Untitled Texas Attorney General Opinion ( 1992 )

@ffice of tfy 5lttornep @heral
&ate of UJexa4
DAN MORALES December 4,1992
.ATTOR.NEI’CES’ERAl.
Honorable John Whitmire Opinion No. DM-184
chairman
Jntergovemmental Relations Re: Whether the provisions of House Bill
Texas State Senate 799 of the 72d Legislature apply to the
P. 0. Box 12068 procurement of brokerage and investment
Austin Texas 78711 services by state agencies (RQ-239)
Dear Senator Whitmire:
You ask whether the provisions of House Bill 799 of the 72d Regular
Legislative Session apply to the procurement of brokerage and investment services
by state agencies involved in money management. House Bill 799 amends article
601b, V.T.C.S., and relates to state contracts for the procurement of goods and
services from disadvantaged businesses.” Acts 1991,72d Leg., ch. 677, at 24.57. The
provisions of House Bill 799 became effective September 1, 1991, but shah apply
only to contracts awarded on or after September 1, 1992. Id 9 7, at 2459. We
understand your question primarily relates to the activities of statewide retirement
systems, such as the Employees Retirement System (ERS) and the Teacher
Retirement System (TRS), that are authorized to invest their assets in securities
without distinction as to their source. See, e.g., Gov’t Code $Q815301(a)
(Employees Retirement System), 825301(a) (Teacher Retirement System).
We also understand your question pertains to services of individuals who
supply investment advice to the boards of trustees of retirement systems as well as to
services of individuals who execute securities transactions at the direction of and on
behalf of the boards of trustees of the retirement systems. See, e.g., id 39 815301(c)
(board of trustees of ERS may contract with private, professional investment
managers to assist board in investing assets of the system), 825301(h) (same
authority for TRS board of trustees). We will address your question accordingly.’
As this opinion shah explain, we conclude that contracts for investment counseling
‘This opiniondots not address the applicability
of article 601b outside of the procurement
context.
p. 965
Honorable John Whitmire - Page 2 W-184)
or investment advice are excepted from compliance with the terms of House Bill
799, however, we believe the boards of trustees of ERS and TRS must comply with
its provisions when entering into contracts for brokerage services.
House Bill 799 added the following language to section 3.10 of article 601b,
V.T.C.S.
(b) The [General Services] commission SMI make a good
fzith effort to assistdisadvantagedburinmesz to receive at Least10
pemnt of the total value of all contractawad for the purchase of
supplies, materials, services, and equipment that the commission
expects to make for a store agency in its fiscal year. The
commission shall estimate the expected total value of an
agency’s contract awards not later than the 60th day of the
2House Bii 799 dctiacs ‘disadvantaged business’ to mean
(A) a corporation formed for the porpcee of mak@ a profit in which at
least 51 percent of all dasscs of the shares of stock or other equitable sccorities
are owned by one or more persoos who arc socially disadvantaged because of
their identification as members of certain groups, including bIack Americans,
Hispanic Americans, women, Asian Pacific Am@aas, and Native Americans,
who have suffered the cffecxs of d&&minatory practices or similar insidious
circumstaaces over which they have M control;
(B) a so& proprietorship created for the purpose of making a protit that
is 100 percent owned, operated, and controlled by a person dcsaii by
Paragraph (A) of this subdivision;
(C) a partnership formed for the purpose of maLing a profit ia which at
least 51 percent of the assets and interest in the partnership is owned by one or
more persoas desaiid by Paragaph (A) of this subditioe Tbosc pcrsoos
most have a proportionate iatercst in the control, operation, and management
0fth~partnenbiprs] dfti
(D) a joint vcature in which each entity in the joint VcnNrC is a
disatitaged business under this subdivision; or
Q a supplier contract [sic] bctwcen a dkadnatagcd business under this
subdivisioa and a prime contractor under which the disadnntagtd business is
directly involved io the manufacture or distriiution of the supplies or materials
or otherwise warehouses and ships the supplies.
Acts 1991,72d Leg., ch. 6i7,§ l, at 2457 (V.T.C.S. art. @lb, 0 1.02(3)).
p. 966
Honorable John Whitmire - Page 3 t&184)
agency’s fiscal year and may revise the estimate as new
information requires.
Acts 1991,72d Leg., ch. 677.0 5, at 2458 (emphasis added). We are advised that the
boards of trustees of ERS and TRS, rather than the General Services Commission,
make contracts for the services in question.
The resolution of your question therefore will depend on whether the
procurement in question is for services within the meaning of article 601b. The
statute defines “services” as “the fumishmg of skilled or, unskilled labor or
professional work but does not include:”
(1) professional services covered by the Professional
Services Procurement Act [article 664-4,V.T.C.S.];
(2) services of an employee of a state agency;
(3) consulting services or services of a private consultant as
defined by [article 6252-llc, V.T.C.S.]; or
(4) services of public utilities.
V.T.C.S. ai% 6Olb, 5 3.01(c).
The second and fourth exceptions obviously are not involved here. The
Professional Services Procurement Act does not by its terms apply to the services of
investment brokers, advisers, or managers. Article 6252-11~ applies to contracts for
private consulting services by state agencies. It defines “consulting service” to mean
“the human service of studying or advising a state agency under a contract that does
not involve the traditional relationship of employer and employee.” V.T.C.S. art.
6252-l& 5 l(1). The act spechically states that it does not apply to and is not
intended to discourage the use of consulting services provided by, among other
K=o% “investment counselors,” and “other consultants whose services are
determined by the governing board of a retirement system trust fund to be necessary
for the performance of its fiduciary duties under the state constitutior~” Id.
5 2(a)(3). (6).
The consulting services of investment counselors thus are excepted from the
provisions of both V.T.C.S. articles 6252-11~and 601b. However, we do not believe
that brokerage services which involve only the execution of securities transactions
on the instructions of a retirement system’s board of trustees are excepted under the
provision just quoted because such services may not be classified as consulting
P- 967
Honorable John Whitmire - Page 4 W-184)
services under the aa. Accordingly, we conclude that brokerage services are not
excepted from article 6Olb by article 6252-11~. The boards of trustees of ERS and
TRS must therefore comply with the terms of section 3.10(h) of article 601b,
V.T.CS, when contracting for the setvices of investment brokers.
SUMMARY
Article 6Olb, V.T.CS, applies to contracts for investment
brokerage services of the Employees Retirement System and the
Teacher Retirement System The boards of trustees of these
retirement systems must comply with the provisions of House
Bill 799 of the 72d Legislature when awarding such contracts.
ERS and TRS are therefore required to make a good faith effort
to assist disadvantaged businesses in obtaining at least ten
percent of the total vahte of contracts awarded for investment
brokerage services.
DAN MORALES
Attorney General of Texas
WILL PRYOR
First Assistant Attorney General
MARYKELLER
Deputy Assistant Anomey General
RENEAHIcKs
Special Assistant Attorney General
MADELEINE B. JOHNSON
Chair, Opinion Committee
Prepared by Steve Aragbn
Assistant Attorney General
p. 968