Topics/Categories

Get The Nerve in your in-box every weekday morning!

Vendor-Preference Bill: Boost to S.C. Businesses, or Bust for S.C. Taxpayers?

South Carolina companies would have an easier time getting state contracts of more than $500,000 under an S.C. House bill, though some critics contend that taxpayers could wind up paying more if the proposal becomes law.

The House Ways and Means Committee last week approved a bill (H. 4640), sponsored by Rep. Mike Anthony, D-Union, that would allow state agencies to give a “preference” to in-state vendors bidding on state contracts above $500,000. Current law already gives preferences to in-state vendors seeking contracts of $500,000 or less.

“We want to clarify this to say that our companies who are here, who are paying taxes, are the ones that deserve the preference,” Anthony said during the hearing.

Though he didn’t give specifics, Anthony cited an example of a state office-cleaning contract awarded to a New Jersey firm, suggesting that because the contract was more than $500,000, the in-state vendor-preference law didn’t apply.

Anthony said the law needs to be changed in part because 33 states, including “states connected to us,” give preferences to their respective in-state vendors in awarding contracts.

“I’m for free trade amongst nations, but our neighbors have similar (preference) bills, and I guess this is reciprocity,” said Rep. Jim Battle, D-Marion.

But two other committee members expressed reservations about the bill, which was introduced in January.

“What you’re telling me is we want local government and state government to pay more for something than they could get it for. Is that correct?” Rep. B.R. Skelton, R-Pickens, asked.

“That’s correct,” Battle replied, though he later said any additional cost in the contract amount would be offset by an increase in sales taxes and state income taxes generated by the in-state vendor that was awarded the contract. 

Skelton, a professor emeritus of economics at Clemson University, half-jokingly pointed out that he has the “unfortunate characteristic of being a market economist,” noting, “I have always assumed it was a trait that we wanted to let the market work.”

Rep. Garry Smith, R-Greenville, said giving preferences to South Carolina vendors could increase costs to state taxpayers.

“You cut down on competition,” he said. “A lot of folks from outside the state are going to say, ‘I’m just not going to bid because I’ve got this disadvantage going into this.”

Nevertheless, the committee on a voice vote approved Anthony’s bill, sending it to the full House for consideration.

Last fiscal year, which ended June 30, 1,591 state contracts totaling $4.9 billion were awarded under the Division of Procurement Services, which is part of the S.C. Budget and Control Board, according to information from the division.

Of the 1,591 contracts, 36, or slightly more than 2 percent, were awarded to companies under the vendor-preference law, division records show. The total value of those awarded contracts was $1.4 million.

In South Carolina, state agencies can have the authority to conduct their own procurements up to $50,000, Delbert Singleton, the division director, told The Nerve in a written response. The state procurement code doesn’t apply to local municipalities.

For contract amounts of at least $50,000, one of five standard “competitive” procedures is used under the procurement code, depending on the situation, according to the Procurement Services’ website.

If competitive sealed bidding is used, for example, a contract must be awarded to the lowest qualifying bidder, according to the website.

Current law allows qualifying in-state vendors to receive preferences in the bidding process, though only for contracts totaling $500,000 or less, or a single unit of an item with a price of $50,000 or less.

Here’s an example of how the process currently works, according to the Procurement Services’ website:

Vendor A and Vendor B submit bids for a single line item piece of equipment. Vendor A’s bid is $12,000; Vendor B’s bid, $11,500. Vendor A qualifies for the in-state preference, which for evaluation purposes, drops Vendor A’s bid by 7 percent to $11,160 – a lower bid on paper compared to Vendor B’s offer, allowing Vendor A to win the contract.

In reality, the agency awarding the contract to Vendor A would pay the firm’s actual $12,000 bid, which is $500, or 4.3 percent, higher than Vendor B’s. Anthony’s bill would make it easier for in-state vendors to win contracts by raising the percentage rate to 9 percent from 7 percent when reducing bid prices for evaluation purposes.

To be eligible to receive the bid discount under the law, the vendor must have an office in the state and either:

  • Maintain a location in the state with a specified level of inventory;
  • Be a manufacturer headquartered in the state with an annual payroll of at least $1 million; or
  • At the time of the bidding, commit that the direct cost of labor to be performed by South Carolina workers will be more than 50 percent of the total bid.

Current law also provides bid-discount rates of 2 percent and 4 percent to vendors with qualified "first-tier" subcontractors that employ a specified percentage of workers in the state.

Smith during last week’s meeting suggested, citing procurement practices by some S.C. municipalities, that the bill could be amended to require companies receiving state contracts under the preference law to match the actual low bid.

Smith’s suggestion went nowhere, however.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.

 

 

 

 

 

 

Economic Development Incentives Legislation State Agencies Taxes Corporate Welfare

Rep. Garry Smith Rep. B.R. Skelton Rep. Mike Anthony Rep. Jim Battle Division of Procurement Services