Arizona First Procurement Act
AN ACT
AMENDING TITLE 41, ARIZONA REVISED STATUTES, BY ADDING NEW SECTIONS AND AMENDING EXISTING PROVISIONS TO PROMOTE LOCAL ECONOMIC DEVELOPMENT.
Be it enacted by the Legislature of the State of Arizona:
Section 1. Legislative findings and intent
The legislature finds and declares that:
Economic vitality in Arizona's communities is strengthened when public funds are reinvested locally to create jobs, build wealth among residents, and support homegrown enterprises.
Worker-owned cooperatives, community-owned enterprises, and locally rooted businesses provide superior economic stability, democratic accountability, and community reinvestment compared to absentee-owned corporations.
Market failures in essential public services disproportionately harm rural and underserved communities, requiring innovative public solutions.
It is the policy of the state to use its procurement power intentionally to foster local economic resilience, encourage democratic workplace models, and ensure essential services are reliably provided to all Arizonans.
These goals are best achieved through a combination of tiered preferences for Arizona-based enterprises, support systems to ensure competitive bidding, and structured public options when markets fail.
Section 2. Title 41, Arizona Revised Statutes, is amended by adding a new chapter, to be designated as Chapter 60, to read:
CHAPTER 60
ARIZONA COMMUNITY ECONOMIC RESILIENCE ACT
ARTICLE 1. DEFINITIONS AND ADMINISTRATION
41-6001. Definitions
In this chapter, unless the context otherwise requires:
"Awarding authority" means any agency, department, board, commission, institution, or political subdivision of the state authorized to enter into contracts for the procurement of goods, services, or construction.
"Best value" has the meaning prescribed in section 41-2533, but shall include, as an evaluation factor, the measurable local economic and social impact of a proposal as described in section 41-6003.
"Community-owned enterprise" means a business entity that is owned and controlled by residents of a specific geographic community within this state through a recognized community ownership structure, including but not limited to a community development corporation, a community land trust, or a nonprofit organization whose membership and governance are restricted to residents of a defined community.
"Core public service" means a service or provision of infrastructure that is essential to public health, safety, economic well-being, or equitable community development.
"Department" means the department of administration.
"Direct operating subsidy" means a recurring payment of public funds to a private entity to support the ongoing operational expenses of providing a service, beyond a standard fee-for-service contract payment for specific, delivered outputs. It also includes regulatory waivers and tax exemptions which have a similar result in the generation of net profit for that private entity.
"First-time qualified bidder" means a qualified local enterprise that has not previously been awarded a contract by the awarding authority from which it is seeking award.
"Locally owned worker cooperative" means a for-profit business enterprise that satisfies all of the following criteria:
a. Is organized and operates in accordance with chapter 6 of this title as a cooperative association.
b. Maintains its principal place of business and a majority of its business operations within this state.
c. Has a membership comprised exclusively of natural persons who perform labor or services for the enterprise.
d. Is owned and democratically controlled by its worker-members on the basis of one member, one vote.
e. Has all worker-members holding their primary residence within this state.
f. Allocates a substantial portion of its surplus to its worker-members based on their labor contribution.
"Micro-purchase" means a procurement of goods or services with a total value of one hundred thousand dollars or less.
"Qualified local enterprise" means a bidder or proposer that is certified by the department as meeting one or more of the following criteria:
a. An "Arizona-based business" - a business that maintains its principal place of business within this state and is legally authorized to do business in this state.
b. A "Locally-owned business" - an Arizona-based business that is at least fifty-one percent owned and controlled by individuals who are permanent residents of this state.
c. A "Locally owned worker cooperative" - as defined in paragraph 8.
d. A "Community-owned enterprise" - as defined in paragraph 3.
"Revolving loan fund" means the Arizona Community Enterprise Fund established in section 41-6013.
"Total contract value" means the total amount of compensation to be paid under a contract.
ARTICLE 2. PROCUREMENT PREFERENCES AND SUPPORTS
41-6002. Tiered procurement preference system
A. Notwithstanding any other law, when an awarding authority evaluates bids or proposals for procurement, it shall apply the following price preferences to qualified local enterprises:
For Arizona-based businesses: a three percent preference.
For locally-owned businesses: a five percent preference.
For locally owned worker cooperatives and community-owned enterprises: an eight percent preference.
B. For first-time qualified bidders, an additional two percent preference shall be applied to the percentages in subsection A.
C. For the purpose of bid evaluation, the price submitted by a qualified local enterprise shall be deemed reduced by the applicable preference percentage. The awarding authority shall award the contract based on this adjusted evaluation price, provided that the actual contract price does not exceed the price of the otherwise lowest bidder by more than the applicable preference percentage.
41-6003. Best value evaluation criteria
A. In determining "best value" for procurements exceeding two hundred fifty thousand dollars, awarding authorities shall include as a weighted evaluation factor the "local economic and social impact" of proposals. This factor shall account for not less than fifteen percent nor more than thirty percent of the total evaluation score.
B. Local economic and social impact shall be evaluated based on, but not limited to, the following:
The number and quality of jobs created or retained within Arizona, including wage levels and benefits offered.
Investments in workforce training and development.
The stability and community roots of the proposing entity.
For qualified local enterprises, the projected percentage of total contract value that will be paid as compensation to Arizona residents.
Environmental sustainability practices.
C. The department shall develop standardized scoring rubrics for evaluating this factor, which shall be used by all awarding authorities.
41-6004. Micro-purchase and small contract set-asides
A. For all micro-purchases, awarding authorities shall, whenever feasible, procure from qualified local enterprises. When three or more qualified local enterprises are capable of fulfilling the requirement, the procurement shall be made exclusively from among such enterprises.
B. For construction and service contracts with a total value between one hundred thousand and five hundred thousand dollars, awarding authorities shall implement procedures to maximize participation by qualified local enterprises, including dividing requirements into smaller lots when practicable.
ARTICLE 3. BIDDER SUPPORT SYSTEMS
41-6005. Arizona bid support pool
A. The department shall establish and administer the Arizona bid support pool to assist qualified local enterprises in meeting bonding and insurance requirements for public contracts.
B. The pool may provide:
Bid bond guarantees of up to one hundred percent for certified qualified local enterprises.
Performance and payment bond guarantees of up to seventy-five percent for contracts under one million dollars.
Assistance in obtaining required insurance coverage through partnerships with insurers.
C. To be eligible for support, a qualified local enterprise must:
Be certified under this chapter.
Demonstrate financial responsibility and operational capacity.
For guarantees exceeding fifty thousand dollars, provide collateral of at least ten percent of the guarantee amount.
41-6006. Mandatory offeror outreach and training
A. Each awarding authority with an annual procurement volume exceeding five million dollars shall conduct at least two public workshops annually to train businesses on how to compete for public contracts.
B. These workshops shall specifically target and provide specialized instruction for:
Small businesses.
Businesses in underserved geographic areas.
Enterprises exploring cooperative or community ownership models.
C. The department shall develop model curriculum and materials for these workshops and make them available to all awarding authorities.
ARTICLE 4. PUBLIC ENTERPRISE FOR MARKET FAILURE
41-6007. Determination of market failure
A. The governing body of an awarding authority that is a political subdivision may make a written finding of market failure for a core public service.
B. A finding requires documentation that both:
For two consecutive years, the authority has been unable to secure a responsible bidder to provide the service without a direct operating subsidy; and
The service is essential and its absence creates demonstrable public harm.
C. The finding and documentation shall be published for thirty days before any action under section 41-6008.
41-6008. Public sector options upon market failure
A. Upon a valid finding, the awarding authority shall develop two public sector proposals for the next solicitation:
A public asset utilization proposal using existing public resources.
A public charter enterprise proposal to create a new qualified local enterprise.
B. These proposals shall be evaluated alongside private bids under articles 2 and 3.
41-6009. Arizona Community Enterprise Toolkit
A. The department, in consultation with the Arizona Corporation Commission and recognized cooperative development centers, shall create and maintain an "Arizona Community Enterprise Toolkit."
B. The toolkit shall provide, at no cost:
Model articles of incorporation, bylaws, and operating agreements for various enterprise types.
Sample business plans for common public services.
Guidance on governance, financing, and compliance.
Technical assistance referrals.
41-6010. Sunset and review of market failure finding
A. A market failure finding expires five years after issuance.
B. The authority must review conditions 180 days before expiration and may renew the finding for up to five years if conditions persist, or terminate it if resolved.
ARTICLE 5. FINANCING AND IMPLEMENTATION
41-6011. Arizona Community Enterprise Fund
A. The Arizona Community Enterprise Fund is established as a revolving loan fund administered by the department.
B. The fund may provide:
Start-up loans to counties or newly formed qualified local enterprises that win contracts under article 4.
Technical assistance grants for feasibility studies.
Loan guarantees to private lenders financing qualified local enterprises.
C. Loans shall bear interest at a rate not to exceed two percent annually and have terms not exceeding ten years.
41-6012. Certification and verification
A. The department shall establish a streamlined certification process for qualified local enterprises, with online applications and decisions within thirty days.
B. Certification is valid for two years and may be renewed.
C. The department shall maintain a public registry of certified enterprises.
41-6013. Pilot projects
A. The department shall identify three to five high-priority services suitable for pilot projects utilizing qualified local enterprises.
B. For these services, the department may issue requests for proposals restricted to qualified local enterprises for a period not to exceed three years.
C. The department shall evaluate and report on pilot project outcomes, including cost, quality, and economic impact.
41-6014. Annual reporting
By December 31 annually, each awarding authority shall report to the department on:
Total contract awards and percentages to each category of qualified local enterprise.
Utilization of the tiered preference system.
Market failure findings and actions taken.
Use of bid support pool and outcomes.
The department shall compile this data into an annual report to the governor and legislature.
41-6015. Rules
The department shall adopt rules to implement this chapter, including:
Detailed certification procedures.
Scoring rubrics for local economic impact.
Operation of the bid support pool and revolving loan fund.
Model procurement language for awarding authorities.
Section 3. Section 41-2533, Arizona Revised Statutes, is amended to read:
41-2533. Definitions
In this article, unless the context otherwise requires:
"Best value" means the optimum combination of economy, quality, efficiency and effectiveness in a procurement, including measurable local economic and social impact as provided in section 41-6003, as determined by objective criteria that may include price, features, long-term functionality, life-cycle costs and other criteria as specified in the solicitation.
Section 4. Severability
If any provision of this act is held invalid, the remainder shall continue in effect.
Section 5. Effective Date
This act is effective from and after December 31, 20XX, except that the department shall begin rulemaking and establishment of support systems immediately upon signature.
