SB12-004, Procurement Preference for Made In USA
SB12-004
CREATION OF A PROCUREMENT PREFERENCE TO BE GRANTED FOR MATERIALS MANUFACTURED IN THE UNITED STATES
Sponsors: Sens. Foster and Shaffer, Rep. Miklosi
Staff Name: Casey Krizman
What the Bill Does:
SB12-004 creates a procurement preference equal to 1% of the bid price for qualified respondents to state agency requests for proposals for the purchase of materials, supplies, products, provisions or equipment (“products”) that is expected to exceed $1 million after the respondent certifies adequate efforts to ensure the products are manufactured in the United States (the “U.S.”). Such a preference is to be taken into account when determining the “low responsible bidder.”
Colorado Context:
Notwithstanding certain exceptions, all state contracts are awarded by competitive sealed bidding with the award going to the low responsible bidder.[1] There are currently only two provisions for preferences to respondents who qualify as the low responsible bidders; 1) in the case of a tie, deference is awarded to in-state bidders[2]; and 2) a preference for environmentally preferable products.[3] Since the beginning of FY 2010-11, the state has awarded 180 contracts of $1 million or more, 130 of which were granted by the Department of Transportation.[4]
National Context:
Procurement preferences have a long history at the federal level; preferences for U.S. businesses date as far back as the Civil war, preference for small businesses as far back as 1941 and a deference for socio-economic programs was a main tenet of the American Bar Association’s Model Procurement Code, published in 1979.[5]
Many states have codified the “Buy American Law” for commodities such as beef and steel while others simply require preference for domestic products without specifying the commodities.[6] As of 2008, 15 states have “Buy American” laws.[7] In addition, though not often codified, there is ample evidence to support that the “Buy American” law is preferred when making decisions regarding American made vehicle acquisition and construction materials in the procurement process.[8] In addition, although “Buy American” laws base their logic on job creation and increased tax revenue, critics claim they are inherently anti-competition.[9] Critics also argue that they violate the principle of public procurement: equity, impartiality, competition and least cost to the taxpayer.[10] The National Association of Purchasing Officers and the National Institute of Governmental Purchasing has consistently opposed preference-based laws.[11]
Bill Provisions:
SB12-004 amends Colorado Revised Statutes 24-103-101 regarding the definition of “low responsible bidder” to mean a person who has bid in compliance with the invitation to bid and within the applicable requirements “after any relevant preferences…have been applied.”
SB12-004 also adds to Colorado Revised Statutes 24-103-210 to create a preference provision for qualified respondents to state agency requests for proposals equal to 1% of the bid price for purchases expected to exceed $1 million, when the qualified respondent certifies that it will make adequate efforts to ensure the products are manufactured in the U.S. The 1% preference will be subtracted from the bid of each qualified respondent when determining the low responsible bidder.
In order to qualify for this preference, products manufactured in the U.S. must be equal in quality to those manufactured outside of the country, must be able to be manufactured in sufficient quantity, and the costs of the products manufactured in the U.S. cannot exceed the costs of foreign products by more than 5%.
Aspiring respondents must certify to the requesting agency that the respondent is eligible pursuant to the qualifications above. The requesting agency is responsible for verifying that the respondent meets the criterion and is therefore a qualified respondent. In addition, it is left to the requesting agency to promulgate rules for administering such a verification process. The bill explicitly gives deference to any treaties, laws, agreements or rules of the U.S.
In order for the products to be considered “manufactured in the U.S.” the design, final assembly, processing, packaging, testing, or other process that adds value, quality, or reliability must occur in the U.S.
Fiscal Impact:
This bill will increase state expenditures by at least $205,318 and 2.7 FTE in FY 2012-13 and by $294,777 and 4.4 FTE in FY 2013-14. Such costs are based mainly on increased workload for verification of contracts but also include some one-time costs including the need for CDOT to update contract materials. The current fiscal impact assumes the use of General Fund monies but will vary based on the agency.
Aside from the one-time costs, continuing costs are required to promulgate and manage the new rules and support the certification of the respondents’ eligibility. The Department of Personnel and Administration is expected to see the largest increase, as they manage statewide procurement of many products and act as the purchasing agent for about ten other agencies. The department will need to hire additional employees to validate that the products were manufactured in the United States as well as to ensure that such products do not exceed the 5% threshold.
Although the DPA will bear the brunt of the cost of implementation, all state agencies are directed to verify a respondent’s qualifications, resulting in increased costs for several state agencies, depending on the volume and complexity of the contracts issued.
This bill may increase the cost of some contracts by up to 1%, or $10,000 per $1 million expended.
The DPA is requesting roughly an additional $135,000 per FY to oversee the 1% preference in anticipation that it will need to source all components of the products, not simply the final design.[12]
[1] Colorado Revised Statutes – §24-103-201.
[2] Colorado Revised Statutes – §24-103-201 through 209; see specifically §24-103-202.5.
[3] Colorado Revised Statutes – §24-103-201 through 209; see specifically §24-103-207.5
[4] Colorado General Assembly
http://www.leg.state.co.us/clics/clics2012a/csl.nsf/fsbillcont3/4C25A496F0AAB5D587257981007F5320?Open&file=SB004_00.pdf
[5] State and Local Government Procurement Preferences: A Survey; Cummings, Llyod, Qiao and Thai
[6] Id.
[7] Id.
[8] Id.
[9] Issues in Public Purchasing: A Guidebook for Policymakers; Short
[10] Id.
[11] Id.
[12] Colorado General Assembly
