Can a Tennessee city give local businesses a preference (like a percentage bid bump) when awarding municipal contracts?

Subject

Opinion No. 13-92, Granting Preferences for Local Businesses Under Municipal Purchasing Law of 1983, November 25, 2013

Plain-English summary

Rep. Jon Lundberg asked whether a Tennessee city subject to the Municipal Purchasing Law of 1983 could give a preference to local businesses when awarding city contracts. The AG said no.

The Municipal Purchasing Law of 1983 (Tenn. Code Ann. §§ 6-56-301 to -307) requires that most municipal purchases be made "only after public advertisement and competitive bid." § 6-56-304. The purpose of competitive bidding is to give bidders a fair chance to compete on equal terms, guarding against favoritism and fraud. Metropolitan Air Research Testing Auth. v. Metropolitan Gov't of Nashville. Tennessee Supreme Court precedent requires that "all bidders be placed upon the same plane of equality and that they each bid upon the same terms and conditions." State ex rel. Leech v. Wright.

A local-business preference policy doesn't put all bidders on equal footing. A non-local business effectively has to bid below its local competitor by the preference percentage just to win on price. That's a structural disadvantage that conflicts with competitive bidding.

The AG cited two prior opinions reaching the same conclusion: Op. 87-83 (1987) rejected a minority business preference under a similar competitive bidding statute, and Op. 78-303A (1978) rejected a "Buy American" policy. Local business preferences fall in the same category.

Per Crawley v. Hamilton County, "[m]unicipal ordinances in conflict with and repugnant to a State law of a general character and state-wide application are universally held to be invalid." A local-preference ordinance conflicts with § 6-56-304 and is invalid. Cities subject to the Municipal Purchasing Law lack authority to adopt such a policy.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Municipal Purchasing Law has been amended since 2013. Some Tennessee cities have charters or private acts that may exempt them from the 1983 Act or alter its application. Anyone considering a local-preference policy should consult current law and the city's specific procurement framework. The General Assembly retains authority to authorize preferences by statute (and has done so in narrow cases).

Background and statutory framework

Municipal Purchasing Law of 1983. Tenn. Code Ann. §§ 6-56-301 to -307. Applies to "all purchases by authorized officials in all municipalities using or encumbering municipal funds," with exceptions in § 6-56-302. § 6-56-304: most purchases require "public advertisement and competitive bid."

Purpose of competitive bidding. Metropolitan Air Research Testing Auth. v. Metropolitan Gov't of Nashville, 842 S.W.2d 611, 616-17 (Tenn. Ct. App. 1992): purpose is to provide a fair opportunity to compete and to guard against favoritism and fraud. Computer Shoppe, Inc. v. State, 780 S.W.2d 729, 737 (Tenn. Ct. App. 1989): bidders have the right to have bids considered honestly and fairly, competing on the same footing.

Equality requirement. State ex rel. Leech v. Wright, 622 S.W.2d 807, 815 (Tenn. 1981): "all bidders be placed upon the same plane of equality and that they each bid upon the same terms and conditions involved in all the items and parts of the contract, and that the proposal specify as to all bids the same, or substantially similar specifications."

Preemption. Crawley v. Hamilton County, 193 S.W.3d 453, 456 (Tenn. 2006): "Municipal ordinances in conflict with and repugnant to a State law of a general character and state-wide application are universally held to be invalid."

Prior AG opinions. Tenn. Att'y Gen. Op. 87-83 (May 5, 1987): minority business preference under Tenn. Code Ann. § 49-2-203(a)(4) violates competitive bidding. Tenn. Att'y Gen. Op. 78-303A (July 26, 1978): "Buy American" policy violates competitive bidding requirements.

Common questions

Why does Tennessee prohibit local preferences when other states allow them?

The Tennessee General Assembly has not affirmatively authorized local preferences in municipal procurement. Some states (like Florida and Mississippi) have statutorily authorized local-preference policies. Tennessee's Municipal Purchasing Law instead emphasizes uniform competitive bidding. Local governments cannot create their own preference categories by ordinance because that conflicts with the state statute.

Could a Tennessee city favor local businesses through criteria other than price?

Cities have some flexibility in writing bid specifications. They can include legitimate quality, capacity, experience, or proximity-to-service requirements that incidentally favor local providers. But these have to be defensible on the merits and not pretextual. Specifications that exist only to advantage locals would fail under the same competitive-bidding analysis.

What about a non-purchasing preference, like a tax incentive for hiring locally?

The opinion addresses only municipal purchasing/procurement under the 1983 Act. Tax incentives, development bonuses, and other non-procurement tools can sometimes be used to encourage local economic activity, but their legality depends on separate statutes.

Does this affect smaller cities with their own charters?

§ 6-56-301 says the Act applies to "all municipalities," so most Tennessee cities are subject to it. Cities with private-act charters can have varying procurement frameworks, but the general rule remains: state competitive-bidding requirements take precedence over local-preference ordinances.

Can the General Assembly authorize local preferences?

Yes. The General Assembly retains plenary authority over state preemption. It can amend the Municipal Purchasing Law to authorize specific local preferences. But until it does, the current statute controls.

Citations

Tenn. Code Ann. §§ 6-56-301 to -307, 6-56-302, 6-56-304, 49-2-203(a)(4). Cases: Metropolitan Air Research Testing Auth. v. Metropolitan Gov't of Nashville, 842 S.W.2d 611 (Tenn. Ct. App. 1992); Computer Shoppe, Inc. v. State, 780 S.W.2d 729 (Tenn. Ct. App. 1989); State ex rel. Leech v. Wright, 622 S.W.2d 807 (Tenn. 1981); Crawley v. Hamilton County, 193 S.W.3d 453 (Tenn. 2006). Prior AG opinions: Op. 87-83 (May 5, 1987); Op. 78-303A (July 26, 1978).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-092.pdf

Original opinion text

November 25, 2013

Opinion No. 13-92

Granting Preferences for Local Businesses Under Municipal Purchasing Law of 1983

QUESTION

May a municipality that is subject to the Municipal Purchasing Law of 1983 implement a policy that grants a preference to local businesses bidding on municipal contracts?

OPINION

No.

ANALYSIS

The Municipal Purchasing Law of 1983, codified at Tenn. Code Ann. §§ 6-56-301 to -307, applies to "all purchases by authorized officials in all municipalities using or encumbering municipal funds," with certain exceptions set forth at Tenn. Code Ann. § 6-56-302. Under the Purchasing Law, municipal officials must make most purchases "only after public advertisement and competitive bid." See Tenn. Code Ann. § 6-56-304.

The purpose of such a competitive bidding statute is to provide bidders with a fair opportunity to compete for public contracts and to promote the public interest by guarding against favoritism and fraud. Metropolitan Air Research Testing Auth. v. Metropolitan Gov't of Nashville, 842 S.W.2d 611, 616-17 (Tenn. Ct. App. 1992). A participating bidder has the right to have its bid considered honestly and fairly, competing on the same footing as all other bidders. Computer Shoppe, Inc. v. State, 780 S.W.2d 729, 737 (Tenn. Ct. App. 1989). Competitive bidding "requires that all bidders be placed upon the same plane of equality and that they each bid upon the same terms and conditions involved in all the items and parts of the contract, and that the proposal specify as to all bids the same, or substantially similar specifications." State ex rel. Leech v. Wright, 622 S.W.2d 807, 815 (Tenn. 1981).

When a policy gives a preference to certain bidders, the policy violates the competitive bidding principles set forth above. In short, such a policy does not place all bidders on the same plane of equality. Accordingly, this Office has opined that a policy by a local board of education giving preference to purchases from minority businesses would violate the competitive bidding provisions of Tenn. Code Ann. § 49-2-203(a)(4). Tenn. Att'y Gen. Op. 87-83 (May 5, 1987). This Office has also opined that a "Buy American" policy would violate competitive bidding requirements. Tenn. Att'y Gen. Op. 78-303A (July 26, 1978). Similarly, a municipal policy that gives a preference to local businesses bidding on municipal contracts would violate the competitive bidding provisions of Tenn. Code Ann. § 6-56-304. Due to this conflict, a municipality lacks the authority to adopt such a policy. See Crawley v. Hamilton County, 193 S.W.3d 453, 456 (Tenn. 2006) ("Municipal ordinances in conflict with and repugnant to a State law of a general character and state-wide application are universally held to be invalid.").

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

LAURA T. KIDWELL
Senior Counsel

Requested by:

The Honorable Jon Lundberg
State Representative
20 Legislative Plaza
Nashville, TN 37243