GOITEM#2
March 6, 2014
Worksession
MEMORANDUM
March 4, 2014
TO:
FROM:
SUBJECT:
Government Operations and Fiscal Policy Committee
Josh Hamlin, Legislative
Attome~
Work.session: Bill 13-14, Contracts and Procurement
Local Preference
Formal Solicitation -
Local Preference,
Bill 13-14, Contracts and Procurement - Formal Solicitation
sponsored by Councilmembers Navarro, Berliner, Riemer, Eirich, Floreen, Branson and
Andrews, was introduced on February 4, 2014. A public hearing was held on February 25.
Bill 13-14 would define "County-based bidder or offerer" and would require that a
County-based bidder or offerer be given preference in the event of a tie bid or ranking in
contracts awarded by formal solicitation. County procurement regulations currently provide a
tie-breaking procedure which gives first preference to a bidder or offeror "who has its principal
place of business in Montgomery County." This bill would codify that preference, as well as
require a preference be given to a County-based offerer, in the event of identical price proposals,
when a contract award is made on price alone. This bill would also require that a formal
solicitation include an explanation of the procedure for resolving a tie bid or ranking.
There were no speakers at the February 25 public hearing, and no written public
testimony was received. A memorandum from the County Executive, expressing support for the
bill, was received on February 25
(©8).
A memorandum was also received from OMB and
Finance, stating that the fiscal and economic impact statements for the bill are delayed, and will
be transmitted no later than March
I
0
(©9).
Issues for Committee Discussion
Should the definition of "County-based bidder or ofleror" mirror the existing language in the
Procurement Regulation?
Bill 13-14 includes the following definition of "County-based bidder
or offerer:"
County-based bidder or offeror
means a person that:
I)
has operated through an office, distribution point, or facility in the County
for at least 6 months immediately prior to submitting a bid in response to a
formal solicitation issued by the County; and
(2)
owns tangible personal property subject to taxation by the County.
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In contrast, Procurement Regulation l IB.00.01.04 grants first preference in the resolution of a tie
bid or offer to a bidder or offeror "who has its principal place of business in Montgomery
County." "Principal place of business" is not a defined term in the Code or Regulations.
In drafting Bill 13-14, staff sought to provide a specific definition for the bidders and
offerors eligible for the preference. However, the bill's definition could be interpreted to be
broader than may be desirable, and the Committee may wish to amend the bill to mirror the
existing Procurement Regulation. Such an amendment would provide that a "County-based
bidder or offeror means a person that has its principal place of business in Montgomery County,"
and may or may not expressly define what is meant by "principal place of business."
The meaning of the term "principal place of business" was recently addressed by the U.S.
Supreme Court in
Hertz Corp. v. Friend,
130 S. Ct. 1181 (2010).
Hertz
involved a complaint in
state court under California's wage and hour law, and the Supreme Court considered the Hertz
Corporation's state of citizenship for the purpose of deciding whether federal courts possessed
diversity-of-citizenship jurisdiction.
1
In
Hertz,
the Court unanimously endorsed the "nerve
center" approach for determining the state in which a corporation has its principal place of
business. The Court concluded "that the phrase 'principal place of business' refers to the place
where the corporation's high level officers direct, control, and coordinate the corporation's
activities," adding that "the 'nerve center' will typically be found at a corporation's
headquarters." The "nerve center" test could be applied to the County law in the absence of a
specific definition of "principal place of business."
Should the Committee wish to include a definition of "principal place of business," staff
recommends that the definition embody the "nerve center" test, but not be restricted to a
business' headquarters. Such a restrictive definition could exclude certain small businesses
which conduct most or all of their operations in the County, but whose executive and
administrative functions are conducted outside of the County. A draft amendment including
such a definition, and amending Bill 13-14 to mirror the language of Procurement Regulation
l IB.00.01.04, is at ©10.
Can the County enact a more general preference for County-based businesses?
Numerous
state and local jurisdictions have enacted laws giving preference in government procurement,
beyond that proposed in Bill 13-14, to "local businesses."
2
These preferences usually involve
contract award or purchasing preferences, and are often in the form of point preferences (when
proposals are ranked using a points system) or percentage preferences (when awards are made on
the basis of price).
Local preference laws, as they treat local residents differently from nonlocal residents,
are analyzed under a number of federal and state constitutional provisions. Such laws typically
Hertz claimed that since its corporate headquarters were located in Park Ridge, New Jersey, it was a New Jersey
citizen, and sought removal of the case to federal court. The federal diversity jurisdiction statute provides that "a
corporation shall be deemed to be a citizen of any State and foreign state by which it has been incorporated and of
the State or foreign state where it has its
principal place of business .
.. " 28 U. S. C.
§
1332(c )(I) (emphasis
supplied).
2
Definitions of "local businesses" differ among the various jurisdictions with local preference laws; indeed the use
of the term "local business" to describe businesses subject to preference is not universal. For the purposes of this
memorandum, the term "local business" means a business entitled to a location-based preference in procurement by
the legislating jurisdiction.
1
2
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implicate the federal Commerce, Privileges and Immunities, Equal Protection, and Due Process
Clauses, as well as any state constitutional analogues to these provisions. It may be possible to
craft a local preference law that does not run afoul of some of the federal constitutional
3
provisions, but Maryland courts have not directly addressed the validity of local preference
laws. Since Maryland courts have generally looked with disfavor on discriminatory local laws,
4
it is uncertain whether such a law would survive a challenge under Article 24 of the Maryland
Declaration of Rights, Maryland's analog to the 14
111
amendment.
Any discussion of a broader local preference should also include consideration of the fact
that most states, including Maryland (©11), Virginia, and Pennsylvania, have enacted retaliatory
laws that penalize bidders from jurisdictions which have local preference laws. A County local
preference law may help a County business obtain work with the County, but may disadvantage
that business in seeking work with Virginia and Pennsylvania, as well as many other states.
Also, federal grant rules generally prohibit the use of local preferences on federally funded
projects,
5
which may also limit the applicability of any County preference.
This packet contains:
Bill
13-14
Legislative Request Report
Procurement Regulation 11B.00. 01. 04 (excerpts)
County Executive Memo
Fiscal and Economic Impact Statement Extension
Staff Amendment
Md. State Finance and Procurement Code, § 14-401
Circle#
1
5
6
8
9
10
11
F:\LA W\BILLS\1413 Contracts And Procurement - Fonnal Solicitation\GO Memo 03.06.14.Doc
The U.S. Court of Appeals for the Fourth Circuit, within which Maryland sits, applied federal Commerce, Equal
Protection, and Due Process Clause analyses in upholding a South Carolina local preference law in
Smith, Setzer and
Sons v. South Carolina Procurement Review Panel,
20 F.3d 1311 (4
1h
Cir. 1994), but did not reach the question of
whether the law violated the Privileges and Immunities Clause. The
Smith, Setzer
Court held that the·
plaintiff/appellant lacked standing to bring such a challenge.
4
See Verzi v. Baltimore County,
333 Md. 411 (1994) (holding that Baltimore County's "location requirement" for
towing operators, i.e., a requirement that a licensed tow operator have a place of business within the County before
that operator may be called by police to tow vehicles, violated Article 24 of the Maryland Declaration of Rights).
5
The "Grants Management Common Rule" generally applicable to federal grants, provides that "grantees and
subgrantees will conduct procurements in a manner that prohibits the use of statutorily or administratively imposed
in-State or local geographical preferences in the evaluation of bids or proposals, except in those cases where
applicable Federal statutes expressly mandate or encourage geographic preference. Nothing in this section preempts
State licensing laws. When contracting for architectural and engineering (A/E) services, geographic location may be
a selection criteria provided its application leaves an appropriate number of qualified firms, given the nature and size
of the project, to compete for the contract."
3
3
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Bill No.
13-14
Concerning: Contracts and Procurement
-
Formal Solicitation -
Local
Preference
Revised: January
23, 2013
Draft No.
L
Introduced:
February
4, 2014
Expires:
August
4, 2015
Enacted: - - - - - - - - - -
Executive: - - - - - - - - -
Effective: - - - - - - - - - -
Sunset Date: _:..::.N=on..:..::e=---------
Ch. _ _ , Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmembers Navarro, Berliner, Riemer, Elrich, Floreen, Branson and Andrews
AN ACT
to:
(1)
(2)
(3)
establish a preference for a County-based bidder in certain contracts awarded by
formal solicitation;
define a County-based bidder or offeror; and
generally amend the law governing the award of contracts by formal solicitation.
By amending
Montgomery County Code
Chapter 11 B, Contracts and Procurement
Sections 1lB-1, 1IB-9, and 1IB-10
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deleted.from existing law by original bill.
Added by amendment.
Deleted from existing lmv or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL No. 13-14
1
Sec. llB-1. Definitions.
Unless the context indicates otherwise, the following terms have the following
meanmgs:
[(a)]
[(b)]
2
3
4
5
6
7
[(c)]
[(d)]
[( e)]
8
9
10
11
[(t)]
[(g)]
*
*
*
*
*
*
*
County-based bidder
.l}
*
*
*
*
*
*
*
*
*
*
*
*
*
*
offeror
means
f!
person that:
12
13
14
15
has operated through an office, distribution point, or facility in
the County for at least
.Q
months immediately pnor to
submitting
f!
bid in response to
the County; and
~
formal solicitation issued
by
16
17
18
ill
[(h)]
[(i)]
owns tangible personal property subject to taxation
by
the
County.
19
20
21
[G)J
[(k)]
22
23
24
[(1)]
[(m)]
[(n)]
25
26
27
[(o)]
[(p)]
[(q)]
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
@t:\law\bills\1413 contracts and procurement formal solicitation\bill 3.doc
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BILL
No.
13-14
28
29
[(r)]
[(s)]
[(t)]
30
31
*
*
*
*
*
*
*
*
*
Tie bid
means
fl:
low bid submitted
Qy
fl:
responsible and responsive
bidder that is identical in price to g bid from another responsible and
responsive bidder under
~
formal solicitation.
[(u)]
32
33
34
35
36
*
*
*
Sec.
llB-9.
Formal solicitation - competitive sealed bidding.
(a)
Conditions for use.
Contracts must be awarded by competitive sealed
bidding except as otherwise authorized in this Chapter or regulations.
Competitive sealed bidding is initiated by issuing an invitation for bids.
37
38
39
40
41
(b)
Invitation for bids.
An
invitation for bids must include specifications,
evaluation criteria including the procedure for resolving tie bids, and all
contractual provisions applicable to the procurement.
42
43
44
45
46
*
ill
*
*
is~
Tie Bids.
If
the Director makes an award, the Director must award
fl:
contract to the County-based bidder when there
tie bid
between~
County-based bidder and
fl:
non County-based bidder.
llB-10.
Formal solicitation - competitive sealed proposals.
47
48
*
(d)
*
*
Evaluation and method ofaward.
( 1)
A request for proposals must contain evaluation factors and an
explanation of how the rank of an offeror will be determined.1
including the procedure for resolving ties in ranking. Evaluation
factors must include factors related to the technical quality of the
proposal or the ability of the offeror, or both. Evaluation factors
49
50
51
52
53
@).f:\law\bills\1413 contracts and procurement-formal solicitation\bill 3.doc
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BILL
No. 13-14
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
may include price. The evaluation process may involve one or
more steps.
(2)
If
the Director determines that a sufficiently detailed scope of
services has been developed to allow for selection of a contractor
on the basis of price, the evaluation process may provide for the
selection of a proposed contractor by requiring all offerors who
meet pre-established levels of competency as reflected in scores
awarded by the qualification and selection committee to compete
for the contract award on the basis of price alone.
Price
submissions must be submitted in a sealed offer.
If
required in
the Request for Proposal, the price proposal must be binding on
the offeror. The price proposal may be submitted at any point
during the evaluation process as stated in the Request for
Proposals.
If
the Director decides to award
1!
contract on price
alone, the Director must award
S!
contract to the County-based
offeror when
S!
qualified County-based offeror and
S!
qualified
non County-based offeror have submitted identical price
proposals.
*
(f)
*
*
73
74
75
76
77
'Approval of contract awards.
The Director must approve the proposed
ranking of offerors.
If
1!
County-based offeror and
1!
non County-based
offeror each receive an identical ranking score, the Director must
consider the County-based offeror to be the higher ranked offeror.
*
*
*
@:\law\bills\1413 contracts and procurement- formal solicitation\bill 3.doc
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LEGISLATIVE REQUEST REPORT
Bill 13-14
Contracts and Procurement Formal Solicitation -Local Preference
DESCRIPTION:
Bill 13-14 would define "County-based bidder or offeror" and would
require that a County-based bidder or offeror be given preference in
the event of a tie bid or ranking in contracts awarded by formal
solicitation. The bill would also require that formal solicitations
include an explanation of the procedure for resolving a tie bid or
ranking.
The County wishes to support County-based businesses that are
seeking to do business with the County.
To establish a preference for a County-based bidder in the event of a
tie bid or ranking in certain contracts awarded by formal solicitation.
Office of Procurement
To be requested.
To be requested.
To be requested.
To be researched.
Josh Hamlin, 240-777-7892
Not applicable
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENAL TIES:
Not applicable.
F:\LAW\BILLS\1413 Contracts And Procurement - Formal Solicitation\LEGISLATIVE REQUEST REPORT.Doc
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llB.00.01.04 Source Selection Methods and Contract Types
4.1
Description of Source Selection Methods
4.1.1
Formal Solicitations - Invitation for Bid (IFB)
4.1.1.1 General
An IFB is a formal solicitation by which competitive sealed bids are invited
through a public notice procedure which results in an award to the lowest responsible, responsive offeror.
*
4.1.1.4 Procedure
(a)
Director.
*
*
*
IFBs are issued and public notice given under the direction of the
(b)
Responses to the IFB are received by the Director, as specified in the
solicitation, time-stamped, and publicly opened.
(c)
Bids are tabulated and forwarded to the Using Department for evaluation
when deemed appropriate by the Director or when specifically requested by the Using Department Head.
(d)
The Director may require the Using Department or other person to
evaluate the bids in accordance with the method of award criteria, and for responsiveness and
responsibility, and forward recommendations to the Director. These recommendations must include an
evaluation regarding the reasonableness of the proposed award prices.
If
retained by the Director, the
Director evaluates the bids in accordance with the method of award criteria, and for responsiveness and
responsibility.
(e)
In the case of tie bids, the Director resolves a tie by application of the
following criteria in the order stated:
(1)
Making a proposed award of the contract to the bidder who has
its principal place of business in Montgomery County;
(2)
Making a proposed award of the contract to the bidder who is a
certified MFD business prior to submitting a bid;
(3)
invited to be present.
Drawing of lots with representatives of the firms involved
*
*
*
*
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4.1.2
Formal Solicitation -Best Value Procurement -Request for Proposals (RFP)
4.1.2.1 General
An RFP is a formal solicitation for competitive sealed proposals. Proposals are
not publicly opened. An RFP is a procurement process in which quality and price are balanced to obtain
the best value for the County. Final costs and scope of work are subject to negotiation after the proposals
are received and before the contract is awarded unless otherwise stated in the RFP.
*
4.1.2.4 Procedure
(a)
Director.
*
*
*
RFPs are issued and public notice given under the direction of the
(b)
Without public opening, the Director forwards timely received proposals
to the Using Department for evaluation.
(c)
The Using Department establishes the QSC members, with the written
approval of the Director. Each member of the QSC must be an employee of a public entity, unless specific
authorization is obtained from the CAO for another to serve on the QSC. Unless otherwise provided in
these regulations, the committee must be composed of an odd number of members and must have at least
three members.
(d)
The Director may add members to the QSC when appropriate to enhance
the ability of the QSC to fairly and objectively evaluate the proposals. When the Director adds members
to the QSC, the composition of the QSC does not need to remain an odd number.
(e)
The QSC evaluates all proposals received from the Director, in
accordance with the evaluation criteria, and reviews offerors for responsibility.
*
*
*
*
(f)
In the case of a tie in the numerical QSC scored, the Director resolves the
tie by application of the following criteria in the order stated:
(1)
the offeror who has its principal place of business in
Montgomery County;
(2)
proposal;
(3)
invited to be present.
Drawing of lots with representatives of the firms involved
the offeror who is a certified MFD business prior to submitting a
*
*
*
*
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J
ee_
H-
58F
LL
OFFICE Of THE COUNTY EXECUTIVE
ROCKVILLE. MARYLAND 20850
Isiah Leggett
County Executive
MEMORANDUM
February 20, 2014
-
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TO:
FROM:
SUBJECT:
Craig Rice, Council President
Isiah Leggett, County Executive
Bill 13-14, Contract and Procurement- Formal Solicitations
Local Preference Bill
oo
~
_..
-<
-
Ct?
..t::
..c
I am writing in support of Bil
I
13-14, Contract and Procurement - Formal
Solicitations- Local Preference Bill (Bill) introduced on February 4, 2014 by Councilmembers
Navarro, Berliner and Riemer. The Councilmembers' initiative and the Council's efforts support
my longstanding recognition of Montgomery County's strong and diverse local business
community. This legislative action will help further strengthen the local economy by seeding
back to local businesses apportion of the tax revenues they pay to the County.
You may be interested to know that in the previous fiscal year 28%, or
$233,701,295, of contracts awarded by Montgomery County were with local businesses serving
as the prime contractor or subcontractor. Further, the current Procurement Regulations already
provide opportunities for County-based businesses to receive contract awards in the event of tie
bids.
As currently drafted, this legislation may require further defining of terms as well
as review by the County Attorney. However, I applaud Councilrnembers' vision and recognition
of the need for supporting local business community and strengthening the local economy. I am
committed to working with the Council during the corning weeks on the best way to achieve this.
montgomerycountymd.gov
/311
240-773-3556 TTY
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___
(,(!.
,;.~_L.,
.,
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ff
ROCKV[LLE, MARYLAND
MEMORANDUM
Feburary
22,
2014
TO:
FROM:
Craig Rice, President, County Council
Jennifer A. Hughes.
Joseph F. Beach,
Directo~~rr
Finance
Dire~~ment
and Budget
SUBJECT:
FEIS Extension for Bill 14-14, Contracts and Procurement Wage Requirements
- Health Insurance Amendments and
Bill 13-14, Contracts and Procurement- Formal Solicitation - Local Preference
As required by Section 2-81 A of the County Code, we are informing you that
transmittal of the fiscal and economic impact statements for the above referenced legislations will
be
delayed because more time is needed to coordinate with the affected departments, collect
infonnation, and complete our analysis. We
will
transmit the statements no later than March I 0,
2014.
JAH:fz
cc: Bonnie Kirkland, Assistant Chief Administrative Officer
Lisa Austin, Offices of the County Executive
Joy Nurmi, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Infonnation Office
Joseph F. Beach, Director, Department of Finance
David Oise, Director, Department of General Services
David Platt,
Department
of
Finance
Alex Espinosa, Office of Management and Budget
Erika Lopez-Finn, Office of Management and Budget
Felicia Zhang, Office of Management and Budget
Naeem Mia, Office of Management and Budget
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Staff Amendment - definition of County-based bidder or offeror
Amend lines 11 to 23 as follows:
County-based bidder or offeror
means
f!:
person that has its principal
place of business in Montgomery
County[[~
ill
has operated through an office, distribution point, or facility in
the County for at least
Q
months immediately prior to
submitting
f!:
bid in response to
f!:
formal solicitation issued
Qy
the County; and
ill
[(h)]
[(i)]
owns tangible personal pro1;2erty subject to taxation
Qy
the
County]L.
lG)J
[(k)]
[(l)]
*
*
*
*
*
DJ
(2)
*
*
*
*
*
*
*
*
*
*
Princi"{l,al place olbusiness
means:
The headquarters or primarv executive or administrative office of
the business: or
An established office, plant. store or warehouse where the
Illl!Lority of the business' operations and transactions are
conducted and located.
Principal place of business
does not include a post office box. message
center. mail drop, or similar business service or activity with no
substantial work function.
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Page I
Lex.is Nexis®
I of I DOCUMENT
Annotated Code of Maryland
Copyright 2014 by Matthew Bender and Company, Inc., a member of the Lexisr>iexis Group
All rights reserved.
***Statutes current through the 2013 General Assembly Regular Session***
***Annotations through November 20, 2013 ***
STATE FINANCE AND PROCUREMENT
DIVISION II. GENERAL PROCUREMENT LAW
TITLE 14. PREFERENCES
SUBTITLE 4. MISCELLANEOUS PURCHASING PREFERENCES
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md. STATE FINANCEANDPROCUREMENTCodeAnn.
§
14-401
(2013)
§ 14-40
I.
Reciprocal preference for resident bidders
(a) Definitions. --
(I)
In this section the following words have the meanings indicated.
(2) "Preference" includes:
(i) a percentage preference;
(ii) an employee residency requirement; or
(iii) any other provision that favors a resident over a nonresident.
(3) "Resident bidder" means a bidder whose principal office is located in the State.
(4) "Resident offeror" means an offeror whose principal office is located in the State.
(5) "Services" means services, architectural services, construction related services, engineering services, or
energy performance contract services, all as defined in§ 11-101 of this article.
(b) Conditions for preference. -- When a unit uses competitive sealed bidding to award a procurement contract, the
unit
may give a preference to the resident bidder who submits the lowest responsive bid from a resident bidder
if:
(
1)
the resident bidder is a responsible bidder;
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Page 2
Md. STATE FINANCE AND PROCUREMENT Code Ann.§ 14-401
(2) a responsible bidder whose principal office or operation is in another state submits the lowest responsive bid;
(3) the state in which the nonresident bidder's principal office is located or the state in which the nonresident
bidder has its principal operation through which it would provide supplies or services gives a preference to its residents;
and
(4) a preference does not conflict with a federal law or grant affecting the procurement contract.
( c) Conditions for preference Proposals. -- When a unit uses competitive sealed proposals to award a
procurement contract, the unit may give a preference
to
resident offerors if:
(1) a responsible offeror whose principal office or operation is in another state submits a proposal;
(2) the state in which the nonresident offeror's principal office is located or the state in which the nonresident
offeror has its principal operation through which it would provide the subject of the contract gives a preference to its
residents; and
(3) the preference does not conflict with a federal law or grant affecting the procurement contract.
(d) Copy of statute, resolution, etc.; form of preference. --
(I) At the request of the unit, a nonresident bidder or nonresident offeror submitting a proposal for a State project
shall provide a copy of the current statute, resolution, policy, procedure, or executive order that pertains to the treatment
of nonresident bidders or nonresident offerors by:
(i) the state in which the nonresident bidder's or nonresident offeror's principal office is located; and
(ii) the state in which the nonresident bidder or nonresident offeror has its principal operation through which
it
would provide supplies or services.
(2) A unit may give a preference under this section that is identical to any of the following preferences, or any
combination of them:
(i) the preference that the state in which the nonresident bidder's or nonresident offeror's principal office is
located gives to its residents; or
(ii) the preference that the state in which the nonresident bidder or nonresident offeror has its principal
operation through which it would provide supplies or services gives to its residents.
HISTORY: SF§ 11-145; 1988, ch. 48, § 2; I 992, ch. 99; 1999, ch. 501; 2004, ch. 197; 2010, ch. 72.
NOTES: EFFECT OF AMENDMENTS. --Chapter
enactment, added "gives to its residents" in (d)(2)(ii).
Acts 2010, enacted April 13, 2010, and effective from date of
LexisNexis 50 State Surveys, Legislation
&
Regulations
In-State Procurement Preferences
&
Offshoring Constraints
UNIVERSITY OF BALTIM ORE LAW REVIEW. --For article, "Fair Treatment for Contractors Doing Business with
the State of Maryland," see
15
U.
Balt.
L.
Rev. 215 (1986).
For article, "Principles of Maryland Procurement Law," see
29
U.
Balt. L. Rev. 1 (2001).
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GOITEM#2
March 6, 2014
Worksession
MEMORANDUM
March 4, 2014
TO:
FROM:
SUBJECT:
Government Operations and Fiscal Policy Committee
Josh Hamlin, Legislative
Attome~
Work.session: Bill 13-14, Contracts and Procurement
Local Preference
Formal Solicitation -
Local Preference,
Bill 13-14, Contracts and Procurement - Formal Solicitation
sponsored by Councilmembers Navarro, Berliner, Riemer, Eirich, Floreen, Branson and
Andrews, was introduced on February 4, 2014. A public hearing was held on February 25.
Bill 13-14 would define "County-based bidder or offerer" and would require that a
County-based bidder or offerer be given preference in the event of a tie bid or ranking in
contracts awarded by formal solicitation. County procurement regulations currently provide a
tie-breaking procedure which gives first preference to a bidder or offeror "who has its principal
place of business in Montgomery County." This bill would codify that preference, as well as
require a preference be given to a County-based offerer, in the event of identical price proposals,
when a contract award is made on price alone. This bill would also require that a formal
solicitation include an explanation of the procedure for resolving a tie bid or ranking.
There were no speakers at the February 25 public hearing, and no written public
testimony was received. A memorandum from the County Executive, expressing support for the
bill, was received on February 25
(©8).
A memorandum was also received from OMB and
Finance, stating that the fiscal and economic impact statements for the bill are delayed, and will
be transmitted no later than March
I
0
(©9).
Issues for Committee Discussion
Should the definition of "County-based bidder or ofleror" mirror the existing language in the
Procurement Regulation?
Bill 13-14 includes the following definition of "County-based bidder
or offerer:"
County-based bidder or offeror
means a person that:
I)
has operated through an office, distribution point, or facility in the County
for at least 6 months immediately prior to submitting a bid in response to a
formal solicitation issued by the County; and
(2)
owns tangible personal property subject to taxation by the County.
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In contrast, Procurement Regulation l IB.00.01.04 grants first preference in the resolution of a tie
bid or offer to a bidder or offeror "who has its principal place of business in Montgomery
County." "Principal place of business" is not a defined term in the Code or Regulations.
In drafting Bill 13-14, staff sought to provide a specific definition for the bidders and
offerors eligible for the preference. However, the bill's definition could be interpreted to be
broader than may be desirable, and the Committee may wish to amend the bill to mirror the
existing Procurement Regulation. Such an amendment would provide that a "County-based
bidder or offeror means a person that has its principal place of business in Montgomery County,"
and may or may not expressly define what is meant by "principal place of business."
The meaning of the term "principal place of business" was recently addressed by the U.S.
Supreme Court in
Hertz Corp. v. Friend,
130 S. Ct. 1181 (2010).
Hertz
involved a complaint in
state court under California's wage and hour law, and the Supreme Court considered the Hertz
Corporation's state of citizenship for the purpose of deciding whether federal courts possessed
diversity-of-citizenship jurisdiction.
1
In
Hertz,
the Court unanimously endorsed the "nerve
center" approach for determining the state in which a corporation has its principal place of
business. The Court concluded "that the phrase 'principal place of business' refers to the place
where the corporation's high level officers direct, control, and coordinate the corporation's
activities," adding that "the 'nerve center' will typically be found at a corporation's
headquarters." The "nerve center" test could be applied to the County law in the absence of a
specific definition of "principal place of business."
Should the Committee wish to include a definition of "principal place of business," staff
recommends that the definition embody the "nerve center" test, but not be restricted to a
business' headquarters. Such a restrictive definition could exclude certain small businesses
which conduct most or all of their operations in the County, but whose executive and
administrative functions are conducted outside of the County. A draft amendment including
such a definition, and amending Bill 13-14 to mirror the language of Procurement Regulation
l IB.00.01.04, is at ©10.
Can the County enact a more general preference for County-based businesses?
Numerous
state and local jurisdictions have enacted laws giving preference in government procurement,
beyond that proposed in Bill 13-14, to "local businesses."
2
These preferences usually involve
contract award or purchasing preferences, and are often in the form of point preferences (when
proposals are ranked using a points system) or percentage preferences (when awards are made on
the basis of price).
Local preference laws, as they treat local residents differently from nonlocal residents,
are analyzed under a number of federal and state constitutional provisions. Such laws typically
Hertz claimed that since its corporate headquarters were located in Park Ridge, New Jersey, it was a New Jersey
citizen, and sought removal of the case to federal court. The federal diversity jurisdiction statute provides that "a
corporation shall be deemed to be a citizen of any State and foreign state by which it has been incorporated and of
the State or foreign state where it has its
principal place of business .
.. " 28 U. S. C.
§
1332(c )(I) (emphasis
supplied).
2
Definitions of "local businesses" differ among the various jurisdictions with local preference laws; indeed the use
of the term "local business" to describe businesses subject to preference is not universal. For the purposes of this
memorandum, the term "local business" means a business entitled to a location-based preference in procurement by
the legislating jurisdiction.
1
2
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implicate the federal Commerce, Privileges and Immunities, Equal Protection, and Due Process
Clauses, as well as any state constitutional analogues to these provisions. It may be possible to
craft a local preference law that does not run afoul of some of the federal constitutional
3
provisions, but Maryland courts have not directly addressed the validity of local preference
laws. Since Maryland courts have generally looked with disfavor on discriminatory local laws,
4
it is uncertain whether such a law would survive a challenge under Article 24 of the Maryland
Declaration of Rights, Maryland's analog to the 14
111
amendment.
Any discussion of a broader local preference should also include consideration of the fact
that most states, including Maryland (©11), Virginia, and Pennsylvania, have enacted retaliatory
laws that penalize bidders from jurisdictions which have local preference laws. A County local
preference law may help a County business obtain work with the County, but may disadvantage
that business in seeking work with Virginia and Pennsylvania, as well as many other states.
Also, federal grant rules generally prohibit the use of local preferences on federally funded
projects,
5
which may also limit the applicability of any County preference.
This packet contains:
Bill
13-14
Legislative Request Report
Procurement Regulation 11B.00. 01. 04 (excerpts)
County Executive Memo
Fiscal and Economic Impact Statement Extension
Staff Amendment
Md. State Finance and Procurement Code, § 14-401
Circle#
1
5
6
8
9
10
11
F:\LA W\BILLS\1413 Contracts And Procurement - Fonnal Solicitation\GO Memo 03.06.14.Doc
The U.S. Court of Appeals for the Fourth Circuit, within which Maryland sits, applied federal Commerce, Equal
Protection, and Due Process Clause analyses in upholding a South Carolina local preference law in
Smith, Setzer and
Sons v. South Carolina Procurement Review Panel,
20 F.3d 1311 (4
1h
Cir. 1994), but did not reach the question of
whether the law violated the Privileges and Immunities Clause. The
Smith, Setzer
Court held that the·
plaintiff/appellant lacked standing to bring such a challenge.
4
See Verzi v. Baltimore County,
333 Md. 411 (1994) (holding that Baltimore County's "location requirement" for
towing operators, i.e., a requirement that a licensed tow operator have a place of business within the County before
that operator may be called by police to tow vehicles, violated Article 24 of the Maryland Declaration of Rights).
5
The "Grants Management Common Rule" generally applicable to federal grants, provides that "grantees and
subgrantees will conduct procurements in a manner that prohibits the use of statutorily or administratively imposed
in-State or local geographical preferences in the evaluation of bids or proposals, except in those cases where
applicable Federal statutes expressly mandate or encourage geographic preference. Nothing in this section preempts
State licensing laws. When contracting for architectural and engineering (A/E) services, geographic location may be
a selection criteria provided its application leaves an appropriate number of qualified firms, given the nature and size
of the project, to compete for the contract."
3
3
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Bill No.
13-14
Concerning: Contracts and Procurement
-
Formal Solicitation -
Local
Preference
Revised: January
23, 2013
Draft No.
L
Introduced:
February
4, 2014
Expires:
August
4, 2015
Enacted: - - - - - - - - - -
Executive: - - - - - - - - -
Effective: - - - - - - - - - -
Sunset Date: _:..::.N=on..:..::e=---------
Ch. _ _ , Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmembers Navarro, Berliner, Riemer, Elrich, Floreen, Branson and Andrews
AN ACT
to:
(1)
(2)
(3)
establish a preference for a County-based bidder in certain contracts awarded by
formal solicitation;
define a County-based bidder or offeror; and
generally amend the law governing the award of contracts by formal solicitation.
By amending
Montgomery County Code
Chapter 11 B, Contracts and Procurement
Sections 1lB-1, 1IB-9, and 1IB-10
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deleted.from existing law by original bill.
Added by amendment.
Deleted from existing lmv or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL No. 13-14
1
Sec. llB-1. Definitions.
Unless the context indicates otherwise, the following terms have the following
meanmgs:
[(a)]
[(b)]
2
3
4
5
6
7
[(c)]
[(d)]
[( e)]
8
9
10
11
[(t)]
[(g)]
*
*
*
*
*
*
*
County-based bidder
.l}
*
*
*
*
*
*
*
*
*
*
*
*
*
*
offeror
means
f!
person that:
12
13
14
15
has operated through an office, distribution point, or facility in
the County for at least
.Q
months immediately pnor to
submitting
f!
bid in response to
the County; and
~
formal solicitation issued
by
16
17
18
ill
[(h)]
[(i)]
owns tangible personal property subject to taxation
by
the
County.
19
20
21
[G)J
[(k)]
22
23
24
[(1)]
[(m)]
[(n)]
25
26
27
[(o)]
[(p)]
[(q)]
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
@t:\law\bills\1413 contracts and procurement formal solicitation\bill 3.doc
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BILL
No.
13-14
28
29
[(r)]
[(s)]
[(t)]
30
31
*
*
*
*
*
*
*
*
*
Tie bid
means
fl:
low bid submitted
Qy
fl:
responsible and responsive
bidder that is identical in price to g bid from another responsible and
responsive bidder under
~
formal solicitation.
[(u)]
32
33
34
35
36
*
*
*
Sec.
llB-9.
Formal solicitation - competitive sealed bidding.
(a)
Conditions for use.
Contracts must be awarded by competitive sealed
bidding except as otherwise authorized in this Chapter or regulations.
Competitive sealed bidding is initiated by issuing an invitation for bids.
37
38
39
40
41
(b)
Invitation for bids.
An
invitation for bids must include specifications,
evaluation criteria including the procedure for resolving tie bids, and all
contractual provisions applicable to the procurement.
42
43
44
45
46
*
ill
*
*
is~
Tie Bids.
If
the Director makes an award, the Director must award
fl:
contract to the County-based bidder when there
tie bid
between~
County-based bidder and
fl:
non County-based bidder.
llB-10.
Formal solicitation - competitive sealed proposals.
47
48
*
(d)
*
*
Evaluation and method ofaward.
( 1)
A request for proposals must contain evaluation factors and an
explanation of how the rank of an offeror will be determined.1
including the procedure for resolving ties in ranking. Evaluation
factors must include factors related to the technical quality of the
proposal or the ability of the offeror, or both. Evaluation factors
49
50
51
52
53
@).f:\law\bills\1413 contracts and procurement-formal solicitation\bill 3.doc
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BILL
No. 13-14
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
may include price. The evaluation process may involve one or
more steps.
(2)
If
the Director determines that a sufficiently detailed scope of
services has been developed to allow for selection of a contractor
on the basis of price, the evaluation process may provide for the
selection of a proposed contractor by requiring all offerors who
meet pre-established levels of competency as reflected in scores
awarded by the qualification and selection committee to compete
for the contract award on the basis of price alone.
Price
submissions must be submitted in a sealed offer.
If
required in
the Request for Proposal, the price proposal must be binding on
the offeror. The price proposal may be submitted at any point
during the evaluation process as stated in the Request for
Proposals.
If
the Director decides to award
1!
contract on price
alone, the Director must award
S!
contract to the County-based
offeror when
S!
qualified County-based offeror and
S!
qualified
non County-based offeror have submitted identical price
proposals.
*
(f)
*
*
73
74
75
76
77
'Approval of contract awards.
The Director must approve the proposed
ranking of offerors.
If
1!
County-based offeror and
1!
non County-based
offeror each receive an identical ranking score, the Director must
consider the County-based offeror to be the higher ranked offeror.
*
*
*
@:\law\bills\1413 contracts and procurement- formal solicitation\bill 3.doc
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LEGISLATIVE REQUEST REPORT
Bill 13-14
Contracts and Procurement Formal Solicitation -Local Preference
DESCRIPTION:
Bill 13-14 would define "County-based bidder or offeror" and would
require that a County-based bidder or offeror be given preference in
the event of a tie bid or ranking in contracts awarded by formal
solicitation. The bill would also require that formal solicitations
include an explanation of the procedure for resolving a tie bid or
ranking.
The County wishes to support County-based businesses that are
seeking to do business with the County.
To establish a preference for a County-based bidder in the event of a
tie bid or ranking in certain contracts awarded by formal solicitation.
Office of Procurement
To be requested.
To be requested.
To be requested.
To be researched.
Josh Hamlin, 240-777-7892
Not applicable
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENAL TIES:
Not applicable.
F:\LAW\BILLS\1413 Contracts And Procurement - Formal Solicitation\LEGISLATIVE REQUEST REPORT.Doc
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llB.00.01.04 Source Selection Methods and Contract Types
4.1
Description of Source Selection Methods
4.1.1
Formal Solicitations - Invitation for Bid (IFB)
4.1.1.1 General
An IFB is a formal solicitation by which competitive sealed bids are invited
through a public notice procedure which results in an award to the lowest responsible, responsive offeror.
*
4.1.1.4 Procedure
(a)
Director.
*
*
*
IFBs are issued and public notice given under the direction of the
(b)
Responses to the IFB are received by the Director, as specified in the
solicitation, time-stamped, and publicly opened.
(c)
Bids are tabulated and forwarded to the Using Department for evaluation
when deemed appropriate by the Director or when specifically requested by the Using Department Head.
(d)
The Director may require the Using Department or other person to
evaluate the bids in accordance with the method of award criteria, and for responsiveness and
responsibility, and forward recommendations to the Director. These recommendations must include an
evaluation regarding the reasonableness of the proposed award prices.
If
retained by the Director, the
Director evaluates the bids in accordance with the method of award criteria, and for responsiveness and
responsibility.
(e)
In the case of tie bids, the Director resolves a tie by application of the
following criteria in the order stated:
(1)
Making a proposed award of the contract to the bidder who has
its principal place of business in Montgomery County;
(2)
Making a proposed award of the contract to the bidder who is a
certified MFD business prior to submitting a bid;
(3)
invited to be present.
Drawing of lots with representatives of the firms involved
*
*
*
*
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4.1.2
Formal Solicitation -Best Value Procurement -Request for Proposals (RFP)
4.1.2.1 General
An RFP is a formal solicitation for competitive sealed proposals. Proposals are
not publicly opened. An RFP is a procurement process in which quality and price are balanced to obtain
the best value for the County. Final costs and scope of work are subject to negotiation after the proposals
are received and before the contract is awarded unless otherwise stated in the RFP.
*
4.1.2.4 Procedure
(a)
Director.
*
*
*
RFPs are issued and public notice given under the direction of the
(b)
Without public opening, the Director forwards timely received proposals
to the Using Department for evaluation.
(c)
The Using Department establishes the QSC members, with the written
approval of the Director. Each member of the QSC must be an employee of a public entity, unless specific
authorization is obtained from the CAO for another to serve on the QSC. Unless otherwise provided in
these regulations, the committee must be composed of an odd number of members and must have at least
three members.
(d)
The Director may add members to the QSC when appropriate to enhance
the ability of the QSC to fairly and objectively evaluate the proposals. When the Director adds members
to the QSC, the composition of the QSC does not need to remain an odd number.
(e)
The QSC evaluates all proposals received from the Director, in
accordance with the evaluation criteria, and reviews offerors for responsibility.
*
*
*
*
(f)
In the case of a tie in the numerical QSC scored, the Director resolves the
tie by application of the following criteria in the order stated:
(1)
the offeror who has its principal place of business in
Montgomery County;
(2)
proposal;
(3)
invited to be present.
Drawing of lots with representatives of the firms involved
the offeror who is a certified MFD business prior to submitting a
*
*
*
*
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J
ee_
H-
58F
LL
OFFICE Of THE COUNTY EXECUTIVE
ROCKVILLE. MARYLAND 20850
Isiah Leggett
County Executive
MEMORANDUM
February 20, 2014
-
_,,
..
_
_,
_o
a
~-t:
,;>::0
.- ,01"11
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;-(<::
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orrl
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V1
~
TO:
FROM:
SUBJECT:
Craig Rice, Council President
Isiah Leggett, County Executive
Bill 13-14, Contract and Procurement- Formal Solicitations
Local Preference Bill
oo
~
_..
-<
-
Ct?
..t::
..c
I am writing in support of Bil
I
13-14, Contract and Procurement - Formal
Solicitations- Local Preference Bill (Bill) introduced on February 4, 2014 by Councilmembers
Navarro, Berliner and Riemer. The Councilmembers' initiative and the Council's efforts support
my longstanding recognition of Montgomery County's strong and diverse local business
community. This legislative action will help further strengthen the local economy by seeding
back to local businesses apportion of the tax revenues they pay to the County.
You may be interested to know that in the previous fiscal year 28%, or
$233,701,295, of contracts awarded by Montgomery County were with local businesses serving
as the prime contractor or subcontractor. Further, the current Procurement Regulations already
provide opportunities for County-based businesses to receive contract awards in the event of tie
bids.
As currently drafted, this legislation may require further defining of terms as well
as review by the County Attorney. However, I applaud Councilrnembers' vision and recognition
of the need for supporting local business community and strengthening the local economy. I am
committed to working with the Council during the corning weeks on the best way to achieve this.
montgomerycountymd.gov
/311
240-773-3556 TTY
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___
(,(!.
,;.~_L.,
.,
3~
5t5F'
__J
ff
ROCKV[LLE, MARYLAND
MEMORANDUM
Feburary
22,
2014
TO:
FROM:
Craig Rice, President, County Council
Jennifer A. Hughes.
Joseph F. Beach,
Directo~~rr
Finance
Dire~~ment
and Budget
SUBJECT:
FEIS Extension for Bill 14-14, Contracts and Procurement Wage Requirements
- Health Insurance Amendments and
Bill 13-14, Contracts and Procurement- Formal Solicitation - Local Preference
As required by Section 2-81 A of the County Code, we are informing you that
transmittal of the fiscal and economic impact statements for the above referenced legislations will
be
delayed because more time is needed to coordinate with the affected departments, collect
infonnation, and complete our analysis. We
will
transmit the statements no later than March I 0,
2014.
JAH:fz
cc: Bonnie Kirkland, Assistant Chief Administrative Officer
Lisa Austin, Offices of the County Executive
Joy Nurmi, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Infonnation Office
Joseph F. Beach, Director, Department of Finance
David Oise, Director, Department of General Services
David Platt,
Department
of
Finance
Alex Espinosa, Office of Management and Budget
Erika Lopez-Finn, Office of Management and Budget
Felicia Zhang, Office of Management and Budget
Naeem Mia, Office of Management and Budget
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Staff Amendment - definition of County-based bidder or offeror
Amend lines 11 to 23 as follows:
County-based bidder or offeror
means
f!:
person that has its principal
place of business in Montgomery
County[[~
ill
has operated through an office, distribution point, or facility in
the County for at least
Q
months immediately prior to
submitting
f!:
bid in response to
f!:
formal solicitation issued
Qy
the County; and
ill
[(h)]
[(i)]
owns tangible personal pro1;2erty subject to taxation
Qy
the
County]L.
lG)J
[(k)]
[(l)]
*
*
*
*
*
DJ
(2)
*
*
*
*
*
*
*
*
*
*
Princi"{l,al place olbusiness
means:
The headquarters or primarv executive or administrative office of
the business: or
An established office, plant. store or warehouse where the
Illl!Lority of the business' operations and transactions are
conducted and located.
Principal place of business
does not include a post office box. message
center. mail drop, or similar business service or activity with no
substantial work function.
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Page I
Lex.is Nexis®
I of I DOCUMENT
Annotated Code of Maryland
Copyright 2014 by Matthew Bender and Company, Inc., a member of the Lexisr>iexis Group
All rights reserved.
***Statutes current through the 2013 General Assembly Regular Session***
***Annotations through November 20, 2013 ***
STATE FINANCE AND PROCUREMENT
DIVISION II. GENERAL PROCUREMENT LAW
TITLE 14. PREFERENCES
SUBTITLE 4. MISCELLANEOUS PURCHASING PREFERENCES
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md. STATE FINANCEANDPROCUREMENTCodeAnn.
§
14-401
(2013)
§ 14-40
I.
Reciprocal preference for resident bidders
(a) Definitions. --
(I)
In this section the following words have the meanings indicated.
(2) "Preference" includes:
(i) a percentage preference;
(ii) an employee residency requirement; or
(iii) any other provision that favors a resident over a nonresident.
(3) "Resident bidder" means a bidder whose principal office is located in the State.
(4) "Resident offeror" means an offeror whose principal office is located in the State.
(5) "Services" means services, architectural services, construction related services, engineering services, or
energy performance contract services, all as defined in§ 11-101 of this article.
(b) Conditions for preference. -- When a unit uses competitive sealed bidding to award a procurement contract, the
unit
may give a preference to the resident bidder who submits the lowest responsive bid from a resident bidder
if:
(
1)
the resident bidder is a responsible bidder;
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Page 2
Md. STATE FINANCE AND PROCUREMENT Code Ann.§ 14-401
(2) a responsible bidder whose principal office or operation is in another state submits the lowest responsive bid;
(3) the state in which the nonresident bidder's principal office is located or the state in which the nonresident
bidder has its principal operation through which it would provide supplies or services gives a preference to its residents;
and
(4) a preference does not conflict with a federal law or grant affecting the procurement contract.
( c) Conditions for preference Proposals. -- When a unit uses competitive sealed proposals to award a
procurement contract, the unit may give a preference
to
resident offerors if:
(1) a responsible offeror whose principal office or operation is in another state submits a proposal;
(2) the state in which the nonresident offeror's principal office is located or the state in which the nonresident
offeror has its principal operation through which it would provide the subject of the contract gives a preference to its
residents; and
(3) the preference does not conflict with a federal law or grant affecting the procurement contract.
(d) Copy of statute, resolution, etc.; form of preference. --
(I) At the request of the unit, a nonresident bidder or nonresident offeror submitting a proposal for a State project
shall provide a copy of the current statute, resolution, policy, procedure, or executive order that pertains to the treatment
of nonresident bidders or nonresident offerors by:
(i) the state in which the nonresident bidder's or nonresident offeror's principal office is located; and
(ii) the state in which the nonresident bidder or nonresident offeror has its principal operation through which
it
would provide supplies or services.
(2) A unit may give a preference under this section that is identical to any of the following preferences, or any
combination of them:
(i) the preference that the state in which the nonresident bidder's or nonresident offeror's principal office is
located gives to its residents; or
(ii) the preference that the state in which the nonresident bidder or nonresident offeror has its principal
operation through which it would provide supplies or services gives to its residents.
HISTORY: SF§ 11-145; 1988, ch. 48, § 2; I 992, ch. 99; 1999, ch. 501; 2004, ch. 197; 2010, ch. 72.
NOTES: EFFECT OF AMENDMENTS. --Chapter
enactment, added "gives to its residents" in (d)(2)(ii).
Acts 2010, enacted April 13, 2010, and effective from date of
LexisNexis 50 State Surveys, Legislation
&
Regulations
In-State Procurement Preferences
&
Offshoring Constraints
UNIVERSITY OF BALTIM ORE LAW REVIEW. --For article, "Fair Treatment for Contractors Doing Business with
the State of Maryland," see
15
U.
Balt.
L.
Rev. 215 (1986).
For article, "Principles of Maryland Procurement Law," see
29
U.
Balt. L. Rev. 1 (2001).