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Friday, March 1, 2013

Location-Based Preferences in Federal and Federally Funded Contracting: An Overview

John R. Luckey
Legislative Attorney

Kate M. Manuel
Legislative Attorney

The recession of 2007-2009 and subsequent economic conditions have prompted interest among some Members of Congress and their constituents in legal authorities that could require or allow federal agencies to prefer contractors in one state or locality over those in other states or localities. Federal spending on procurement contracts has remained high, totaling $537.3 billion in FY2011, at a time when many other businesses have scaled back their purchases of goods and services. However, this spending has historically been localized in three to five states, which receive nearly half of all federal procurement dollars, prompting concerns about whether other states receive their “fair share.”

The federal government generally awards contracts to the lowest qualified responsible offeror, regardless of the offeror’s location. However, some provisions of federal law require or allow contracting agencies to favor vendors in certain localities. The main government-wide locationbased preferences are for (1) “local contractors” in areas affected by presidentially declared disasters or emergencies; (2) businesses in “labor surplus areas,” or areas with particularly high unemployment; and (3) small businesses in Historically Underutilized Business Zones (HUBZones), or census tracks, nonmetropolitan counties, or other areas with low household income or high unemployment. Federal agencies may conduct set-asides for, or grant evaluation preferences to, local contractors; use firms’ status as labor surplus area concerns, or willingness to locate facilities in labor surplus areas, as a tie-breaker in sealed bid procurements or an evaluation factor in certain negotiated procurements; and make special sole-source awards to, conduct setasides for, or grant price evaluation preferences to HUBZone small businesses. Other agencyspecific preferences also exist, such as those for “local private, nonprofit, or cooperative entities” under the Consolidated Appropriations Act, 2012 (P.L. 112-74).

There generally must be statutory authority for any geographic preference involving federal contracts or federally funded contracts. Such statutory preferences do not themselves deprive vendors outside the targeted area of equal protection in violation of the U.S. Constitution because classifications based on geography are subject to “rational basis review” and need only have a rational relationship to a legitimate government interest. However, absent congressional authorization, attempts by state or local governments to create location-based preferences for federally funded procurement contracts could run afoul of the constitutional prohibition on state or local legislation that burdens or discriminates against interstate commerce. Similar attempts by federal agencies to prefer vendors in certain locations without congressional authorization could be found to violate procurement integrity regulations, which require that government business be conducted “with complete impartiality and preferential treatment for none.” In addition, depending upon the nature of the preference granted, such attempts could also potentially be found to violate the Competition in Contracting Act (CICA) of 1984 by impermissibly restricting competition.

Date of Report: January 11, 2013
Number of Pages: 22
Order Number: R41115
Price: $29.95

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