United States: A Bidder's Residence Must Be Considered When Awarding Contracts

Kentucky law requires water districts and municipal utilities to give a reciprocal preference to Kentucky resident bidders over bidders from states that give preference to their residents.

This statutory preference was established by the 2010 Kentucky General Assembly to equalize "the competition with other states that provide preference to their residents" when awarding contracts for the purchase of goods and services.

The Requirements

KRS 45.494 requires all "public agencies," including water districts and municipal utilities, to give resident bidders a preference "equal to the preference given or required by the state of the nonresident bidder."  

A resident bidder is any "individual, partnership, association, corporation, or other business entity that, on the date the contract is first advertised or announced as available for bidding," is authorized to transact business in the Commonwealth and has filed Kentucky corporate income taxes, made payments to the Kentucky unemployment insurance fund and maintained a Kentucky workers' compensation policy.  

Finance and Administration Cabinet regulations require a resident bidder to include with its bid a notarized affidavit affirming that the bidder meets the residence criteria. A non-resident bidder's residence is determined by the principal office listed in the bidder's certificate of authority to transact business in Kentucky. If the bidder is not required to have a certificate, the mailing address provided in its bid determines residence.  

Bid solicitations and requests for proposals must include KRS 45A.490-.494. The Finance and Administration Cabinet suggests including language similar to the following:

The scoring of bids/proposals is subject to reciprocal preference for Kentucky resident bidders (KRS 45A.494). Any individual, partnership, association, corporation, or other business entity claiming resident bidder status shall submit along with its response the attached Required Affidavit for Bidders, Offerors, and Contractors Claiming Resident Bidder Status. The [Name of Agency] reserves the right to request documentation supporting a bidder's claim of resident bidder status. Failure to provide such documentation upon request shall result in disqualification of the bidder or contract termination.

A copy of the resident bidder affidavit should accompany the solicitation.

Applying the Preference

After all responsible and responsive bidders to a solicitation have been scored and ranked, non-resident bidders from a state giving a preference to its residents should be identified.  A list of states that give preference to resident bidders is available on the Finance and Administration Cabinet website.   

The preference given by the state of the nonresident bidder who has the highest score and rank is then applied to all Kentucky resident bidders. Then, the bids are rescored and re-ranked.   

Kentucky resident bidders only receive preference against nonresident bidders residing in a state that gives a preference to its resident bidders. No preference is applied against nonresident bidders from a state that does not give a preference against Kentucky bidders.  

If a tie results between a Kentucky resident bidder and a nonresident bidder, the resident bidder must be selected. No preference is given when a tie occurs between nonresident bidders.  

Exceptions to the Rule

There are two exceptions to the preference requirement.   

First, no preference is required if forbidden by federal law. For example, Rural Development regulations generally prohibit a borrower receiving a federal loan or grant for a water or wastewater project from granting such preferences.  

Second, since the preference only applies to contracts that require bidding, it does not apply to contracts that do not require competitive bidding. Unless a water district or municipal utility has adopted the Local Model Procurement Code or a similar rule, this generally means contracts for expenditures of less than $20,000.  

Be Sure You Comply

KRS Chapter 45A does not provide for civil or criminal penalties for failure to comply with KRS 45A.494.  While non-compliance will not result in the assessment of any penalties, legal challenges from unsuccessful bidders may delay the award of the contract.  

Water district and municipal utility officials should be aware of the resident bidder preference when soliciting bids and awarding contracts. If you have questions regarding the bid process or application of KRS 45A.494, contact a member of SKO's Utility & Energy practice group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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