Nevada’s statutory scheme allows the state, or any governmental subdivision of the state, to show legal favoritism to contractors licensed in Nevada, provided they have been around long enough and paid enough taxes to get a certificate from the Contractors’ Board. It’s called “bidder preference,” and it has trapped many an unsuspecting contractor. Some have argued (and lost) that such a scheme is unconstitutional (it is unconstitutional in Arizona), that it’s a violation of equal protection, that it’s a restraint of trade, that it impinges on interstate commerce, all to no avail. It is still with us today, although it has gone through some significant changes of late. Those changes have only made it a better trap.
Under the old scheme (found in Nevada Revised Statutes Ch. 338), the process worked like this: The public works body would advertise a project. Included in the specifications was usually a notice that the bidder preference statute would be applicable. A licensed Nevada contractor that could demonstrate — by affidavit included in its bid package or proof presented at bid opening — that it had paid in excess of $5,000 in sales and use and/or motor vehicle taxes over the immediately preceding five years, would be entitled to have its bid deemed to be 5 percent lower than it actually was. If a contractor not similarly preferred had the actual lowest bid, and if that 5 percent preference brought the preferred contractor’s bid below the actual low bid, then the preferred contractor had to be awarded the contract. A clearly undesirable effect of the statute is that an out-of-state company, as long as it is licensed in Nevada, can acquire the preferential status over any start-up Nevada company, owned by Nevada natives.
In stepped the 1999 Legislature to make improvements. Lawmakers determined to fix the bidder preference scheme. They perceived two major problems: first, when disputes arose among the bidders about a contractor’s eligibility for the preference, public works owners were becoming increasingly involved in litigation, which cost taxpayers money; and second, the Contractors’ Board needed more funding, which would ultimately cost the contractors additional fees.
So, the lawmakers changed the scheme. Now, a contractor has to obtain a certificate from the State Contractors’ Board. It can acquire this valuable certificate by providing the right affidavits and proofs from a certified accountant that the requisite taxes have been paid, over the right period of time. Oh, and the contractor now has to pay a $750 “processing” fee to the Contractors’ Board. Surprise, surprise. Also, specialty subcontractors, such as electrical or HVAC specialists, are no longer entitled to the preference, even where the job calls exclusively for that specialty. Surprise, surprise. I’m sure Nevada specialty subcontractors were overjoyed to discover they wouldn’t have to pay the $750 fee. But it also left them without access to the bidder preference system, giving bigger, hungrier out-of-state specialty subcontractors a better shot at underbidding them.
The new amendments to NRS Chapter 338 took effect October 1, 1999. Perhaps. Although the law required contractors, applying for the advantage of bidder preference to submit a valid certificate with their bid package on any bids opened after October 1, 1999, the Contractor’s Board did not issue any certificates until January 18, 2000 (a rude surprise to some contractors).
One final twist: highway and road projects (under NRS Chapter 408) were not subject to the bidder preference scheme. This was news to the Nevada Department of Transportation (NDOT). Many months later, NDOT was still including the bidder preference language in its specifications on road projects, because it was not otherwise informed. NDOT officials were unaware the statute had been changed, and were reportedly quite astonished to discover it. So were a number of project bid participants who watched their bidder preferences disappear in a legislative dust devil. These general contractors lost contracts awarded on the basis of bidder preference, after protests were successfully lodged by the actual low bidders.
The bidder preference statute would appear to be in need of further modification. Many contractors would like to see it go away altogether. Its original purpose, to allow small Nevada “Davids” to compete effectively with out-of-state Goliaths is quite obscured. It now allows non-Nevada Goliaths to defeat Nevada Davids. One can easily imagine a courtroom full of non-Nevada contractors each arguing they are more “Nevada” than the other and entitled to the preference. The preference scheme was always a trap of sorts for someone. Now, it seems to be an even better trap for Nevada contractors than it was before (and it was pretty tricky before). Maybe this session of the Legislature can do something about it.