Location-Based Preferences in Federal and Federally Funded Contracting: An Overview of the Law
"The recession that began in December 2007 has prompted increased interest among some
Members of Congress and their constituents in legal authorities that could require or allow federal agencies to prefer contractors in one state or locality over those in other states or localities. Federal spending on procurement contracts has remained high, totaling $523.9 billion in FY2009, at a time when many other businesses have scaled back their purchases of goods and services. However, this spending has historically been localized in three to five states, which receive nearly half of all federal procurement dollars, prompting concerns about whether other states receive their “fair share.”

The federal government generally awards contracts to the lowest qualified responsible offeror,
regardless of the offeror’s location. However, some provisions of federal law require or allow
contracting agencies to favor vendors in certain localities. The main government-wide
preferences are for (1) “local contractors” in areas affected by presidentially declared disasters or emergencies; (2) businesses in “labor surplus areas,” or areas with particularly high
unemployment; and (3) small businesses in Historically Underutilized Business Zones
(HUBZones), or census tracks, nonmetropolitan counties, or other areas with low household
income or high unemployment. Federal agencies may conduct set-asides for, or grant evaluation
preferences to, local contractors; use firms’ status as labor surplus area concerns, or willingness to locate facilities in labor surplus areas, as a tie-breaker in sealed bid procurements or an evaluation factor in certain negotiated procurements; and make special sole-source awards to, conduct setasides for, or grant price evaluation preferences to HUBZone small businesses. Other agency specific preferences also exist, such as those for “local private, nonprofit, or cooperative entities” under the Department of the Interior, Environment, and Related Agencies Appropriations Act, 2010 (P.L. 111-88)..."