantage in other markets.

Reciprocal preferences create a patchwork of interstate preference relationships that can be difficult to track. A vendor selling in multiple states must understand not only each state's base preference policies but also the network of reciprocal preferences that may apply based on where its competitors are located and what preferences the competitors' home states impose.

Reciprocal preferences apply only to state and locally funded contracts. On federally funded contracts, competition must be open to all vendors regardless of state origin, and state preference laws (including reciprocal preferences) are preempted by federal competition requirements.

Why Reciprocal Preferences matter for government contractors

Out-of-state vendors bidding on state government contracts must determine whether a reciprocal preference applies to their bids. Failing to account for a reciprocal preference can result in losing a contract that would have been won at the quoted price without the preference adjustment, an avoidable loss if the preference had been identified in advance.

Example

Montana gives its in-state vendors a 3% price advantage over out-of-state vendors. Wyoming has a reciprocal preference statute: Wyoming vendors bidding in Montana face a 3% price disadvantage, mirroring Montana's policy. A Wyoming IT firm bidding $500,000 on a Montana state contract is evaluated at $515,000 (3% higher) for comparison against Montana-based vendors. The Wyoming firm must bid $485,000 to break even competitively against a Montana vendor bidding $500,000.

Frequently Asked Questions

How do I find out what reciprocal preferences apply to my bids in another state?

Each state's central procurement office publishes its procurement manual and preference statutes, which typically identify applicable reciprocal preferences. NASPO maintains state-by-state procurement information that covers preference policies. Checking the specific solicitation's instructions is also essential, as some solicitations explicitly notify out-of-state bidders of applicable preferences.

Do reciprocal preferences apply to all types of contracts?

Reciprocal preferences typically apply to construction, goods, and service contracts funded with state funds. They do not apply to federally-funded contracts, where competition requirements preempt local preference laws. Professional services may be treated differently from goods and construction in some states' preference statutes.

Can a vendor avoid a reciprocal preference by establishing a presence in the purchasing state?

Some states define "in-state" broadly enough that a vendor with a registered office or principal place of business in the purchasing state qualifies for the in-state preference and avoids the reciprocal disadvantage. Whether establishing a local office is sufficient depends on each state's specific definition of "local" or "in-state" vendor.

Are reciprocal preferences constitutional?

Reciprocal preferences, like local preferences generally, exist in a legally complex space. Courts have generally upheld state procurement preferences that do not discriminate against interstate commerce in ways that primarily serve protectionist purposes rather than legitimate government interests. Reciprocal preferences are arguably less protectionist than unilateral preferences, since they are designed to encourage equal treatment across states.