Does Arkansas's 5% in-state bidding preference for public agencies apply only to commodity purchases, or also to construction contracts that include some materials cost?

Plain-English summary

Representative Les Warren asked the AG three questions about Arkansas's 5% bidding preference for in-state firms under Ark. Code Ann. § 19-11-259. The statute requires counties, cities, and other political subdivisions to accept the lowest qualified bid from an Arkansas-resident firm when buying "commodities" by competitive bidding. "Commodities" are defined as "materials and equipment used in the construction of public works projects."

Three questions:

1. Does the preference apply only to commodity purchases, or also to other types of procurement?
2. If a city or county is hiring a contractor for a utility-construction job and the bid includes materials, must the 5% preference apply to the lump-sum bid?
3. Do subsections (b)(1)(B) and (b)(1)(C) of the statute conflict?

The AG's answers:

Question 1: Yes, commodities only. The statute's text limits the preference to commodity purchases by competitive bidding. Service contracts and other types of procurement are not covered.

Question 2: No. The preference cannot be extended to bids for public-works construction contracts where the materials cost is just one component of the overall bid. The statute does not allow that extension.

Question 3: They don't conflict. Subsections (b)(1)(B) and (b)(1)(C) establish the mechanics of when the preference applies. (B) sets the general rule: accept the lowest qualified Arkansas firm's bid where it doesn't exceed the lowest out-of-state bid by more than 5% and at least one Arkansas firm invoked the preference. (C) elaborates: if any Arkansas firm invokes the preference and submits a bid lower than the lowest out-of-state bidder, the contract goes to whichever Arkansas firm submitted the lowest bid, regardless of whether that firm requested the preference.

What this means for you

County and municipal purchasing officials

When you buy commodities (materials and equipment for public works) by competitive bidding, the 5% in-state preference applies. When you contract for services, including construction services, it does not apply. Don't try to apply the preference to lump-sum construction bids that bundle services and materials. The AG's reading is that the preference is strictly procurement of commodities.

Practical consequence: separate procurement when possible. A pure materials purchase gets the preference. A construction contract that incorporates materials does not. Talk to your county attorney about whether and when separating procurement makes sense.

Construction contractors

If you're an Arkansas-resident firm bidding on a public-works construction contract, the 5% preference does not apply to your bid even if your bid includes materials cost. The preference is for pure commodity purchases. You compete on the merits of your construction bid, not with a 5% margin advantage.

Out-of-state bidders

For pure commodity purchases by Arkansas counties, cities, and political subdivisions, you face a 5% margin disadvantage when an Arkansas firm bids and invokes the preference. For construction contracts where you provide both materials and services, the preference does not apply. The playing field is level.

Public-works directors

The statute is targeted: when you're spending public money on materials and equipment for a public works project, you have a duty under § 19-11-259 to favor Arkansas vendors within the 5% margin. That duty does not extend to general construction services.

Common questions

What counts as "commodities"?

The statute defines them as "materials and equipment used in the construction of public works projects." Concrete, steel, electrical components, pipes, and other materials. Not labor, not architectural services, not engineering.

What if a contract is mostly materials with a little labor?

The AG's reading suggests the preference doesn't extend to bundled bids. If the contract is structured as a single bid covering both, you're outside the preference. To get the preference, the procurement has to be specifically for commodities.

Who is a "public agency" under this statute?

Defined narrowly for purposes of § 19-11-259: "all counties, municipalities, and political subdivisions of the state." Importantly, the statute notes those definitions "shall not be applicable to other sections of this subchapter," so they're specific to this preference rule.

Does the preference apply to state agencies?

Not under § 19-11-259. The statute applies to counties, municipalities, and political subdivisions. State agency procurement is governed by different provisions of the Arkansas Procurement Law (Ark. Code Ann. § 19-11-201 et seq.).

How does the preference actually work?

If an Arkansas firm bids within 5% of the lowest out-of-state bid and invokes the preference, the Arkansas firm wins (subsection (b)(1)(B)). If an Arkansas firm bids lower than the lowest out-of-state bid and any Arkansas firm invoked the preference, the contract goes to whichever Arkansas firm bid lowest, even if that lowest Arkansas firm did not personally invoke the preference (subsection (b)(1)(C)).

Background and statutory framework

The Arkansas Procurement Law (Ark. Code Ann. § 19-11-201 et seq.) governs how public entities buy goods and services. Section 19-11-259 specifically establishes the 5% preference for Arkansas-resident firms in commodity purchases by counties, municipalities, and political subdivisions.

The statute defines key terms within its own scope:

• "Public agency" = counties, municipalities, and political subdivisions of the state.
• "Commodities" = materials and equipment used in the construction of public works projects.

The preference's mechanics:

• (b)(1)(A): the political subdivision shall accept the lowest qualified bid from an Arkansas-resident firm.
• (b)(1)(B): if the lowest Arkansas bid doesn't exceed the lowest out-of-state bid by more than 5%, AND at least one Arkansas firm invoked the preference, the Arkansas firm wins.
• (b)(1)(C): if any Arkansas firm invoked the preference and an Arkansas firm bid lower than the lowest out-of-state bidder, the contract goes to whichever Arkansas firm bid lowest, irrespective of whether that firm itself invoked the preference.

The AG cited Op. 2009-175 and Op. 93-204 for the consistent position that the preference applies only to commodity purchases.

Citations

• Ark. Code Ann. § 19-11-201 et seq. (Arkansas Procurement Law)
• Ark. Code Ann. § 19-11-259 (in-state bidding preference)
• Op. Att'y Gen. 2009-175
• Op. Att'y Gen. 93-204

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2021-027
July 13, 2021
The Honorable Les A. Warren
State Representative
P.O. Box 22900
Hot Springs, AR 71903-2900

Dear Representative Warren:

This is in response to your request for an expedited opinion concerning the bidding preference to be given Arkansas companies in the solicitation of commodities under the Arkansas Procurement Law. You have asked the following questions, which I have paraphrased for clarity:

1. Does Ark. Code Ann. § 19-11-259 only apply to the purchase of "commodities" as that term is defined under the statute as "materials and equipment used in the construction of public works projects?"

2. Must the preference provided for in the statute be extended to bids for a construction contract "to provide utility needs of a county or municipality" wherein the cost of the commodities is a part of the overall bid? In other words, must the five percent (5%) preference be given to a "firm resident in Arkansas" for a lump-sum bid that is only part materials?

3. Does Ark. Code Ann. § 19-11-259(b)(1)(B) conflict with Ark. Code Ann. § 19-11-259(b)(1)(C), and if so, how can they be reconciled?

RESPONSE

The answer to the first question is "yes," the statute is limited to a political subdivision's purchase of commodities alone. Correspondingly, the answer to the second question is "no," the preference cannot be extended to bids for public works construction contracts. And lastly, Ark. Code Ann. § 19-11-259(b)(1)(B) and (C) do not conflict.

DISCUSSION

Question 1: Does Ark. Code Ann. § 19-11-259 only apply to the purchase of "commodities" as that term is defined under the statute as "materials and equipment used in the construction of public works projects?"

Yes. The statutory text clearly states that the preference in the awarding of contracts to Arkansas-resident firms only applies when an agency is purchasing commodities by competitive bidding. Section 19-11-259 states that "[i]n the purchase of commodities by competitive bidding, all public agencies shall accept the lowest qualified bid from a firm resident in Arkansas." No other types of procurements or contracts, such as ones for services, are mentioned in the statute. Finally, while there are no appellate court cases directly on point, "the [statute's] restriction of the preference only to the sale of commodities" has long been the opinion of this office.

Question 2: Must the preference be extended to bids for a construction contract "to provide utility needs of a county or municipality" wherein the cost of the commodities is a part of the overall bid? In other words, must a five-percent (5%) preference be given to a "firm resident in Arkansas" for a lump-sum bid that is only part materials?

No. As noted above, the statutory text makes clear that the preference is strictly limited to the procurement of commodities. There is no basis for extending that text to include bids for public works construction contracts in which the cost for the materials the contractor will use is but one part of the overall bid price.

Question 3: Does Ark. Code Ann. § 19-11-259(b)(1)(B) conflict with Ark. Code Ann. § 19-11-259(b)(1)(C), and if so, how can they be reconciled?

The subsections that you identify do not conflict. While the statutory language is unartfully drafted, the subsections that you identify are clearly designed to work together and establish the process for calculating when a preference applies. Subsections 19-11-259(b)(1)(A) and (B) state the general requirement that a political subdivision accept the lowest qualified Arkansas firm's bid where that bid doesn't exceed the lowest out-of-state bid by more than 5% and at least one Arkansas firm invoked the in-state preference at submission. Subsection 19-11-259(b)(1)(C) merely elaborates on the mechanics for determining when the preference applies. Specifically, it provides that if any Arkansas firm invokes the preference and submits a bid lower than the lowest out-of-state bidder, the contract must be awarded to any Arkansas firm that submitted the lowest bid, irrespective of whether that firm requested the preference.

Sincerely,

LESLIE RUTLEDGE
Attorney General