Local Indiana Business Preference

 

By Mike Einterz

            A contract shall be awarded to the lowest responsive and responsible local Indiana business that claims the preference…(I.C. 36-1-12-22(d)).  This is a provision in the law that governs the award of public works contracts by towns, cities, schools, and local political subdivisions.  This law will provide the savvy bidder a potential significant advantage over its competitors and likely also create substantial litigation.

            This law gives the “local Indiana business” a preference over a non-local Indiana business or out-of-state contractor.  As written, the law requires the awarding agency to award a public works bid to the lowest responsive, responsible “local Indiana business” provided they claim the preference.  It does not matter, according to the law as written, that the public owner has to pay more to the preferred local Indiana bidder than the lowest bidder. 

            Therefore, every bidder who has the opportunity to claim the local Indiana business preference should do so, or they will likely lose the bid to a bidder who does. 

            To claim the preference a bidder needs to follow the requirements of I.C. 5-22-15-20.9.

            First, to be classified as a local Indiana business, a bidder needs to be doing business  in an “affected county”.  An affected county is the county where the project will be performed or any of the contiguous counties.

            Second, to be considered a local Indiana business in an affected county the bidder must show one of the following:

1.      The bidder’s principal place of business is in an affected county.

2.      A majority of the bidder’s payroll (apparently annual payroll) is paid to residents in the affected counties.

3.      A majority of the bidder’s employees reside in the affected counties.

In addition the law allows that the awarding agency can adopt rules that establish what constitutes a significant capital investment in or a substantial positive economic impact on an affected county that would also allow a bidder to be declared a local area business.  (Following prior Indiana law, these rules must be adopted by the awarding agency to be used by the awarding agency.)

To be considered as a local Indiana business, the bidder needs to claim that status and offer proof of that claim as set forth above.  The awarding agency then has a duty to investigate the veracity of such a claim.  Although a claim should carry the presumption of its validity, this is a rebuttable presumption subject to collateral attack arguably by other bidders and the awarding agency.  Unfortunately, the law does not give us any guidance as to how this investigation or these collateral attacks should be asserted.

A proper reading of the law would lead to the plausible conclusion that the local area business preference is only a 1% discount to be applied on any project in excess of $100,000.  To read the law otherwise would be to render aspects of the law incomplete or inapplicable.  Consistent with the manner in which Indiana courts have typically interpreted legislative provisions, the courts attempt to give all of the words meaning and all of the provisions applicability.  It is uncertain, for that reason, what the ultimate interpretation of this law will be.  What is certain is that these code sections are bound to be interpreted by the Indiana courts and likely will be resolved through further legislation. So far, one Indiana court has addressed this issue in a matter in which Einterz & Einterz was involved. This is believed to be the earliest ruling by the courts on this matter. A copy of this decision by Judge Donald Daniel in Tippecanoe County can be found here for additional insight on this issue.

Einterz & Einterz assists contractors and owners in addressing the many issues that arise in public bidding and on public works projects.