The legislature poses a $2 billion question to the public construction industry: What is a Connecticut company?
As state officials mull policy reform that would give a bigger home court advantage to Connecticut companies competing for public construction dollars, the industry is left to wonder who will qualify for in-state preference.
“We want to make it clear and defined,” said Charles LeConche, business manager for the Connecticut Laborers’ District Council. “It is time to take care of Connecticut workers and Connecticut businesses.”
The Connecticut General Assembly’s Labor and Public Employees Committee asked the state Department of Administrative Services to examine the issue of local preference, seeing if Connecticut could or should do anything to make sure the annual $1.5 to $2 billion in state construction projects stay with Connecticut companies.
“There’s a general concern that state construction firms and their laborers aren’t winning the lion’s share of state projects,” said State Sen. John Rigby, R-Colebrook, the ranking Republican member on the labor committee.
Out-of-state companies received 59 percent of the construction project dollar awards from the state Department of Transportation in 2010, up from 27 percent in 2008, according to a DAS report prepared for the labor committee.
“It is something that we need to address,” Rigby said. “People want these jobs to be in the hands of Connecticut residents.”
The state already offers preference programs such as giving a certain percentage of state contracts to minority-owned businesses and giving preference on certain projects to companies with an office close to the worksite. Higher dollar projects also come with project labor agreements, setting work rules and compensation for laborers on public construction.
Taking local preference a step further revolves around two options for competitively bid jobs. The first gives an in-state contractor the option of first refusal to contract for a project at the lowest bid, if the lowest bid was offered by an out-of-state contractor. The second tacks on a set percentage to out-of-state bids, so that if a bid from an in-state company falls within that percentage, the in-state firm automatically becomes the low bidder, even though its bid wasn’t the lowest.
Department of Administrative Services isn’t offering any legislative proposals for the 2012 General Assembly session, said DAS spokesman Jeffrey Beckham. But the agency is working on the issue of local preference.
Adopting stricter local preference laws could cause more harm than good, according to a 2012 DAS report published for the labor committee. If Connecticut had a preference, 37 other states have retaliatory preference policies punishing contractors based in state with strict local preference laws.
Since Connecticut is a smaller state with fewer public construction projects, Connecticut doesn’t want to impede in-state contractors’ ability to compete for dollars in the region. “We know there are Connecticut contractors out there who rely on jobs from Massachusetts, New York, Rhode Island and New Jersey,” Rigby said.
Connecticut already has a policy on the book saying — without must specificity — that state agency should give preference to Connecticut companies when soliciting for goods and services. Rigby said rather than passing new legislation, the state needs to look at how this policy is administered; making sure agencies aren’t violating federal commerce laws or undermining the competitive process.
But the problem still goes back to defining what makes a Connecticut company. In its local preference report, DAS defines a in-state company as a firm with a Connecticut address that paid unemployment or income taxes in the previous 12 months.
Under this definition, the minimum requirement for a Connecticut company could be a firm headquartered out-of-state with an in-state postal box address that hired one Connecticut laborer for a previous project.
“For us, the real challenge when it comes to preference is how you describe an in-state firm from an out-of-state firm,” said Don Shubert, Connecticut Construction Industries Association president. “That’s where we hear frustration from our members.”
The Connecticut Laborers’ District Council offers a stricter definition of a Connecticut company, arguing it must be headquartered in the state, with its top employees residing in the state, and the majority of its laborers being Connecticut residents. “When they try to tell you that they are in fact Connecticut contractors, it is not true,” LeConche said.
When defining a Connecticut company, the state needs to decide the goal behind the definition, Shubert said. If the importance is giving jobs to Connecticut workers, then the location of the company isn’t as vital as its willingness to employ state residents. If the importance is keeping the profits in the state, then the company’s headquarters outweighs the firm’s use of Connecticut employees.
“If we say the firm must have a Connecticut presence, that might not be enough to get the jobs into the hands of Connecticut residents,” Rigby said. “We have to make the rule so that it is the worker that benefits.”
