Aside from its well-publicized difficulty in passing a budget bill during its 2010 session, the Kentucky Legislature has also bandied about several bills that would directly affect the construction industry. Most notably, the Kentucky Senate recently passed a bill that would provide reciprocal bid preferences to Kentucky contractors when bidding against contractors from states that have enacted their own local preferences.

Local Preferences

Senate Bill 45 ("SB 45") calls for a new section to be established in Kentucky Revised Statutes Chapter 45A, Kentucky's Model Procurement Code ("KMPC"). The intent of the bill is to modify the KMPC to provide a preference to local bidders on state projects over bidders from states that provide a similar preferences. The proposed new statutory language would implement the reciprocal preference no matter which delivery method is utilized for construction or which methodology of awarding the contract is utilized.

To be deemed a Kentucky resident under the provision, a bidder would have to maintain its principal place of business in Kentucky and have for one year prior to the first advertisement of the contract: 1) filed Kentucky corporate income taxes, 2) made payments to the Kentucky Unemployment Insurance Fund and 3) have a Kentucky workers’ compensation policy in effect. The “principal place of business” provision would be more restrictive than certain preference statutes in other states, which allow a contractor to receive a preference or not be penalized so long as it maintains a significant—though not exclusive—presence in that state. The Finance and Administration Cabinet is charged with maintaining a list of states that give a preference to their own contractors, as well as promulgating administrative regulations to establish the procedure by which preferences will be given.

Several problems may arise with the implementation of the law if passed. First, state procurement laws, including delivery methods and methods of award, vary greatly from state to state, even though most are based on the same Model Procurement Code. Preferences may be given in other states under award methodologies that are unlike Kentucky’s proposed structure, thereby complicating the ability of the awarding body to determine what the “reciprocal” preference would be.

Also, Kentucky’s residency definition would differ from residency standards applied by surrounding states. Some states—such as Indiana—allow a contractor to be a resident of two or more states for the purpose of preferences. The nature of a particular contractor’s business model and corporate structure will mean that whether the non-resident contractor’s “home state” would treat a Kentucky contractor as a non-resident, and therefore with disparity, would depend on exactly which Kentucky contractor one is talking about.

Though it may not be perfect, the Kentucky Legislature's attempt is anything but new. Several border states—for example West Virginia and Tennessee — have enacted similar laws that only allow for “reciprocal” preferences for locals against out-of-state contractors who hail from states that give their own contractors an advantage. Nationwide, at least three dozen states have enacted some form of local procurement preference, be it simply reciprocal or more aggressive.

The roller coaster ride of SB 45 is emblematic of the session as a whole. With the support of the AGC, SB 45 passed on January 28 by a vote of 38-0. The bill made its way through the House and was passed 98-0, but with a committee substitute that expanded its scope to virtually every public agency in Kentucky. The Senate refused to concur with the committee substitute’s enlargement of scope and the bill appeared dead. However, both the Senate and House appointed conference committees and coming out of committee, the House passed it 95-0 and as of April 12, 2010, it again awaits consideration in the Senate. SB 45 appears to be, other than budgeting legislation, the most likely bill to pass during the current session that greatly affects the construction industry.

Retainage, Prevailing Wages and Kentucky's Construction Loan Guarantee Program

Several other bills affecting the construction industry were either on the table or are currently under consideration, albeit with varying prospects for enactment. HB 317 would have modified existing law on retainage amounts, but has been withdrawn. HB 580 would require that the Kentucky Transportation Cabinet receive two bids before awarding a construction project. If only one bid is received after three lettings, an award could be made. The current prospects of this bill appear dim. HB 593 would raise the threshold exemption for public works projects from $250,000 to $1,000,000 when requiring payment of prevailing wages and exempt all construction projects in elementary, secondary, and post-secondary buildings and facilities from prevailing wage requirements. Neither HB 580 nor HB 593 appear to have any momentum at present.

HB 553, which is supported by local AGC and AIA chapters, still stands a chance at passage. The bill would establish a construction loan guarantee program for commercial building construction, with the ability to guarantee up to 25 percent of the loan principal. The bill’s aim is to provide a mechanism that will help jump start development in a sagging economy. In order to fund the program, sales taxes on purchases related to sponsored projects would be used to perpetuate it.

While the 2010 session has witnessed several bills involving the construction industry, this is hardly surprising. The economic turndown has left contractors searching for work. As such, the Legislature is simply trying to respond to that anxiety by proposing measures that would spur local construction projects, such as HB 553, and protect their own contractors when work does exist, such as SB 45.