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AGC Opposes Preference Bill as Costly, Unconstitutional

House Bill 1809 would establish a resident contractor preference law such that a public works contract would be awarded to lowest responsible bidder after a preference of seven percent is applied.

AGC is opposed to the legislation and AGC Legislative Counsel Van Collins testified in opposition to it at a Feb. 14 House Committee on State Government & Tribal Affairs hearing.

“While we understand the sentiment we cannot agree with the proposed cure” Collins said. “We believe that House Bill 1809 will have numerous negative consequences that state government should not accept and on behalf of contractors we cannot accept.”

Collins described the state’s previous preference law long-since rescinded and delineated several concerns regarding the bill. From Collins’ testimony:

  • “The most obvious negative consequence relates to cost. As with any trade barrier and as was the case with Washington’s earlier five percent preference statute this bill will significantly increase costs. Clearly there will be large new administrative burdens placed upon both government and contractors through the inclusion of complex compliance and certification requirements and which carry considerable penalties for unwary contractors. Just as clearly the bidding preference will result in public works projects costing as much as 7 percent more than they would have otherwise.
  • A less obvious consequence arises from the bill’s 85 percent Washington workforce or payroll requirement. Many contractors who have had long Washington presences and do in fact employ thousands of Washington residents will nonetheless fail to qualify as resident contractors merely because more than 15 percent of their workforce and/or payroll are out-of-state. This same reality will also impact even Washington contractors. I had a very illuminating conversation with the President of a family owned long-time Washington AGC contractor which is home based in the South Puget Sound. He indicated that these same provisions will keep even his company from also qualifying as a resident contractor.
  • Lastly an even less known and appreciated consequence of this bill relates to a ripple effect that will negatively impact contractors who perform public works in other states. This consequence is real to many contractors around the state will especially be significant to contractors located in such areas as Spokane Pullman Walla Walla Vancouver and Longview/Kelso who regularly and customarily perform work across our borders in Idaho and Oregon. This is because Washington contractors will face the automatic imposition of a reciprocal seven percent bidding penalty against them out-of-state. This will develop from the operation of reciprocal preference statutes which are already on the books in almost every state in the Union including Washington Oregon and Idaho. I cannot help but point out the vicious irony at play here with regards to the South Puget Sound AGC contractor member of which I spoke. Not only will it fail to qualify as a resident contractor but it will also be the victim of a 7% bidding penalty in states where it has thus far been very successful. This is a twisted and untenable result.

We further believe that House Bill 1809 will both fail to accomplish what is intended and will lead to protracted litigation.

  • First the bill contains numerous drafting problems that create ambiguities and enforcement issues.
  • Further we believe the bill to be unconstitutional on its face. One of the bill’s features is that a resident contractor must either have 85% of its workforce as Washington residents or 85% of its payroll must be paid to Washington residents. Yet in 1984 the Washington Supreme Court held that this same kind of employment utilization requirement violated the privileges and immunities clause of the U.S. Constitution. This means that House Bill 1809 attempts to bootstrap an unconstitutional mandate into the definition of resident contractor which again that concept has already been tried and rejected previously. Not surprisingly this makes us scratch our heads.
  • Additionally the bill maintains a complete prohibition against foreign limited liability companies and partnerships from being able to obtain resident contractor status. Similarly the bill prohibits the members and partners of such entities from being out-of-state residents. Again these types of absolute prohibitions against foreign entities and/or residents are in our opinion clearly unconstitutional.”

For more information contact Van Collins 360-352-5000.

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