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DAN MORALES Al-KmNLY GENERAL September 17,199l

Honorable John B.Holmes Harris County District Attorney 201Fannin, Suite 200 Houston, Texas 77002 Opinion No. DM-43

Re: Whether the acquisition and constmction of a monorail transit system is subject to competitive bidding (RQ-64)

Dear Mr. Holmes:

You ask two questions regarding the proposed construction of a rail transit system bythe Metropolitan Transit Authority ofHarris County (METRO). You ask whether the construction of a rail, monorail, or fixed guideway transit system constitutes an improvement to real property and whether the purchase of a transit system is subject to the competitive bidding requirements ofV.T.C.S. article 1118x. We conclude that the procurement of a new transit system is subject to the competitive bidding requirement of article 1118x,but that the board of METRO may grant a waiver of this requirement for portions of the project and may award contracts for those portions through competitive negotiation upon a finding of the conditions specified in section 14(a) of the statute. Whether the conditions of section 14(a) were met under the circumstances described in this opinion is a fact question that cannot be resolved bythis officein the opinion process.
I. Background

Abrief submitted on behalf ofMETRO acquaints uswith some ofthe history ofthe METRO rail project. In 1988the voters residing in the METRO service area approved by referendum a comprehensive regional mobility plan that included a proposal to construct a fixed guideway transit system Soon thereafter, the board of METRO embarked upon a strategy to develop a comprehensive plan to procure and construct the newtransit system Following consultation with legal counsel, the METRO board concluded, contrary to its initial intentions. that the entire rail project could not be completed on a turnkey basis.’ The board determined that certain portions of the project could only be procured pursuant to competitive

%x Attorney General OpinionJM-1189(1990) 0.1 (dchition of “turnkey ’contracting in the -00 contcat).

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bidding while other portions could not. For example, the board understood that architectural and engineering serviceswould have to be procured in accordance.with the Professional Services Procurement Act. V.T.CS. art. 664-4, see Attorney General Opinion JM-1189 (1990). The board also decided to divide the rail project into different components and pursuant to section 14(a) of article 111% to procure some components of tbe project through competitive bidding and others through competitive negotiation.
The components of the rail project to be acquired by METRO through competitive bidding include terminal complexes, parking lots, maintenance and storage buildings, the central control facility, roadways, and guideway supports. The portions of the project to be obtained via competitive negotiation constitute the nucleus ofthe equipment involved in the project and are called “SystemElements.” These items include vehicles, the traction power system, automatic train control and commmdcations system, the fare collection system, trackage, supporting girders, maintenance equipment and tools, and other equipment used in the operation ofthe system The METRO board determined that the contract for all ofthese elements would be awarded to a single supplier selected following an evaluation ofproposals submitted in response to a detailed Request for Proposals (RFP). On March 28, 1991,the METRO board selected one proposal for the “System Elements.” The general manager ofMETRO is currently engaged in negotiations with the Houston Monorail Team (I-WI’), offerors2ofthe selected proposal.

II. MetropolitanTransitAuthority(MTA)statutoryprocurementrequirements

METRO’s purchasing practices are governed by section 14of article 1118x. Subsection (a) of that section requires that contracts of a metropolitan transit authority (MTA)

for more than SlO,OOO

for the construction of improvements or the purchase of materi& machinery, equipment supplies [sic] and all other property, shall be let on competitive bids.

V.T.C.S. art. 1118x,0 14(a). The subsection also prescrii general procedures for the advertising of proposed purchases. The board of an MTA may adopt rules

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governing the taking of bids and the awarding of such contracts. It is also authorized to grant waivers of the bidding requirement under the circumstances itemized below:

(1) ‘inthe event ofemergency, (2) ‘inthe event the needed materials are available from only
one source; (3) ‘inthe event that, except for construction of improvements
on real property, in a procurement requhing design by the supplier competitive bidding would not be appropriate and competitive negotiation, witb proposals solicited from an adequate number of quaJified sources, would permit reasonable competition consistent with the nature and requirements of tbe procurement;’ or (4) “inthe event that, except for construction of improvements
on real property, after solicitation itis ascertained that there will be only one bidder.

See V.T.C.S. art. 1118x,0 14(a). Subsection (a) of section 14 does not apply to contracts for personal or professional services, for the acquisition of existing transit systems, or for services covered by the Professional Services Procurement Act, V.T.CS. article 664-4. Id; see u.50 Attorney General Opinion JM-1189 (1990). The complete text ofsection 14(a)is set out below.3

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The METRO board granted a waiver from competitive bidding for portions ofthe rail project under the third form ofwaiver authorized by section 14(a),which
we will generally refer to as the “designwaiver.” You question whether the board
was authorized to grant the waiver under these circumstances. Before addressing the specific issues you raise, wewill examine the competitive negotiation technique under section 14(a) and other statutes.
III. Charactehtics ofcompetitivenegotiation

The language of the design waiver 

### of section 14(a) reveals that prior to granting the waiver the board must make four critical determinations - (1) that a particular procurement “requires design by tbe supplier,” (2) that it does not constitute an “improvement on real property,” (3) that “competitive bidding would not be appropriate” under the circumstances, and (4) that competitive negotiation would permit reasonable competition under the circumstances. As indicated at the outset of this opinion, these inquiries involve factual questions that CannOtbe resolved in an opinion of the attorney general. It is possible, however, to address
some ofthe issues regarding the proper interpretation ofsection 14(a). The balance ofthis opinion wilIaddress suchissues.
Another sig.niiIcant feature of tbe language of section 14(a) is that it authorizes procurement contracts to be awarded on the basis of competitive negotiation, an alternative to competitive sealed bidding, the traditional mode of government procurement. The approxlmate scope of the design waiver and its precise meaning are matters left unsettled by the terms ofarticle 11%. The statute does not prescribe specific procedures or time frames for competitive negotiation, but specikahy grants the board rulemaking power over the process. It nonetheless offers some insight into the differences between the twoprocurement modes.

For instance, competitive negotiation under section 14 does not require formal advertising of the MTA’s decision to make a particular procurement as it does for competitive bidding. Instead, the board may solicit proposals directly from
sources it determines are qualified to meet the MTA’sneeds. The MTA isrequired only to post an amrouncement that it is considering such a contract in its principal office for at least two weeks before the contract is awarded. V.T.C.S. art. 111&4 814(b). Also, section 14authorizes the board ofthe hITA to determine what level of competition is appropriate for a contract awarded by competitve negotiators and requires only “reasonable competition” among “an adequate number of qualified

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sources.” On the surfacx, this standard differs from the widely-recognized view that competitive bidding requires and generates maximum open competition among all interested parties. See TaracHighway Conun’nv. TararA&n ofSteelZmporers, 372 S.W2d 525 (Ten. 1963). Yet it isapparent from the experience in otherjurMictior~~ that competitive negotiation can also be conducive to maximum competition. See gemdy Paul v. UnitedStatfs, 371 U.S. 245,2X%53 (1963) (discussing competitive negotiation procedures for military procurements).
The competitive negotiation procedure is said to allow comparative, judgmental evaluations to be made when selecting from a number of acceptable proposals. Attorney General opinion MW440 (1982) at 3.The principal difference between competitive negotiation and the traditional method of procurement (competitive bidding) is that the former permits alteration and refinement of a proposal following the opening and initial review of the proposal by the governing body and prior to award ofthe contract, whereas the traditional method requires a contract to be awarded solely on the basis ofthe information contained in the bid at the time of opening. See The Council of State Governments, State and Local Govemment Ptuddng 64-65 (3rd ed. 1988);Nash & Love, Znnovationr in Federal Conhrdion ccmfm&g, 45 Geo. Wash. L Rev. 309,324-33 (1977). Competitive bidding utilizes price as either the sole criterion or one of two chief criteria for contract awards. Competitive negotiation, on the other hand allows evaluation ofa proposal in light of important criteria in addition to price, such as quality, experience, and staff@ Id
The competitive negotiation technique also affords a governmental body somewhat greater flexibility than the traditional method because it is usually associated with the use of “performance” specifications. Performance specifications permit the governmental body to describe a need and invite prospective vendors to devise unique solutions to the problem See Ztuwvationr in Federal Constmcthn Contract@, supm, 1135at 32526. Competitive bidding is typically associated with the use of “prescriptive” or “design”specifications, which describe the means of meeting the governmental body’s needs and customarily employ dimensional and other physical requirements of the item being procured. See id; State and Local Govemment Ptuddng, suptn, at 45.
Under the negotiation technique, the governmental body is allowed to conduct dkcussions with offerors regarding the particulars of their proposals, to negotiate with offerors to obtain the most advantageous contract for the agency, and to award the contract to the offeror submitting the best overall proposal. Id As prescriid in statutes other than article Ill&r, competitive negotiation generally

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requires the governmentalbody to specify the relative importance ofthe additional evaluative criteria and to give all offerors fair and equal treatment with respect to any opportunity for diswssion or revision of proposals. E.g., Educ. Code 021.9012(g);Local Gov? Code $0252.04~ 262.030.
Iv. Divisibilityofpublk worksorimprovementprojectsintoseparatecomponents

You ask whether the purchase of a transit system is subject to the competitive bidding requirement of section 14(a), but your brief focuses on a different issue: i.e., whether the METRO board was authorized to divide the rail project into separate wmponents for the purpose of submitting wntracts for some ofthe components to competitive bidding. You argue that the board was required to award a single contract for the entire project pursuant to competitive bidding. We disagree.

It has long been the rule inTexas that a governmental body has discretion to award separate contracts for different portions of a single public improvement project when, in its honest judgment, separate wntracts are in the public interest. Wbig Bnx v. CftyqfDaUas,91 S.W3d 336,338 (Tex. 1936); see aIro 64 AM.JUR 26 Acbk Worksand Contmcts 056 (1972). Thus, the METRO board required no special statutory authorization to divide the rail project into separate components.

In this instance, section 14(a) expressly recognizes that competitive bidding may be inapplicable to some components ofa public works or improvement project (e.g., some professional services). See V.T.C.S. arts. m 1118x,0 14(b). Where competitive bidding is required, a governmental body may only act to promote the unmistakable legislative policy favoring unrestricted competition for public wntracts. TeuzrHighway Comm’n v. TexasAsh ofSteelZmmen. supm. Likewise, where some aspects ofa contract are subject to a waiver of competitive bidding and others not, those aspects that are not subject to waiver are controlled by the competitive bidding statute. See Wiakce v.~Gxnmirsioners’ Court of Madiron County, 281 S.W.593,595 (Tex. Civ. App.-Waco 1926),r&d on other groundr, 15 S.W.2d535 (Tex. 1929).
Once it resolved to divide the rail project into components, the METRO board’s duty then became to ascertain which components were subject to competitive bidding and to award wntracts for those components acwrdingly. In
answer to your Srst question, we conclude that article 1118xdid not require the METRO board to award a single contract for the entire rail system project.

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V. Whethereonstn~ction ofamonorailsystemisanimprovementtored property

In light of the preceding disc&on, your next question is whether the contract for the “System Elements” is subject to the competitive bidding requirements of section 14(a)? The answer to this question hinges on the meaning of the word “improvement,” a term which appears susceptible to several different interpretations.
METRO and HMT direct our attention to several cases which hold that railroad ties and trackage are personal property which do not become part of the underlying real estate and therefore do not constitute improvements to real property. Teaa & iKO.R Co. v. S&e&&f, 146 S.W.2d 724, 727 (Tex. 1941); Pmton v. Sabhe & E.T. Ry. Ca, 7 S.W. (L25(Tex. 1888); Moore v. Roteb, 719 S.W.2d372,376 (Tex.App.-Houston [14thDist.] 1986,writ ref d n.r.e.). The HMT brief also invokes the familiar rule of statutory wnstruction establishing the presumption that the legislature intends to give undefiued words in a statute the meaning given those words by the wurts. SeeMcBridev. Cluyton, 166S.W.2d 125, 128 (RX. 1942); Tetm Employers’Ins A&n v. Hamchild, 527 S.W.2d 270, 275 (Tex. Civ. App.-Amarillo 1975,writ refd n.r.e.). The HMT brief asserts that the legislature’s failure to define the word “improvement” gives rise to the presumption that it intended the word to carry the same meaning given it by the courts in the railroad cases. Drawing an analogy to the railroad cases, the METRO brief concludes that a monorail system does not wnstitute an improvement to real
wwv. These arguments are persuasive, but we do not find them fully dispositive of the issue. You point out, in keeping with the rule of construction described above, that “improvement” has been broadly defined by the wmts. See Nine Hundred Main, Zne v.CityofHouston, 150S.W.2d468,472 (Tex. Civ.App.-Galveston 1941, writ dism’djudgm’t car.) (“improvement” comprehends all additions to the freehold, except trade fixtures which may be removed without injury). Also, other rules of statutory wnstruction make it possible to draw different conclusions regarding the meaning ofthe word “improvement.”

For instance, in contrast to the rule descriid above, the courts will also presume that the legislature, in leaving certain words in a statute undefined, is

%esc items indnde dkb%, the traction power system, automarie train control and c0mmW 6yStem. the fare cdlcetion system, trackage, qpcuthg girdeq maintenance quipmeatand too& aad otherquipmeatused inthe operation ofthe system.

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aware ofexisting statutes employing similar terms. SeeGmrso v. CannonBallMotor FreightLutes, 81 S.W.2d482,485 (Tex. 1935). Where the legislature has specially defined a word in a statute, it will be presumed that the word will be used in the
same sense in a subsequent enactment, though this is not necessarily so when the two enactments deal with different subject matter. SeeBmo&shk v.Houron Z&&p. SchoolDist, 508S.W.2d675(Tea. Civ.App.-Houston [14thDist.] 1974,nowrit).

“Improvement” is defined different@ in at least three codes. See Tax Code 0 1.04(3) (Property Tax Code definition; “improvement” means, tier &z, “a building, structure, fixture, or fence erected on or affixed to land”); Property Code 053.001(2) (defining term for purposes of mechanic’s, wntractor’s, and materialman’s liens to include abutting sidewalks and streets and utilities, wells. cisterns, tanks, reservoirs, pumps, siphons, windmills, and “other machinery or apparatus used for raising water for stock, domestic use, or irrigation”); Water Code Q53.001(3) (“improvement” means a facility for wnservin& transporting or 

### dismhtingfresbwater).
Furthermore, the analogy to railroads, while ilbmdnating, does not answer the issue with certitude, for a monorail might also draw wmparkons to other forms oftransport. SeeA. Lerchen & Sons Rope Co.v.Moser, 159 S.W. 1018 (Tex. Civ. App.-San Antonio 1913,no writ) (an aerial tramway was an improvement to real property for purposes of enforcing a materialman’s lien). These examples demonstrate the difficulty of conforming the word “improvement”in section 14(a) to cases and statutes reflecting altogether different wntextual considerations and policies. We think it ismore productive to analyze the term in relation to the general body of law ofwhich it is a part and by reference to its legislative history. On examination of these factors, we think it was not unreasonable for the METRO board to conclude that parts of the rail project could be accomplished by use of the competitive negotiation technique. Whether its decision with respect to particular components of the project wasjustified is, again, a question of fact that cannot be resolved here.
Prior to 1985, section 14(a) required competitive bidding on all MTA purchases above S5000and permitted a waiver of the sealed bidding requirement only in cases ofemergency. In that year the legislature amended the provision to its current form. S.B.440,Acts 198569th Leg., ch. 620, at 2306. As originally Sled, Senate Bill 440 would have permitted the board of an MTA to waive competitive bidding ifit found that

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wnditions are not appropriate for formal advertisin& the needed materials are available from only one source, or after soiicitatio~ competition isinadequate.

BillFile to S.B.44469th Leg. (1985).
The publicly stated purpose of the 1985amendment was to wnfonn MTA procurement requirements to parallel federal guidelines, since most MTA capital projects are funded with a combination of state, local, and federal funds. Hearings
on S.B.440 Before the Senate Comm. on Intergovernmental Relations, 69th Leg. (March 5, 198S).J The most obvious effect of the 1985 amendment was to free MTAs from the rigid structural and discretionary wnstraints imposed by sealed competitive bidding. See Znnovaffonrin Fedeml Gwhucdon Contmcdng, supm, at 324-33 (1977) (comparing competitive bidding to competitive negotiation, at the federal level).
The most relevant item oflegislative history is a statement by the sponsor of the bill indicating that the original language ofthe amendment to section 14(a) was changed in subcommittee to address, among other things, the concerns ofa segment ofthe wnstruction industry - specifically,general wntractors. Hearings on S.B.440 Before the Senate Comm. on Intergovernmental Relations, 69th Leg. (March 5. 1985)(testimony ofSenator John Traeger). This most likely explains the addition to section 14(a) of tbe phrase “except for the wnstruction of improvements on real property.” We think the modification ofthe original language of Senate Bill440 to its ultimate form indicates that the legislature wasinterested inpreserving the status quo with respect to the award of mA wntracts for conventional construction projects. Viewed from this perspective, the legislature may have used the term

“improvement”to denote, asyou suggest, public improvements orpublic works.
The phrases “public improvements” and “public works” are often used interchangeably. Compare Navam~Auto-Park, Znc v. Ci@of Son Antonio, 574 S.W.2d582,584 (Ten. Civ.App.-San Antonio 1978,writ refd n.r.e.) (characterizing municipal public parking facility as a “public work”); with Zachty v. City of Son Antonio, 296 S.WL?d

299,304 (Tex. Civ.App.-San Antonio 1956).t#‘d, 305 S.W.2d 558 (Ten. 1957) (numicipal public parking facility is a “public improvement”).

%rdbily, interprcdons ofthe paraUelfederal guideha would be approphtc sources of meaoing d section 14(a). SeeSt& v. wicss. 171S.WZd848 (T~L l!X3). q Eourd of W&r Eng’n v. AkKnf$u, 229 S.W.301 (Tex 1921). I-hwer, WC bavc been unable to locate any federal standard emplojhg laquage comparable to the ‘design ’ waiver.

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courts have generally applied these phrases to permanent structures or facilities, additionsofafixednaturetostructures,andtoroads. SeeC&ofCopusChistiv. Haywad, 111F.2d 637, 639 (5th Cir.), cert. denied, 311 U.S. 670 (1940) (dam and reservoir); i&auf& v. C* of CR-MP&&s, 86 S.W.2d 204, 206 (Ten 1935) (water reservoir and pipelines); Enzpw Gawalty Ca v. Stewatt, 17 S.W.2d 781 (Tex. Comm’n App. 1929,judgm’t aff’d) (wntracts for building or road wnstntction included, but not wntracts for map and plat book preparation or purchase ofroad grader); Overslreetv.Houston County,365S.W2d 409,412 (Ten. Civ.App.-Houston [lst Dist.] 1963,writ rePd n.r.e.) (central air wnditioning system and window tits). We think the context and legislative history of section 14(a) support a comparable application.
With these points in mind, it may be possible to draw initial conclusions regarding the propriety of the METRO board’s actions. These matters, however,
are entrusted in the first instance to the discretion of the METRO board. Moreover, since this inquiry requires the examination and resolution of issues regarding facts which are not before us and are beyond our authority to investigate in the opinion process, we are unable to further advise you in this regard.

To summa&e, we conclude that the procurement of a monorail transit system by the Metropolitan Transit Authority of Harris County is subject to competitive bidding, but the board of METRO may grant a waiver of this requirement for portions of the project and award wntracts for those portions pursuant to competitive negotiation upon a finding of the conditions described in section 14(a) ofarticle 1118x. The board is not required to award a single contract for the entire project,

The procurement of a transit system employing monorail technology by the Metropolitan Transit Authority of Harris County is subject to the competitive bidding requirement of article 1118x, V.T.C.S. The board of the authority is not required to award a single contract for tbe acquisition and wnstruction of the transit system, but in its discretion may divide the project into wmponents and award separate contracts

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for those wmponents. The board may grant a waiver of competitive bidding in favor of competitive negotiation procedures upon a finding ofthe conditions specified in section 14(a) ofarticle 1118x.

DAN MORALES Attorney General ofTexas

WILL PRYOR First Assistant Attorney General

MARYKELLER Executive Assistant Attorney General
JUDGE ZOIUE STEAKLEY (Ret.) Special Assistant Attorney General

RENEAHIcKs Special Assistant Attorney General

MADELEINE B.JOHNSON Chair, Opinion Committee Prepared by Steve Aragon Assistant Attorney General

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