Untitled Texas Attorney General Opinion ( 2009 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
April 8, 2009
Mr. Robert Scott Opinion No. GA-0705
Commissioner of Education
Texas Education Agency Re: Authority of a school district to use a reverse
1701 North Congress Avenue auction conducted by a third party to purchase
Austin, Texas 78701-1494 personal property valued at $10,000 or more
(RQ-0751-GA)
Dear Commissioner Scott:
On behalf of Beeville Independent School District (the" District"), you ask whether a school
district may utilize a private entity to conduct reverse auctions on its behalf for purchases of personal
property valued at $10,000 or more.! The reverse auction procedure allows a school district to post
upcoming purchases that it plans to make, and, "at a previously scheduled time and Internet location,
... multiple suppliers, anonymous to each other, submit bids" to provide the designated goods
or services. TEx. GOV'T CODE ANN. § 2155.062(d) (Vernon 2008); TEx. EDUC. CODE ANN.
§ 44.031(a)(8) (Vernon Supp. 2008) (authorizing school districts to use the "reverse auction
procedure as defined by Section 2155.062(d), Government Code"). Because suppliers bid against
each other, "prices start high and go lower as the bidding continues," allowing buyers to obtain a
better price than they might otherwise receive using a different purchasing process. E-TEXAS
RECOMMENDATIONS, RECOMMENDATIONS OF THE TEXAS COMPTROLLER CG-5 (Dec. 2000),
available at http://www.window.state.tx.us/etexas200 l/recommendlch02/cg05 .html (last visited Apr.
7,2009).
The Legislature has expressly authorized school districts to utilize reverse auctions in making
certain purchases of$10,000 or more. See TEX.EDUC. CODE ANN. §§ 44.031(a)(8), .033(a) (Vernon
Supp.2008). You note, however, that "[a]s a practical matter, most public school districts lack the
resources, internally, to conduct reverse auctions in a cost-effective manner." District Brief at 2.
You therefore ask about a school district's "authority to contract with a private third party to perform
such auctions on its behalf." Id. at 1.2
IRequest Letter at 1 (available at http://www.texasattomeygeneral.gov); see also Letter from Sara Hardner
Leon, Powell & Leon, L.L.P., to Robert Scott, Texas Commissioner of Education, at 1 (Sept. 24, 2008) (attached to
Request Letter) [hereinafter District Brief].
2Local Government Code section 271.083 authorizes local governmental entities, including school districts, to
participate in a purchasing program of the General Services Commission (now the Texas Facilities Commission),
(continued ... )
Mr. Robert Scott - Page 2 (GA-0705)
In contracting with the third party auctioneer, you explain that there "is no direct charge to
the school district for participating in the reverse auction." ld. at 2. Instead, suppliers enter into an
agreement with the auctioneer, whereby each supplier agrees ''to pay a fee to the auctioneer in the
event that the [supplier] is successful in obtaining a contract with the school district by using the
reverse auction procedure." ld at 1-2. You also explain that at the end of each auction, the school
district has the authority to "reject all offers, using its own judgment and discretion." ld. at 2.
Based on these procedures, you ask whether a school district's use of a third party to conduct
a reverse auction improperly delegates authority to a private entity. ld. at 2. 3 Your question is based
on the long-held general rule that in the absence of statutory authorization, a governmental body
"may not delegate unlimited legislative powers and functions" or powers "involving the exercise of
judgment and discretion." Moody v. City of Univ. Park, 278 S.W.2d 912, 922 (Tex. Civ.
App.-Dallas 1955, writ refd n.r.e.) (upholding city's authority to delegate decisions to approve
land use variances to board of adjustment). The Texas Supreme Court has recognized that "in a
complex society like ours, delegation ... is both necessary and proper in certain circumstances."
FM Props. Operating Co. v. City ofAustin, 22 S.W.3d 868, 873 (Tex. 2000) (addressing whether
the Legislature unconstitutionally delegated power to private landowners). However, it has
repeatedly cautioned "against 'allowing delegation of power to exercise unguided discretion.'" Tex.
Boll Weevil Eradication Found, Inc. v. Lewellen, 952 S.W.2d 454, 466 (Tex. 1997) (quoting
KENNETHCULPDAVIS, 1 ADMIN. LAW TREATISE § 3.1, at 150 (2ded. 1978» (emphasis added); see
also Bd ofAdjustment of the City of Dallas v. Patel, 887 S.W.2d 90,93 (Tex. App.-Texarkana
1994, writ denied) (emphasizing that "[a]rbitrary, uncontrolled, and unreviewable discretion may not
be delegated," and upholding, over delegation doctrine arguments, an ordinance allowing citizens
to complain of nonconforming uses).
The statute authorizing school districts to use the reverse auction procedure is silent as to
whether they may use a third party to host the auction. See TEx. EDUC. CODE ANN. § 44.031
(Vernon Supp. 2008). However, under the delegation doctrine, as explained by the Texas Supreme
Court in Boll Weevil and its progeny, a constitutional delegation question arises only if the state or
a political subdivision purports to grant a private entity "a public duty and the discretion to set public
policy, promulgate rules to achieve that policy, or ascertain conditions upon which existing laws will
apply." FM Props. Operating Co., 22 S.W.3d at 880. As you explain the reverse auction process
using a third party, a school district retains the discretion to decide which contracts to enter into and
at what price. The school district simply relies on the private reverse auction company to obtain
"specifications for any offer to purchase from the school district," "publish[] the offer" to purchase,
and provide the technology and resources to host the auction. District Brief at 1-2. In doing so, a
2( ... continued)
including its reverse auction program, if those entities follow certain requirements. See TEX. Loc. GOV'T CODE ANN.
§ 271.083 (Vernon 2005). While the School District is aware of section 271.083, it inquires only about its authority to
contract individually with a third party to host a reverse auction. See District Brief at 2.
3you do not ask and we do not address any statutory provisions that may be applicable to the school district's
selection of a third party to host the reverse auction.
Mr. Robert Scott - Page 3 (GA-0705)
school district would not confer on the reverse auction company "a public duty and the discretion
to set public policy." FM Props. Operating Co., 22 S.W.3d at 880. 4 Thus, a school district's use
of a third party reverse auction company as you have described does not constitute a delegation under
the law.
You also ask whether the third party auctioneer's requirement that the potential supplier enter
into a contract before the potential supplier may participate in the reverse auction impermissibly
limits the number of bidders. District Brief at 3-4. In so asking, you note a previous opinion from
this office that prohibited a junior college district from using a designated broker of record to procure
bids for insurance, and you compare the broker of record in that circumstance to the reverse auction
company here. See id at 3 (discussing Attorney General Opinion JC-0205 (2000)). This office
concluded in JC-0205 that the district could not use an insurance broker because "use of a designated
broker of record to purchase insurance is a purchasing method that must be expressly authorized."
Tex. Att'y Gen. Op. No. JC-0205 (2000) at 6. In so concluding, JC-0205 emphasized that "an
insurance agent will be affiliated with a limited number of insurance companies," and that "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." Id at 2. Using a broker could thereby "foreclose the
district's access to the most advantageous rates and terms." Id.
Based on the description ofreverse auction companies that you provide, we cannot determine
whether the reverse auction company will be affiliated with a limited number of suppliers or whether
that will in tum foreclose a school district's access to the best value for the school district. The
answer to your question will depend on the specific contract terms that the reverse auction company
requires the potential suppliers to enter into, including the fees suppliers must pay, and whether, in
fact, those contract terms result in fewer bidders than would otherwise participate in the bidding.
This office does not engage in the factual inquiries necessary to make those determinations. Tex.
Att'y Gen. Op. No. JC-0326 (2001) at 3 (declining to answer question of whether city contract was
legal because of existing fact questions). We emphasize, however, that although the Legislature has
expressly authorized the use of reverse auctions by school districts, it continues to charge school
districts with choosing the authorized purchasing method that "provides the best value for the
district." TEx. EDUC. CODE ANN. § 44. 031 (a) 01ernon Supp. 2008). It is therefore the responsibility
of a school district, in the first instance, to determine whether using a third party to host a reverse
auction for the purchase of particular goods or services will provide the best value for the district.
4The Comptroller of Public Accounts has similarly entered into an agreement with a third party reverse auction
company. TEX. COMPTROLLER OF PUBLIC ACCOUNTS, STATE OF TEXAS COOPERATIVE PURCHASING MANuAL 22,
available at http://www.window.state.tx.us/procurementiprog/coop/coop_manual. pdf (last visited Apr. 7, 2009).
Mr. Robert Scott - Page 4 . (GA-0705)
SUMMARY
A school district's use of a third party reverse auction
company as described is not an improper delegation of authority.
Whether any contractual requirement by the third party
auctioneer impermissibly limits the number of potential bidders is a
fact question not appropriately answered by the opinion process.
Attorney General of Texas
ANDREW WEBER
First Assistant Attorney General
JONATHAN K. FRELS
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee