Untitled Texas Attorney General Opinion

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DAN MORALES May 4,1992
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GESERAL
Honorable Tom Craddick Opinion No. DM-113
Chairman
Public Health Committee Re: Whether the Dallas Independent
Texas House of Representatives School District may give favored
P. 0. Box 2910 treatment to bidders based on the
Austin, Texas 78768-2910 bidder’s residence, ownership of taxable
improvements to real property in the
district, and related questions (RQ-40)
Dear Representative Craddick:
You ask several questions arising from the implementation of the ‘Tax Base
Enhancement Policy” of the Dallas Independent School District (DISD). You
inform us that in September of 1990 the board of trustees of the DISD adopted
changes in the district’s procurement procedtires designed to implement a tax b&e
enhancement policy, the overall purpose of which was to lessen the burden of its
taxpayers for the expense of operating the district. According to the board agenda
item proposing the policy, the increased cost of operating the district and an eroding
tax base made it “necessary to protect and encourage the development of businesses
within the DISD boundaries.” The agenda posting also states that tax base enhance-
ments incorporated into the purchasing policies will stimulate competition, prevent
favoritism, and gain for the district the best work and materials at the lowest
“practicable” price.
The September 1990 revisions to the DISD purchasing policies incorporate a
numerical scoring system based on an index of various criteria. A bidder’s tally
under the scoring system is factored into the determination of the bidder’s
responsibility. As we understand the policies, they are not used to limit or restrict
the solicitation or submission of bids. Rather, they are used to screen bids sub-
mitted in response to published notifications of upcoming contract awards. The
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Honorable Tom Craddick - Page 2 (DM-113 1
purchasing policies require the district, when evaluating a bidder’s “responsibility~i
to consider several conventional factors such as price, contract terms, delivery dates,
life-cycle costs, quality of materials, safety, past performance of the vendor or
product, good business practices, transportation charges, and conformance to appli-
cable local, state, and federal ordinances, laws, or regulations. They also require
consideration of several additional criteria, including
(1) the location or residence of the bidder;
(2) the bidder’s compliance with the district’s Minority and
Women Business Enterprise Contracting and Purchasing
Program (M/WBE);
(3) the bidder’s involvement with DISD schools; and
(4) the “tax base enhancement points” earned by the prospective
bidder.
These four additional criteria are the focus of your inquiry.
Prior to consideration of a bid, the district asks all prospective bidders to
submit data reflecting the enumerated factors. Points are awarded on the basis of
residence, with the greatest number of points awarded to bidders who own or lease
facilities within the district or maintain their principal place of business within the
diSt&t.
Points are also awarded on the basis of a bidder’s compliance with the
district’s M/WBE program. The M/WBE program applies to contracts of S25,ooO
or more, and its overall goal is to achieve minority and women business enterprise
participation in at least 2.5percent of the total dollar value of DISD contracts. The
purchasing policies award “Good Faith Effort Points” in proportion to a bidder’s
percentage of M/WBE participation, with greater points awarded the closer the 25
percent goal is reached.
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Honorable Tom Craddick - Page 3 (DM-113)
Bidders may accumulate “Cooperative Effort Points” by participating in
various voluntary school-related activities such as the DISD Adopt-A-School
Program, tutoring program and volunteer program. Additional points are granted
to bidders who provide direct assistance to the district and its students such as
donations, scholarships, or employment opportunities.
Under the purchasing policy, the foregoing factors “shall” be taken into
account for all bids that are no more than five percent higher than the lowest
monetary bid. In addition, prospective bidders are assigned “tax base enhancement
points” based on estimates of taxes to be paid to the district, the mtmber of local
jobs created, and the total amount of local salaries and wages the bidder claims to
have annually paid.
You advise that the district reserves the right to award a contract covered by
this policy to a bidder who has not submitted the lowest monetary bid but has
accumulated the greatest number of points under the scoring system. You also
advise that a contract for the construction of an elementary school was recently
awarded by the DISD to the bidder submitting the fifth lowest monetary bid on the
basis of this policy. You state that the successful bidder had accumulated only one
point more than the low monetary bidder.
You ask a number of questions about these policies. Your first three
questions ask whether a governmental entity that is subject to the competitive
bidding requirement of subchapter B of chapter 271 of the Local Government Code
may award a contract for the construction of a public work to a bidder who does not
submit the lowest monetary bid on the basis of
(1) a general preference for bidders who are located within the
geographic boundaries of the entity;
(2) a general preference for bidders who participate in volun-
tary programs of the entity; or
(3)~ “tax base enhancement considerations” of vendor/contractor
proximity, projected local employment opportunities, and pro-
jected local spending.
Your fourth question asks whether the DISD M/WBE program violates the Equal
Protection Clause of the United States Constitution as interpreted in C&v of
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Honorable Tom Craddick - Page 4 (DM-113)
Richmond v. J. A. Croson Co., 488 U.S. 469 (1989). Your Bfth question is whether a
governmental entity such as DISD may award a construction contract to one who is
not the lowest responsible bidder on the basis of a general preference for
contractors providing greater minority participation or compliance with an M/WBE
program. Your final question is whether the contract alluded to above is void for
failure to comply with relevant competitive bidding requirements. Because your
questions are centered on the practices of the DISD, we will limit our response to
the laws applicable to independent school districts.
In response to your first three questions, we conclude that a school district
may not condition the award of a construction contract subject to competitive
bidding on the basis of the four additional criteria described above. We begin by
noting that the tax base. enhancement policy arguably was adopted pursuant to the
general authority conferred on the DISD board of trustees by section 28.26 of the
Education Code, which grants the trustees the exclusive power to manage and
govern the public schools of the district and authority to adopt such rules,
regulations, and by-laws as they deem proper. Educ. Code 5 2326(b). (d). This
grant -of authority is sufficient to include matters relating to procurement and
construction contracting. See Teur Roofins Co. v. whiferide, 385 S.W.2d 699 (Tex.
Civ. App.-Amarillo 1965. writ refd n.r.e.); Attorney General Opinion M-950
(1971).
The authority to manage and govern the public schools is not absolute.
however. A school board is limited to exercising those powers expressly conferred
by law or necessarily implied from the express grant of power. Taas Roofing Co. v.
whiteside, stqmz. The board may also be limited by the Education Code or other
laws and regulations. See, eg., Attorney General Opinion DM-14 (1991). With
regard to construction contracts, school boards are bound by the rules set forth in
section 21.901 of the Education Code and the procedures set forth in subchapter B
of chapter 271 of the Local Government Code.
Section 21.901(a) of the Education Code requires school district construction
contracts valued at $10,000 or more to be submitted to competitive bidding.
Subsection (e) of section 21.901 authorizes a school board to dispense with
competitive bidding when a school building or equipment is destroyed or severely
damaged and the “board determines that the time delay posed by the competitive
bidding process would prevent or substantially impair the conduct of classes or other
essential school activities.” The competitive bidding requirement does not apply to
fees for professional services. Educ. Code 0 21.901(c).
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Honorable Tom Craddick - Page 5 (DM-113)
The Education Code does not prescribe specific procedures or guidelines for
competitive bidding in the award of construction contracts by a school district.
These matters are governed by subchapter B of chapter 271 of the Local
Government Code, sections 271.021 through 271.030. Section 271.024 of the Local
Government Code states that
[i]f a governmental entity is required by statute to award a
contract [in excess of $10,000] for the construction, repair, or
renovation of a structure,. . . or other improvement or addition
to real property on the basis of competitive bids,
the bidding must be conducted in accordance with subchapter B. “Governmental
entity” is defmed to include independent school districts. Local Gov’t Code
!j 271.021(2)(C).
Section 271.027(b) establishes the following standard for the awarding of
school district construction contracts:
The contract must be awarded to the lowerr nrsponsible
bidder, but the contract may not be. awarded to a bidder who is
not the lowest bidder unless before the award each lower bidder
is given notice of the proposed award and is given an
opportumty to appear before the governing body of the
governmental entity or the designated representative of the
governing body and present evidence concerning the bidder’s
responsibility. (Emphasis added.)
As this language plainly provides, a school board is not required to award a
contract to the bidder submitting the lowest monetary bid. The criterion that
authorizes a school board to award a contract to a bidder who does not submit the
lowest monetary bid is the prospective contractor’s “responsibility.” As previously
noted, the DISD scoring system is predicated as a measurement of a bidder’s
responsiMity. However, aside from a bidder’s safety record, id 8271.0275,
subchapter B does not supply relevant benchmarks of responsibility. The answer to
your first set of questions therefore will depend on whether the board possesses
implied authority to examine the other factors that you inquire about. We conclude
that a school board may not determine a bidder’s responsibility on the basis of these
factors.
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Honorable Tom Craddick - Page 6 (DM-1 13 )
The Texas Supreme Court has noted that the main purpose of competitive
bidding is to secure for the taxpayers the best work and materials at the lowest
practicable price. Texas Highway Comm’n v. Texrrr A&n of Steel Importen, 372
S.W.2d 525,527 (Tex. 1963) (quoting Stemztr v. Be& 240 S.W.2d 516,520 (Tex Civ.
App.-Dallas 1951, no writ)). The requirement that public contracts be awarded to
the lowest and best or lowest responsible bidder is merely intended to implement
this policy and is incidental to it. VIII& Bras v. City of Dallas, 91 S.W.2d 336.340
(Tex. 1936) (quoting with approval Hobart v. Detruit, 17 Mich. 246 (1868)).
Texas authorities provide scant guidance on the elements of responsibility in
the competitive bidding context. One court has declared simply that the term
lowest responsible bidder” contemplates compliance with statutory requirements
relating to competitive bidding. Nikzr v. Had County Fresh Water Supply Dist No.
IA, 336 S.W.2d 637 (Tex. Civ. App.-Waco 1960, writ refd). In another case the
court indicated that a governmental body may, in awarding a contract to the lowest
responsible bidder, take into account a bidder’s experience, manpower, equipment,
and supervisory requirements. Co&in v. Co&t Gnuuy Comm’rs Cowt, 651 S.W.2d
55 (Tp. App.-Dallas 1983, no writ). Authorities elsewhere indicate that responsi-
bility may be measured by an inquiry into such things as the bidder’s financial
resources, business judgment, ability, efficiency, reliability, reputation, facilities, and
capacity to perform the work required. See 1A C. AIWEAU, MUIWXPALCORP-
ORATlON LAW 0 10.52 (1989); 4 C. AM’IEALJ,COUNTYLpw 0 39.08 (1990); 10
McQuUUn,MUNICIPALCORPORATIONS 00 29.73.05 - 29.7320 (3d ed. 1990); 64 AM.
JUR. 2d Acblic W&s nnd Cotumctr 00 70,71 (1972). Contracting authorities may
also consider a bidder’s performance on similar contracts and the quality of the
goods or services proffered.’ Id All of these factors are intended to provide insight
into a bidder’s capacity to fulfill his pledge to the district - that he will provide the
solicited goods or services in accordance with advertised specifications at the cost
quoted in the bid
The DISD procurement policies incorporate many of these conventional
factors, but the specific criteria you are concerned with do not. Because we find
these specific criteria are not authorized by statute, we conclude that a school board
may not incorporate them into its competitive bidding policies.
2Artick 6Olb, V.T.C.S., which gowms pmcuremcat by the state General Semias
~cxprcsslyautbori2catlu comiss&indctcnniningwhoistbclowcst``biddcr,’
to consider similar factors in addith to price. See V.T.C.S. art. 6Olb, f 3.11(e)(l) - (10). This pro&
sioaiaiMpplic&leto sckwl dlsoictwn.%tNctlon
contracts.
p. 576
Honorable Tom Craddick - Page 7 KJM-113 )
The courts conclude that the legislature, in enacting competitive bidding
statutes, has determined that the government’s interest in obtaining the best work or
product at the lowest practicable price is secured by requiring maximum
competition for government contracts. Texas Ash of Steel Importers, 372 S.W.2d at
527. A governmental body subject to a competitive bidding statute must act to pro-
mote the unmistakable legislative policy favoring unrestricted competition. Id
Only the legislature may vary this policy by enacting exceptions to competitive
bidding. See Attorney General opinion JM-712 (1987). A governmental body
therefore may not adopt policies or issue bid solicitations or specifications that
restrict competition unless such policies, solicitations, or specifications have a
definite and objective relationship to matters of quality and competence or are
adopted pursuant to clear legislative authority. E.6, Attorney General Gpiions
JM-1213 (1990) (city may not require that contractors provide employees with basic
health insurance benefits); MW-139 (1980) (county commissioners court may not
adopt policy forbidding purchase of foreign automobiles by county); H-1219 (1978)
(county may not restrict award of printing jobs to union printers); H-1086 (1977)
(county may not restrict source of materials purchased under contract subject to
competitive bidding); see Teza Adn of Steel Importers, 372 S.W.2d at 529.
Jn a similar vein, where a governmental body is prohibited from employing
particular standards to limit or restrict the submission of bids, it may not use the
same standards to make determinations of responsibility. See Attorney General
Opinions JM-881(1988); H-1086 (1977). The separate criteria adopted pursuant to
the tax base enhancement policy in our opinion bear no apparent objective
relationship to the quality of goods or services or the competence or capacity of the
bidder to perform under a contract.
Turning to the specific procurement criteria, we first observe that subchapter
B of chapter 271 does not authorize consideration of a bidder’s residence or locale
in making a contract award and, standing alone, residence is not a legitimate
indicator of responsibility. Jn Attorney General Opinion H-1086 at 3, this office
concluded that a county may not award a contract to one who is not the low bidder
“on the sole basis that the said bidder is a local merchant or businessman.” The
opinion concluded that a contract award determined purely by a bidder’s location
within a county would, under the Texas A&I of Steel Importen standard, constitute
an illegal restriction on competition. The DISD policies in question here confer an
advantage to bidders purely on the basis of residence. or proximity without requiring
an individualized examina tion of the practical value of location under the contract
vis-a-vis the abiity of the bidder to perform under the contract. In this respect, the
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Honorable Tom Craddick - Page 8 (DM-113)
policies are no different than the policy found objectionable in Attorney General
Opinion H-1086P
The same may be said with respect to the policy establishing a preference for
bidders who participate in voluntary school programs. This policy essentially
rewards those bidders who presumably have made positive contributions to the
district and its students. We are also aware of no statutory authority that would
permit DISD, when awarding contracts pursuant to competitive bidding, to consider
either a bidder’s compliance with the district’s M/WRE program or contributions to
the local economy such as those represented by the “tax base enhancement points.
The conduct rewarded by these policies, though highly commendable, has no
obvious relation to the responsibility of the bidder for purposes of competitive
bidding under current law. Whether such conduct should be considered in the
competitive bidding process is a matter that must be addressed by the legislature.
This is precisely what the legislature did when it enacted section 6C(h) of V.T.C.S.
article 1118x, which authorizes certain metropolitan rapid transit authorities to
adopt programs designed to reasonably increase participation by minority business
enterprises in public contract awards. See also Civ. Prac. &. Rem. Code
Q 106.001(c)(2) (no general law or home-rule charter may be construed to prevent
certain home-rule cities from adopting similar programs).
We further believe Texas courts would, in keeping with the Teurs Ass51 of
Steel Importers decision, find that without clear statutory authority a governmental
body may not take a bidder’s “social responsibility” into account when evaluating a
bidder’s responsibility or use the procurement process to remedy seemingly
intractable social problems and promote general social policies, however laudable
avc ootc t&t s.%tioo 271.901 of the Local Government cad& which apptie?to mticipakties
anddishidstbatarcrcquLcdbylawtoa~dcontradsonthcbasHofthc”bwcstandbcrtb~may
provide a basis on wbi& to reward resident biddus. In the mnt that identical bids arc submiied on P
contract, and only one of the biirs is a resident, ‘the muuicipality or district must s&.ct that bidder.’
Local Gov’t Code i 271.901(b). The Texas Supreme Court has indicated that the “lowest and best bid’
and ?owc.st rcaponriblc biddd standards arc cascatially symooymous. See Viig Bm., 91 CW2.d at
340.
Attomcy Gcncral Ophioo H-1086 indicated that there might be cirS iawbichthe
pmdmily of a bidder may be relevant to P determination of rcspon&ility, but it did not dcscrii any
such circumst-. ckally, if not based 011swtioo 271.901, any preference given to a bidder bceause
of locatioa or rcsidcaw must bc ma& casebycasc on an infonad, nonarbitrary basis and must relate
to tbc spccik rquirements of the contract.
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Honorable Tom Craddick - Page 9 (KIM-113)
or salutary those policies might be. See generally Associated Gen Contractors,Inc. v.
City & County of Son Francisco, 813 F.2d 922, 925-27 (9th Cir. 1987) (notion of
“responsibility” in competitive bidding does not encompass bidder’s “social
responsibility”)? Accordingly, because the criteria in question bear no evident ob-
jective relationship to a bidder’s ability to perform under a contract or on the quality
of his work, we must conclude that they are invalid measurements of responsibility
under subchapter B of chapter 271 of the Local Government Code. Your first three
questions are answered In the negative.
Inasmuch as we believe the DISD does not possess sufficient statutory
authority to award a contract on the basis of these criteria, we need not consider the
constitutional issue posed in your fourth question.5 The preceding discussion also
answers your fifth question insofar as it applies to school districts. Your sixth
question, relating as it does to the actual award of a contract, requires the resolution
of fact issues in addition to the legal question you ask.6 Fact questions camrot be
resolved in the opinion process.
SUMMARY
The board of trustees of an independent school district may
not, in the absence of clear statutory authority, adopt procure-
ment policies that reward bidders purely on the basis of a
bidder’s residence or location, the bidder’s participation in
410 contra&, casts from a number of other jorisdictions spe4ficaUy hold that a bidder’s social
rcspoosibiity is ao appropriate cow&ration io public contract awards. See, e.g., Southwest
Wash&ton Qllrprcr, Nat? E&c. Contmc~ Ash Y. Pitwe County, 667 P.2d 1092 (Wash. 1%) (and
easea cited thereio). Were it not for the Tcrac Ass% of Sfeel Impotters d&ion, this ofIke would be
idined to place greater emphasis 011thcac decisioos. However, in light of Tcrrr Ass’n of Steel
Imm and the many opinions of this of& fokwiog it, we are compelled to ixmcIode that the
legklahue has not authorized sehwl districts to account for a prmpective contractor’s social
‘capoosiiity.
%is @ice has been supplied with arguments and evidence ie support of the constitotion&y
of the DISD po&asiog politics. Without passing 0x1the sul&ieocy of the arguments or evidence, we
note that they demonstrate that the coostitotional issue you raise requires the resolution of specific fact
ismes which this of&x cannot undertake io the opioion process.
‘jFor example, the low bid io the situation you describe may have been rejected for reasons
unrelated to the tax base enbanccment policy, such as the failure of the bid to conform to advertised
spcciticatioos, or a determination that the low bidder was not “rcspoosiblc.”
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Honorable Tom Craddick - ‘Page 10 t DM-113 1
voluntary school programs, the bidder’s compliance with the
school district’s minority and women business enterprise
contracting program, or on the basis of estimates of various
economic factors, such as taxes to be paid to the district by the
bidder, the amount of local salaries and wages paid by the
bidder, or the number of local jobs created by the bidder.
DAN MORALES
Attorney General of Texas
WILL PRYOR
First Assistant Attorney General
MARY KELLER
Deputy Assistant Attorney General
RENEAHJCRS
Special Assistant Attorney General
MADELEJNE B. JOHNSON
Chair, Opinion Committee
Prepared by Steve Arag6n
Assistant Attorney General
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