### THE ATTORSEY GESERAL OP TEXAS

Honorable JimMapel Opinion No. JM-1243 Criminal District Attorney Brazoria County Courthouse Re: Whether performance and Room 408A payment bonds are required for Angleton, Texas 77515 certain county unit price contracts (RQ-1995)

Dear Mr. Mapel:

Inyour letter you describe the letting of a contract to provide hotmix-hot laid andhotmix-cold laid asphaltic concrete aswell as asphalt stabilized base for the repair of county roads to be applied as required. Along with your letter, you have submitted the bid packet, including the "General Instructions and Special Provisions,8*which identifies the purpose of the request forbidsas follows:

These bids are being accepted so that Brazoria County may make purchases for the maintenance and construction of roads on a 'more-or-less' quantity basis, and Brazoria County reserves the right topurchase only the quantity required tomeet itsneeds on or before the date of expiration of the firm price bid.

The "Proposal and Bid Sheet" explains that the "guantities ofmaterials tobe furnished attheunit prices bid may be increased or diminished asmaybe considered necessary inthe opinion of the Engineer." The bid sheet contains spaces for actual bid prices forhotmix-hot laid and hot mix-cold laid asphaltic concrete aswell as asphalt stabilized base for each precinct in the county. The bid sheet also contains a notation of "(5,000 Tons)" with respect to the unit price to bebid for each ton laid in place ofhot mix-hot laid asphaltic concrete and a notation of "(300 Tons)" with respect to asphalt stabilized base. No estimated quantities are indicated with regard to either the unit price to bebid for loading hotmix-cold laid asphaltic concrete intocounty trucks or theunitprice tobe bid for hauling aton ofhot mix-cold laid asphaltic concrete.

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We understand fromyour letter that the notations reflect the quantities estimated by the county tobe required forthe contract term andthat the estimated quantities are based onhistorical usage. We are also advised that the successful bidder's unit price of S28 for each ton laid in place ofhot mix-hot laid asphaltic concrete is consistent with bids submitted inprior years and county estimates of bids tobe submitted inresponse to the request for bids. Given an estimated purchase of 5,000 tons, aunit price of $28per ton results in an estimated contract price of at least $140,000.

You explain that, subsequent to the letting of the bid, payment andperformance bonds submitted by the successful bidder were found tobe issued by a surety company that is not authorized todobusiness inthe state. The page inthe bid packet entitled "General Instructions and Special Provisions" requires eachbidder to furnish performance and payment bonds provided by abonding company "licensed to do business inthe State ofTexas." The question you raise is whether, given theuncertainty of the total contract price, the payment and performance bonds are required under article 5160, V.T.C.S. Article 5160 imposesvarious performance and payment bond requirements forpublic works contracts in
excess of $25,000.1 Inparticular, part A of article 5160 requires that both performance andpayment bonds-"be executedby a corporate surety or corporate sureties duly authorized and admitted todobusiness inthis State and licensed by this State to issue surety bonds."

The bid documents submitted tous indicate that the contract term of the proposed contract was to expire September 30, 1990. Although anyparticular issues concerning that contract and the related request forbids may no longer need resolution, youhave advised us that the county is currently considering requests forbids and future contracts with the selected bidders forprovision and application of similar asphaltic materials. Even though we areunable to find facts in the opinion process and can therefore not resolve definitively your concerns about aparticular bid or

1. While a contract for thepurchase ofmaterials for road repair would notbe considered apublic works contract,
w Attorney General Opinion JM-1027 (1989)at 6, a contract forthepurchase of the materials and their application is
so considered. Austin Bridae Co.v. Teaaue, 152 S.W.2d 1091 (Tex. 1941).

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contract, we provide the following discussion to ass::: you inapplying article 5160 to future solicitations contracts.2

Attorney General opinion J&l-1220 (1990) establishes the framework within which we answer your question. That opinion addressed the question of competitive bidding requirements for the construction of a county vehicle maintenance shed. We concluded therein that inadopting the County Purchasing Act3 (hereinafter the ,lact,l), the legislature exhibited a "manifest intent',that the act take precedence over subchapter Bof chapter 271 of the Local Government Code. In reaching that conclusion, we noted the irreconcilable differences between the act and subchapter B and the more general nature of the act, the later of the two statutes. Gov't Code 5311.026(b); Attorney General Opinion JM-1220, at 13-14.
Although itmaybe considered dicta inAttorney General Opinion JM-1220, we adhere to our additional conclusion in that opinion that the act, a more general provision, also takes precedence to the extent of conflict over article 5160, **a statute**  enactedprior to the act. Thus, we affirm the statement that "our conclusion [withregard to subchapter B] also applies to conflicts between the County Purchasing Act andV.T.C.S. article 5160." Attorney General Opinion JM-1220, at 14. We thereafter continued that

[slince the County Purchasing Act contains provisions relating tobid and performance

2. Thus, we do not resolve the issue whether the quoted language concerning bond requirements inthe "General Instructions and Special Provisions,, imposes as a bid specification the requirement that the bonding company be authorized and admitted to do business inTexas aswell as licensed by Texas to issue surety bonds. We also do :;L address the issue whether other information furnished bidders but not submitted to us specified the estimated quantities with regard to all items to bebid on **a** unit price basis asrequired **by** section 262.028 of the Local Government Code orany other issues raised by theparticular bid and proposed contract other than your question concerning the applicability of article 5160, V.T.C.S.

3. The County Purchasing Act is currently codified as subchapter C of chapter 262 of the Local Government Code.

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bonds, w Local Gov't Code 5262.032(a), (b),we think these provisions shouldprevail
over article 5160,which provides for performance bonds but notbid bonds. Since the County Purchasing **Act** makes noprovision for payment bonds, a county must require contractors to provide such bonds pursuant to article 5160.

Id. at 15.

In accordance with the reasoning inAttorney General Opinion JM-1220 and the law supporting it,the act and not article 5160controls to the extent of conflict the letting of the contract under consideration here. Thus, as was noted inAttorney General Opinion JM-1220, bidbonds, which
are not under consideration here, and performance bonds, which are, are governed by the act. Section 262.032(b) of the Local Government Code, theprovision of theact addressingperformance bonds, reads as follows:

(b) Within 10days after thedate of the signing of a contract or issuance of a purchase order following the acceptance of a bid or proposal, the bidder or proposal offeror shall furnish aperformance bond to the county, if reouired bv the county for the full amount of the contract if'that contract exceeds $50,000. (Emphasisadded.)
Although prior to issuance ofAttorney General Opinion JM-1220, county officers may have understood that article 5160 required performance and payment bonds, the county is independently authorized to require performance bonds in certain contracts under the controlling provision of the act. & Section 262.032(b) expressly permits the county to require aperformance bond. As discussed above,however, Attorney General Opinion JM-1220 provides that since the act is silent with regard to payment bonds, apayment bond, if required for aparticular contract, must be obtained in accordance with article 5160.

We now return toyour question asmodified to reflect the reasoning in Attorney General Opinion JM-1220 with regard to article 5160: whether the indefiniteness of the final total contract price removes this contract from the scope of thepayment bond requirements of article 5160 and,
we add, fromthe competitive bidding requirements of the act, including section 262.032(b), which authorizes counties to require performance bonds in certain competitively bid

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contracts. Just asarticle 5160 requires payment bonds in county public works contracts only if the price of the contract is inexcess of $25,000, the act requires counties to competitively bidpurchases only ifthe the contract for such purchases will require the expenditure ofmore than $10,000. Similarly, the act authorizes counties to require performance bonds only ifthe contract exceeds $50,000. Local Gov't Code S§262.023(a), 262.032(b).

As indicated byyour question, the final total contract price isunknown because it isbased on the requirements of the county over the course ofayear, and the county cannot know inadvance what its requirements will be. This uncertainty plays a **role** in all competitive bidding -- the final total cost cannot beknown until the bids are received. Agovernmental entity soliciting bids nomore knows inadvance the contract price of a proposed lump sum contract than itknows the unitprice foraproposed unit price contract. Uncertainty about the final lump sum or unit price does not, however, remove the purchase from the requirements of the act: nor does the uncertainty about quantity inthe case ofaunitprice contract remove a unit price contract from either the scope of the act or the payment bond requirements of article 5160. Tohold otherwise would allow counties to avoid the requirements of the act or article 5160 simply by acquiring items ona unit price basis.

With regard to the requirements of the act, the legislature added in 1987aprovision codified as section 262.028 of the Local Government Code, which allows unit price contracts as follows:

Apurchase may be proposed on a lump-sum or unit price basis. If the county chooses to
use unit pricing in its notice, the information furnished bidders must goecifv the anoroximate ouantities estimated on the best available information, but the compensation paid thebidder must **be** based on the actual quantities purchased. (Emphasis added.)

A requirements contract that measures quantity by the purchaser's good faith requirements, such as the one in issue here, can be reasonably classified as aunit price contract if the terms ofthebid and resulting contract require unit prices. a Bus. hCorn.Code 5 2.306 hcomment 2 (reguirements contracts do not lackmutuality of obligation since such.contracts require purchasers to act ingood faith so that their requirements approximate reasonably foreseeable

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figures). Although section 262.020 does not expressly refer to requirements **contracts,** itdoes provide that purchases may bemade using quantities estimated on thebest available information. Assuming the estimates of 5,000 and 300 tons provided intheparticular bid documents inthe instant case are based on thebest available information, the letting of the contract here iswithin the scope of authority conferred
on the county by this section. See Canales v. Lauahlin, 214 S.W.2d 451 (Tex. 1948): Patten v. Conch0 County, 196 S.W.2d 833 (Tex.Civ.App. -Austin 1946, nowrit).

Ifwe read the competitive bidding threshold found in section 262.023 together with thepermissibility of unit pricing and the requirement for an estimated quantity of each item tobepurchased found in section 262.028, we can logically conclude only that the legislature intended the product obtained **by** multiplying the estimated quantity required by section 262.028 times the estimated unit price tobe the amount that triggers the requirement that any particular unit price contract be competitively bid. This calculation implicitly requires the county to estimate in advance the unit price to determine whether aunit price contract must be letby competitive bids. A conclusion that the county estimate unit prices aswell asquantities in advance isconsistent with the general use of estimated lump
sum prices in advance to determine ifparticular lump sum contracts must be bid. If estimated quantities and estimated prices arenotused to trigger the competitive bidding requirements, acounty, wanting topurchase only the amount of an item that itwill need over aperiod of time and without knowing in advance precisely the amount needed, would escape the competitive bidding requirements altogether.
Similarly, if we read the threshold in section 262.032(b) together with thepermissibility ofunit pricing and the requirement for estimated quantities found in section 262.028, we **must** conclude that the amount that triggers the authorization in section 262.032(b) for counties to require performance bonds isthe product obtained by multiplying the estimated quantities tobepurchased times the established unit prices. Again, tohold otherwise would not effectuate the legislature's intent in section 262.032(b) to authorize counties to use their discretion to obtain needed performance security incontracts exceeding $50,000.
Likewise, we read the express authority in section 262.028 foracounty tomake purchases on aunitprice basis inconjunction with the requirement inarticle 5160 for

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payment bonds for public works contracts in excess of

$25,000. These provisions read together lead us to conclude that the legislature intended to require private persons entering intounit price contracts with counties for prosecution or completion ofpublic works to satisfy the payment bond requirements ofarticle 5160 if such contracts are estimated by the county, using thebest available information, tobe inexcess of $25,000.

In support of this conclusion, we note that the final total contract price foraunit price requirements contract isunknown before commencement of the work. Thus, the county cannot assure compliance with the requirement in article 5160 that required bonds be submitted "before commencing thework" unless estimated quantities are used to determine ifarticle 5160 applies to aparticular unit price contract. The total cost of theunit price contract, in fact, remains unknown until thework iscompleted. Furthermore, only by such a conclusion can the legislative policy behind article 5160 -- protection for suppliers of labor andmaterials against nonpayment by the contractor -- be effectuated with regard to county public works contracts exceeding $25,000.

Thus, we conclude that the total estimated cost of a county unit price contract, based on the estimated quantity and the established unit price, is sufficiently certain to determine whether article 5160 applies. Inreaching this conclusion, we of course have assumed, as the contractor must have donewhen he made the bid, that the county‘s estimate was areasonable one based on "thebest available information," as required by section 262.028 of the Local Government Code.

SUMMARY

The County Purchasing Act, subchapter C, chapter 262 of the Local Government Code, allows counties topurchase items by the unit price method and requires counties to furnish bidders with an estimate of the total guantity needed. Requirements contracts are permitted under that section. With regard to county unitprice requirements contracts for the prosecution or completion of public works, the product ofthe estimated total quantity needed, determined on the best available information, and the established unit price provides an estimated total contract price, which if in excess of

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$25,000, will trigger the payment bond requirements of article 5160, V.T.C.S. However, section 262.032(b) of the Local Government Code, which authorizes counties to require performance bonds for certain contracts, controls the acquisition of performance bonds.

Very truly you 

# d-h

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-J IM MATTOX Attorney General ofTexas

MARY KELLER First Assistant Attorney General

MU MCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General

RENEA HICKS Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared by Celeste A. Baker Assistant Attorney General

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