Column: A leg up for in-state contractors?

The construction industry has certainly taken a hit in the last couple of years. The economic downturn has forced state and local lawmakers to search for creative ways to boost their local economies. One such creative solution that will impact contractors across the state is being considered by our state legislature this session. House Bill 1809 would give contractors from Washington State a seven percent preference over out-of-state bidders on public works projects. This would, presumably, lead to more state spending going to in-state companies and workers. Sounds great, right?  Not so fast. The bill has serious pitfalls and, as a result, is not being embraced by the contractor community.

How it works

Generally, public works projects are awarded to the lowest responsible bidder. However, House Bill 1809 would provide “resident contractors” with a seven percent preference on these jobs. A contractor must prequalify to be considered a resident contractor and, among other things, must have a workforce consisting of at least 85 percent Washington residents (by number of employees or by percentage of total staff salary).

Once a contractor is qualified, his bid could be up to seven percent higher than the next lowest bidder and he would receive the contract. Let’s look at a simple example where a non-resident contractor bids a project at $100,000 and a resident contractor bids the same project at $105,000. The resident contractor would be given the contract because his bid is less than seven percent higher than the bid of the non-resident contractor.

Benefits of the bill

The obvious benefit of the bill is the potential to funnel Washington’s governmental expenditures to residents of this state. This, in turn, should theoretically create positive economic impacts in the form of additional jobs and more expendable income in the hands of Washington residents. More jobs and more pay would mean a larger tax base, which means more money flowing back to the government to fund state and local programs.

Reasons for concern

Unfortunately, the bill is not being met with open arms by those in the construction industry. One of the largest industry groups in Washington, the Association of General Contractors of Washington, has come out firmly against the proposed legislation. In addition, Mike Bomar of the Southwest Washington Contractor’s Association reports that many local contractors have expressed resistance to the bill.

While the obvious concern is increased costs associated with government contracts, there are a number of more subtle issues that will have a huge impact on contractors. Most notably, the bill’s requirement of 85 percent Washington residents will cause even well-established Washington contractors to be excluded from the preference simply due to the fact that they have more than 15 percent of their workforce outside of the state. This will be especially impactful on contractors in communities bordering other states, such as Vancouver, Spokane, and Pullman, where the workforce consists of many residents of these border states.

Even more alarmingly, in-state contractors could be penalized when they bid on public works projects in other states. Again, contractors in border communities like Vancouver and Southwest Washington will feel the effects the most when they have a reciprocal seven percent penalty assessed against their bids in contracts with states that have reciprocal laws on the books, including Oregon and Idaho. 

Because of these issues, House Bill 1809 could end up contributing to the very evil it seeks to address. By excluding so many contractors from the definition of “resident contractor” and by creating an environment where local contractors will suffer a penalty on many out-of-state public works bids, the state legislature may be inadvertently stifling local contractors’ ability to rebound in these difficult economic times.

Kelly Walsh is an attorney in the Vancouver office of regional law firm Schwabe, Williamson & Wyatt, where she focuses her practice on construction law and commercial litigation. She can be reached at 360-905-1432 or kwalsh@scwhabe.com 

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