Untitled Texas Attorney General Opinion ( 2000 )

CWPKE OF THE ATTORNEY GENERAL. STATE OF TEXAS
JOHN CORNYN
April 4,200O
The Honorable Troy Fraser Opinion No. JC-0205
Co-Chair, Committee on Redistricting
Texas State Senate Re: Whether a junior college district may procure
P.O. Box 12068 insurance using a designated broker of record
Austin, Texas 7871 l-2068 (RQ-0135-JC)
Dear Senator Fraser:
You ask about the authority of a junior college district to procure insurance using a
designated broker of record. We conclude that a junior college district may not use a designated
broker of record to purchase insurance contracts with premiums of an aggregate value of $10,000
or more for each twelve-month period. See TEX. EDUC. CODE ANN. §§ 44.031,44.033 (Vernon
Supp. 2000). A junior college district that expends less than $10,000, in the aggregrate, on insurance
premiums for each twelve-month period may use a designated broker ofrecord to purchase insurance
contracts, but the district’s board of trustees should ensure that use of a designated broker of record
is in the district’s best interest and select a designated broker of record in a manner it determines is
consistent with good business management. The district must also ensure that it purchases insurance
according to a method that is in the district’s best interest and that is consistent with good business
management,
Before turning to your query, we wish to clarify the scope of this opinion. You ask: “Given
all the choices an institution of higher education has to procure insurance (Education Code 44.03 1),
is using a designated broker of record legitimate. 7” Letter from Honorable Troy Fraser, Texas State
Senate, to Honorable John Comyn, Texas Attorney General (Oct. 29, 1999) (on file with Opinion
Committee) [hereinafter “Request Letter”]. The term “institution ofhigher education” could include
both state universities and junior colleges. See TEX. EDUC. CODE ANN. 5 61.003(S) (Vernon Supp.
2000) (defining “institution ofhigher education”). However, we limit our analysis to junior colleges.
We do so because section 44.03 1 ofthe Education Code applies to school districts andjunior college
districts and does not apply to other institutions of higher education. See id. $5 44.03 1, .03 11. In
addition, the request letter states that you submit the query on behalf of an insurance agent whose
interest in these issues results from his unsuccessful attempt to bid to provide insurance to Tarrant
County College, a junior college, see id. 5 130.20 1. See Request Letter at 1. We also note that the
letter states that the insurance agent “is concerned that [] institutions are using the broker of record
to eliminate minority bidders.” Id. at 1. Because you have not asked any particular questions in this
regard, we do not address this issue.
The Honorable Troy Fraser - Page 2 (JC-0205)
Your letter does not provide details about the relationship between a junior college district
and a “designated broker of record.” We assume you refer to a situation where the junior college
district arranges to purchase insurance through a single insurance agent who then obtains bids or
proposals from insurance companies on the junior college district’s behalf. We assume that the
broker is licensed as may be required by the Insurance Code. See, e.g., TEX. INS. CODEANN. arts.
21.07-1,21.07-2, 21.14, 21.14-l (Vernon 1981 & Supp. 2000). We also gather that the insurance
companies from whom the junior college district purchases insurance pay the agent a commission
and that the agent is not compensated by the junior college district.
We understand that an insurance agent will be affiliated with a limited number of insurance
companies. For this reason, a designated broker of record will not be able to solicit rates on the
district’s behalf from all possible insurance companies for a particular policy. Because the use of
a designated broker of record will necessarily limit the number of companies from which the district
may purchase insurance, it may foreclose the district’s access to the most advantageous rates and
terms.
Before answering your questions, we briefly review the unique legal status ofjunior college
districts and the Education Code provisions regarding junior college district purchases, including
purchases of insurance contracts. Under the Education Code, “The board of trustees of junior
college districts shall be governed in the establishment, management and control of the junior
college by the general law governing the establishment, management and control of independent
school districts insofar as the general law is applicable.” TEX. EDUC.CODEANN. § 130.084 (Vernon
1991). For this reason, junior college districts are governed by many ofthe same statutes that govern
school districts.
In the absence of specific statutory requirements and limitations, school and junior college
district boards of trustees are granted broad authority to manage the affairs of their districts. See id.
5 11.15 l(b) (Vernon 1996) (“The trustees as a body corporate have the exclusive power and duty
to govern and oversee the management of the public schools of the district.“). School district
purchases of a certain monetary value are governed by the detailed provisions of subchapter B of
chapter 44 of the Education Code, including section 44.031 of the Education Code mentioned in
your request. In 1996, this office concluded that a junior college district was subject to subchapter
B. See Tex. Att’y Gen. Gp. No. DM-387 (1996) at 3-4. The Seventy-sixth Legislature recently
confirmed this conclusion by enacting section 44.03 1 I of the Education Code, which expressly
provides that subchapter B applies to junior college districts. See TEX. EDUC. CODE ANN.
5 44.03 11 (a) (Vernon Supp. 2000) (enacted by Act of May 28, 1999,76th Leg., R.S., ch. 1225, $2,
sec. 44.0311, 1999 Tex. Gen. Laws 4257,4258-59). Thus, for purposes of subchapter B “‘board of
trustees’ includes the governing board of a junior college district.” Id. 5 44.031 l(b).
For purposes of section 44.03 1 and other provisions in subchapter B, a contract to purchase
insurance is not a contract for professional services, but rather a contract to purchase
personal property subject to generally applicable purchasing procedures. See Tex. Att’y Gen. Op.
No. DM-347 (1995) at 5-7 (concluding a contract to purchase insurance was a contract to purchase
The Honorable Troy Fraser - Page 3 (JC-0205)
personal property subject to statutory predecessor to section 44.03 1 of the Education Code, former
Education Code, section 21.901) ( overruling Tex. Att’y Gen. Op. Nos. MW-494 (1982), MW-342
(1981)); see also Tex. Att’y Gen. Op. No. DM-418 (1996) at 5 (“[Slection 44.031 does not affect
our conclusion in Attorney General Opinion DM-347 that a contract for the purchase of insurance
is not a contract for professional services. Under section 44.03 1 ofthe Education Code, a school
board must award all contracts not for professional services, produce, or vehicle fuel in accordance
with subsection (a), so long as the value of the contract exceeds $24,999.99 in the aggregate for a
twelve-month period.“). Thus, although the subchapter B purchasing provisions, as a general matter,
do not apply to contracts for personal services, we need not consider that exception here. See TEX.
EDUC. CODE ANN. 5 44.03 1(f) (Vernon Supp. 2000) (“This section does not apply to a contract for
professional services rendered, including services ofan architect, attorney, or fiscal agent. A school
district may, at its option, contract for professional services rendered by a financial consultant or a
technology consultant in the manner provided by Section 2254.003, Government Code, in lieu of
the methods provided by this section.“).
Like purchases of most items, the procedures applicable to the purchase of insurance will
depend upon the aggregate value of the school or junior college district’s insurance contract
premiums in a twelve-month period. Section 44.03 1, which applies to purchases valued at $25,000
or more in the aggregate for each twelve-month period, lists several purchasing methods and requires
a district to use the method that provides the best value:
(a) Except as provided by this subchapter, all school district
contracts, except contracts forthepurchase ofproduce or vehicle fuel,
valued at $25,000 or more in the aggregate for each 12-month period
shall be made by the method, of the following methods, that provides
the best value for the district:
(I) competitive bidding;
(2) competitive sealed proposals;
(3) a request for proposals, for services other than
construction services:
(4) a catalogue purchase as provided by Subchapter B,
Chapter 2157, Government Code;
(5) an interlocal contract;
(6) a design/build contract;
(7) a contract to construct, rehabilitate, alter, or repair
facilities that involves using a construction manager; or
The Honorable Troy Fraser - Page 4 (JC-0205)
(8) a job order contract for the minor construction, repair,
rehabilitation, or alteration of a facility.
Id. 5 44.031(a). A district may also consider several subjective factors:
(b) Except as provided by this subchapter, in determining to
whom to award a contract, the district may consider:
(1) the purchase price;
(2) the reputation of the vendor and of the vendor’s goods or
services;
(3) the quality of the vendor’s goods or services;
(4) the extent to which the goods or services meet the
district’s needs;
(5) the vendor’s past relationship with the district;
(6) the impact on the ability of the district to comply with
laws and rules relating to historically underutilized businesses;
(7) the total long-term cost to the district to acquire the
vendor’s goods or services; and
(8) any other relevant factor that a private business entity
would consider in selecting a vendor.
Id. 5 44.031(b); see also R.G.V. Vending Y. Weslaco Indep. Sch. Dist., 995 S.W.2d 897, 899-900
(Tex. App.-Corpus Christi 1999, no pet.) (“[T]h e criteria listed in section 44.031(b) are the only
criteria that may be considered by the district in its decision to award the contract. The use of
permissive language in the statute indicates that a school district has the discretion to apply one,
some, or all of those criteria. The school district may not, however, completely ignore the listed
criteria.“). Section 44.03 1 authorizes a district board of trustees to “adopt rules and procedures for
the acquisition of goods or services.” TEX. EDUC.CODEANN. 5 44.031(d) (Vernon Supp. 2000).
Again, section 44.031 applies only to purchases valued at $25,000 or more in the aggregate
for each twelve-month period. Another statute, section 44.033, governs purchases of personal
property with a value of at least $10,000 but less than $25,000, in the aggregate, for a twelve-month
period. See Tex. Att’y Gen. Op. No. DM-418 (1996) at 7 (noting that section 44.033 of the
Education Code applies to purchases of insurance). This provision requires a district to purchase
those items either in accordance with section 44.031(a) and (b) or according to special procedures.
The Honorable Troy Fraser - Page 5 (X-0205)
See TEX. EDIJC.CODE ANN. 5 44.033(a) (Vernon Supp. 2000) (“A school district shall purchase
personal property as provided by this section if the value of the items is at least $10,000 but less than
$25,000, in the aggregate, for a 12-month period. In the alternative, the school district may purchase
those items in accordance with Sections 44.031 (a) and (b).“). The special procedures set forth in
section 44.033 include publishing notice, creating a vendor list, and obtaining price quotations from
at least three vendors. See id. 5 44.033(b), (c).
The phrase “in the aggregate,” as it is used in sections 44.031 and 44.033, requires a district
“cumulatively to value contracts for like products that a school district normally would purchase
together.” Tex. Att’y Gen. Op. No. DM-418 (1996) at 9. Whether a district must aggregate
premiums paid on different types of insurance coverages:
may depend upon the local market; the types of coverage
involved, the size or location of the school district, and other factors
that we are unable to predict. Possibly, one school district would
normally contract to purchase certain products together, while another
school district normally would not contract to purchase the same
products together.
Id.
Finally, contracts with a value of less than $10,000, in the aggregate, for a twelve-month
period are not subject to chapter 44, subchapter B. In the absence of statutory limitations on
purchasing, school district trustees “‘are required merely to act faithfully and in the exercise of their
best judgment so as to best serve the interest of their district.“’ Gaynor Constr. Co. Y. Board of
Trustees, Ector County Indep. Sch. Disk, 233 S.W.Zd 472,478 (Tex. Civ. App.-El Paso 1950, writ
ref d) (citing Tex. Att’y Gen. Op. No. O-525 (1939)); see also Stapleton v. Trussell, 196 SW. 269,
270 (Tex. Civ. App.-Fort Worth 1917, no writ). Thus, if contracts have an aggregate yearly value
of less than $10,000, a district has the discretion to determine how it will make the purchases. A
district may opt to make such purchases using the competitive procedures set out in sections 44.03 1
and 44.033 if its board of trustees determines that good business management requires it. See Tex.
Att’y Gen. Op. No. DM-347 (1995) at 6-7 (noting that school district may use competitive bidding
to make purchases valued at less than statutory cap if school board determines that good business
management requires it); see also Patten Y. Conch0 County, 196 S.W.2d 833, 835 (Tex. Civ.
App.-Austin 1946, no writ) (although not required to make particular purchase through competitive
bidding, commissioners court in its discretion may utilize such procedure if it determines “good
business management” requires it).
We now turn to your specific questions. First, you ask whether a junior college district’s
purchase of insurance through a designated broker of record is legitimate under section 44.031 of
the Education Code. We conclude that chapter 44, subchapter B of the Education Code does not
permit the use of a designated broker of record for insurance contract purchases subject to its
provisions.
The Honorable Troy Fraser - Page 6 (JC-0205)
Section44.03 1 and its sister statute, section 44.033, establish a list ofpermissiblepurchasing
methods for contracts over a certain aggregate yearly value. Since chapter 44, subchapter B was first
enacted in 1995, the list of permissible methods has become increasingly comprehensive and now
includes methods that involve the services of an individual. For example, section 44.03 1 now
includes as a purchasing method use of “a contract to construct, rehabilitate, alter, or repair facilities
that involves using aconstructionmanager.” TEX. EDUC.CODEANN. 5 44,031(a)(7) (Vernon Supp.
2000). Sections 44.037 and 44.038 set forth specific procedures for using a construction manager.
We believe that, like use of a construction manager, use of a designated broker of record to purchase
insurance is a purchasing method that must be expressly authorized.
Furthermore, as we have noted, a designated broker of record will have affiliations with a
limited number of insurance companies. As a result, use of a designated broker of record will
necessarily limit a district’s access to all available rates and terms and might foreclose the district’s
access to the most advantageous rates and terms. This is contrary to the purpose of the subchapter
B competitive purchasing procedures, which is to ensure that districts obtain the best value. See id.
5 44.031(a) (charging districts with selecting the method that provides the “best value for the
district”). In addition, ofthe eight purchasing methods authorized by section 44.03 l(a), competitive
bidding, competitive sealed proposals, and a request for proposals appear to be most suited to
insurance contract purchases. Even if a district were to instruct a designated broker of record to
solicit terms and rates using one of these methods, the district would not have used the method in
its truest, most complete form. For this reason, we believe that the legislature must expressly
authorize use of designated brokers of record, as it has done in the context of certain municipal
insurance purchases. See TEX. Lot. GOV’T CODEANN. 5 252.024 (Vernon 1999) (providing that
municipal competitive purchasing requirements do not “prevent a municipality from selecting a
licensed insurance broker as the sole broker of record to obtain proposals and coverages for excess
or surplus insurance”).
In sum, because use of a designated broker ofrecord is not authorized by sections 44.03 1 and
44.033, a junior college district may not use a designated broker of record to purchase insurance
contracts with premiums with an aggregate yearly value of $10,000 or more. A district must use one
of the methods listed in section 44.03 1 ifpurchasing insurance contracts with premiums of $25,000
or more in the aggregate for each twelve-month period. It must comply with section 44.033 if
purchasing insurance contracts with premiums of at least $10,000 but less than $25,000, in the
aggregate, for a twelve-month period. See TEX. EDUC.CODE ANN. $5 44.03 1, ,033 (Vernon Supp.
2000). Again, the phrase “in the aggregate,” as it is used in sections 44.031 and 44.033, requires a
district “cumulatively to value contracts for like products that a school district normally would
purchase together.” Tex. Att’y Gen. Op. No. DM-418 (1996) at 9. Whether a district must
aggregate premiums paid on different types of insurance coverages will depend upon a number of
factors and is beyond the purview of this office. See id.
For purchases of insurance contracts with premiums with an aggregate yearly value of less
than $10,000, districts have greater, but not unfettered, discretion. Given that use of a designated
broker of record will automatically limit the insurance companies available to a district, each junior
The Honorable Troy Fraser - Page 7 (JC-0205)
college district board of trustees is obligated to consider whether use of a designated broker ofrecord
is in its district’s best interest. See Guynor Constr., 233 S.W.2d at 478. Other options may provide
a district with more advantageous rates and terms. Because a district does not compensate a
designated broker of record, the selection of a designated broker is not governed by section 44.03 1
or 44.033. However, should the board decide that use of a designated broker of record is in the
district’s best interest, the board should also consider whether good business management requires
selection of a designated broker ofrecord according to a competitive process borrowed from chapter
44, subchapter B or of its own design. See Tex. Att’y Gen. Op. No. DM-347 (1995) at 6-7.
Your second question is as follows: “If an institution of higher education uses competitive
bidding to hire a designated broker ofrecord[,] is the broker then required to use competitive bidding
to procure insurance?’ Request Letter at 1. Given our conclusion that a district is not authorized
to use a designated broker ofrecord for purchases subject to sections 44.031 and 44.033, we address
this question only with respect to purchases of insurance contracts with premiums with an aggregate
yearly value of less than $10,000. We do not believe that the method a district uses to select a
designated broker of record dictates the method used to purchase insurance. We also stress that it
is the district, rather than the broker, that actually purchases insurance from insurance companies.
A junior college district that uses a designated broker of record must work with the agent to ensure
that the district purchases insurance according to a method that is in the district’s best interest and
is consistent with good business management.
The Honorable Troy Fraser - Page 8 (JC-0205)
SUMMARY
A junior college district may not use a designated broker of
record to purchase insurance contracts with premiums of an aggregate
value of $10,000 or more for each twelve-month period. See TEX.
EDUC. CODEANN. $5 44.031,44.033 (Vernon Supp. 2000).
Ajunior college district that expends less than $10,000, in the
aggregate, on insurance premiums for each twelve-month period may
use a designated broker of record to purchase insurance contracts, but
the district’s board of trustees should ensure that use of a designated
broker of record is in the district’s best interest and select a
designated broker of record in a manner it determines is consistent
with good business management. The district must also ensure that
it purchases insurance according to a method that is in the district’s
best interest and is consistent with good business management.
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
CLARK RENT ERVIN
Deputy Attorney General - General Counsel
ELIZABETH ROBINSON
Chair, Opinion Committee
Mary R. Crouter
Assistant Attorney General - Opinion Committee