In order to grow local economies and tax revenue, many state and local governments now take the location of a vendor into account when making procurement decisions. Law and ordinances called purchasing preferences are being implemented across the county in order to give local vendors a leg up in contracting and thus assist states and localities in generating jobs and revenue.

In 2010, the Virginia Department of General Services compiled a table of 38 states’ purchasing preferences. Preferences vary widely across governments, from general needs to specific good and services. Some apply to all bids, while others apply only to contracts worth more than $50,000 or construction projects.

The city of Los Angeles, Calif. recently passed an ordinance that gives Los Angeles-based vendors an 8 percent advantage for bids on city projects worth more than $150,000. For example, a $1 million bid from a local vendor would be evaluated at $920,000. To qualify, businesses must have an address in Los Angeles County and have either 50 full-time employees or half of their full-time employees working 60 percent of the time in the county. The ordinance will go into effect on November 24, 2011. Sponsors of the ordinance believe the new policy will bring in more revenue through sales, property and other taxes from local business employees. GovWin is currently tracking an estimated $14.2 million worth of Los Angeles contracting opportunities that will be affected by this ordinance.

New Mexico also recently passed a law that revised its purchasing preference policy. The state extended its 5 percent bidding preference for in-state vendors to include state contracts for accounting, architecture, law, and information technology. The revision also eliminated a $5 million bid cap included in the original preference. According to bill co-sponsor Senator Timothy Keller, this law will create at least 3,000 jobs each year. The law also stiffens the requirements to qualify as a resident vendor by requiring companies to prove they have leased or owned property in New Mexico for at least five years, paid taxes to the state, and have at least three full-time employees who live in the state. GovWin is currently tracking more than $1 billion worth of New Mexico contracting opportunities that could be affected by this law.

In response to local preference purchasing polices, governments have created reciprocal preference policies that require public contracting agencies to add a percent increase to each out-of-state bidder's price that is equal to the percent of preference given to local bidders in the bidder's home state. That is, if the low bidder is from a state that grants a 10 percent preference to its own in-state bidders, the contracting agency must add 10 percent to that bidder's price when evaluating the bid.

Analyst’s Take:

State and local governments have not sat idle on the sideline while the federal government and big corporations garner most of the job creation and economy-related headlines. They were hit extremely hard by the Great Recession and continue to struggle to keep their books in order as federal aid dries up. State and local governments’ tax revenues are largely tied to economic performance, and right now they cannot afford to wait around for other entities to spur economic growth. Purchasing preferences are tools utilized in an attempt to create jobs and boost local economies. States and local entities need to be efficient and receive the best bang for their buck, as one wrong deal can have devastating effects (see Jefferson County, Alabama).

When bidding on a contract, it is imperative that vendors know the contracting government’s preference laws in order to truly know how a bid will be evaluated. Knowing a bid will be evaluated at 10 percent less or more can completely alter a proposal. Though governments are looking for the best value, it is also important to recognize that it’s not always about the lowest bid. Vendors who know all the rules and laws at hand will have a commanding advantage and be more likely to succeed in the current competitive landscape.

On Thursday night, President Barack Obama revealed the American Jobs Act, an ambitious $447 billion package of spending plans and tax cuts designed to stimulate the U.S. economy and create badly needed jobs. And according to Obama, the plan will be paid for in full by rolling it into the list of spending to be offset by the Joint Committee focused on a deficit reduction plan.

Overall, Obama pushed for more federal spending to help jump-start the economy, although he avoided the word "stimulus," which has become an issue with Republicans. Clearly, the GOP will continue to oppose anything resembling the last stimulus, and is quite weary of the threat of continued out-of-control spending.

Below are some key points from Obama's speech which could affect the government contracting community:

• Helping Small Businesses – As part of his infrastructure revitalization plan, Obama called for significant investments in schools, roads, rail and airports while helping small business contractors compete for infrastructure projects. He also called for tax cuts, reforms and regulatory reductions to help entrepreneurs and small businesses access capital and grow, which could benefit smaller contractors just getting started and those looking to expand their operations.

  Contractor Impact: Obama's plan includes changing the way the government does business with smaller firms. The Administration will soon announce a plan to accelerate government payments to small contractors to help put money in their hands faster. The President is also charging his CIO and CTO to, within 90 days; stand up a one-stop, online portal for small businesses to easily access government services.

• Transportation Infrastructure - Transportation infrastructure presents a double opportunity for Obama - a chance to get Americans working, while modernizing the U.S.'s deteriorating infrastructure. In total, Obama called for $50 billion to be spent on immediate investments for highways, transit, rail and aviation. The President's plan includes investments to improve America's airports, support NextGen Air Traffic Modernization efforts, and resources for the TIGER and TIFIA programs, which target competitive dollars to innovative multi-modal infrastructure programs. Another $10 billion will be spent on an infrastructure bank to help get private funding to support infrastructure-related projects.

  Contractor Impact: Infrastructure work would benefit AEC contractors over the next several years. According to Deltek's "Federal Architecture and Engineering Market Outlook, 2011-2016" report, demand for architecture and engineering (A/E) services by the U.S. government will increase from $8.1 billion in 2011 to $9.5 billion in 2016 at a compound annual growth rate (CAGR) of 3.2%. As transportation infrastructure modernization progresses, so does the embedded technology, which could mean additional opportunity for technology contractors.

• School Infrastructure - Obama also wants to create jobs to work on construction projects at thousands of deteriorating schools, with rural and Bureau of Indian Education funded schools having top priority. Obama aims to invest $25 billion in school infrastructure, including Internet-ready classrooms. He also emphasized the need to rehire teachers who have been laid off, and will look to spend $35 billion to help protect those teachers.

  Contractor Impact: Infrastructure work would benefit AEC contractors and firms that could provide IT enhancements and upgrades. Projects would include energy efficiency upgrades, modernization of science and computer labs and technology upgrades.

• Expanding access to high-speed wireless - The President is calling for a deficit reducing plan to deploy high-speed wireless services to at least 98% of Americans, including those in more remote rural communities, while freeing up spectrum through incentive auctions, spurring innovation, and creating a nationwide, interoperable wireless network for public safety.

  Contractor Impact: There is opportunity for not only companies that provide wireless network capabilities, but also adjacent technology areas that would be facilitated by broader access, such as telehealth and telework.

• Supporting the Unemployed – The President proposes an overhaul of the Unemployment Insurance program, extending benefits and giving states more responsibility and flexibility to design better programs for reemployment, particularly for the long-term unemployed. There are some 6.2 million Americans who have been out of work for more than six months. States would also have the flexibility to help long-term unemployed workers create their own jobs by starting their own small businesses.

  Contractor Impact: Depending on the scale and nature of the overhaul, states may need assistance in developing, implementing and monitoring new programs and information.

• Creating Tax Benefits: The Act has several tax incentives for businesses to spur hiring:

  • Payroll taxes - Topping the President's jobs initiative is the cutting of payroll taxes. The plan is to expand cuts worth $240 billion so that workers could expect to see their share halved through 2012. This provision would also cut the payroll tax in half to 3.1% for employers on the first $5 million in wages.
  • Tax Credits for Hiring the Long-Term Unemployed - President Obama's plan would also give companies a $4,000 tax credit for hiring from the 5 million, long-term unemployed Americans.
  • Tax Credits for Hiring Veterans - The unemployment rate for U.S. veterans below the age of 30 hovers around 24%, and that rate could expand. Currently, there are 2 million veterans of the Afghanistan and Iraq campaigns back home. But once those missions fully draw down, that number could easily double, reports say. The "Returning Heroes tax credit" will set aside $5,600 to $9,600 to encourage the hiring of unemployed veterans.

  Contractor Impact: Tax incentives are useful to any company struggling with cashflow issues.

Spending Summary

The biggest criticism of the plan that seems to be leading the online debate is the tax credit element, the argument being that businesses only hire when the demand for their product or service is there, not simply to take advantage of tax credits. I tend to believe this will be true, except for those specific areas of investment that will drive demand and therefore the need to hire (e.g. transportation, education, wireless). Driving demand for struggling businesses in flattened industries outside of these will be an issue.

In the current environment, the first question might be "how will the government pay for all of this?"To pay for the plan, President Obama is calling on the Joint Committee that is currently working on a deficit reduction plan (required as part of the debt ceiling agreement) to find additional cuts. Obama noted that in the coming weeks, he would further outline his deficit reduction plans.

So what are the chances of this act passing Congress? Considering the level of contentious debate that has occurred since the 111th Congress was formed, particularly around budget-related legislation (e.g. FY11 budget, debt ceiling), this bill will likely face the same level of scrutiny. However, there are no less than 26 other job bills that were introduced and stalled in Congress in 2011 (some of them with very interesting names such as the "Keep American Jobs from Going Down the Drain Act of 2011," and "Don't Default on America's Debts and Destroy American Jobs Act of 2011").

I'm sure President Obama is hoping for the "Can We Please Just Pass This Bill Without Drawn Out and Stubborn Debate Act of 2011." And he may get his wish. Spurred by plummeting Congressional approval ratings, negative public perception and plain old weariness of continuous head-butting over numerous issues, Congress may be more willing to compromise than we've seen on any other issue in 2011 - as long as Obama's plan to pay for it comes to fruition.