State Anti-Outsourcing Laws

You asked us to analyze recently enacted “anti-outsourcing” laws in Alabama, Indiana, and Tennessee.

These states indirectly addressed outsourcing, the practice of hiring foreign workers to provide goods or services. They did so by giving businesses bidding on state contracts a boost if they intend to do the work only with state or U. S. residents. A more direct approach might have been to prohibit businesses bidding on these contracts if they intended to use foreign workers.

Alabama took the most indirect approach, adopting a resolution urging local, county, and state governments to procure professional services from Alabama businesses and professionals. Indiana and Tennessee granted bid preferences to businesses meeting narrow criteria. Indiana’s preference applies to contracts for goods and professional services, while Tennessee’s applies to contracts for data entry and call center services.

The resolution encouraged “local, county, and state government, local boards of education, state colleges and universities, and related entities to use Alabama businesses and professionals in procuring professional services for their use. ” The legislature passed the resolution after finding that the state has a “capable, qualified, and plentiful” pool of professional service providers and noting how they generate new business and jobs throughout the state.

The legislature gave copies of the resolution to the finance and the economic and community affairs directors, the state superintendent of education, and the organizations representing municipalities and county commissioners so that they could “further these sentiments to applicable entities. ”

The act, which expires July 1, 2009, authorizes a sliding bid preference for Indiana businesses. These businesses qualify for a 5% preference for contracts whose expected value is less than $ 500,000, 3% for those between $ 500,000 and under $ 1 million, and 1% for contracts above $ 1 million.

An in-state business qualifies for the preference if its principal place of business is located in Indiana. An out-of-state business qualifies if:

1. it pays most of its payroll to Indiana residents,

2. most of its employees are Indiana residents,

3. it makes significant capital investments in the state, or

4. has a substantial positive impact on the state’s economy.

A business that wants the preference must claim it in the bid documents and show how it meets any of the above eligibility criteria.

But the business might not win a contract for goods even if the preference effectively makes its bid the lowest qualified one. The law specifies two conditions under which the bid must go to the lowest responsive and responsible bidder regardless of the preference:

1. the bidder is an Indiana business or

2. bidder is from a bordering state that does not provide bid preferences or whose preferences do not exceed Indiana’s.

The Administration Department must gather and report data on businesses claiming preferences and the contracts awarded to them. It must submit the report to the legislative council by September 1, 2008, 10 months before the law expires.

This law authorizes bid preferences for proposed contracts for data entry or call center services. The preference applies to any contract proposing to provide these services with employees who reside in the United States. The employees can be U. S. citizens, legal resident aliens, and others legally authorized to work here. Contractors receiving the preference must periodically assure the state that they are providing the service solely with these employees. The finance and administration commissioner must adopt regulations specifying the preference amount.


September 10, 2004		2004-R-0647
STATE ANTI-OUTSOURCING LAWS

By: John Rappa, Principal Analyst