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DAN MORALES ATTORNEY GENERAL 

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May 4,199s

Honorable Bill Sims Chair Committee onNatural Resources Texas State Senate P.O. Box 12068 Austin, Texas 7871l-2068

Dear Senator Si: Opinion No. DM-347

Be: Whether, under Education Code section 21.901, a school district must competitively bid a contract for the purchase ofimnunnce (RQ-656)

You have asked whether a school district that chooses to request bids for the purchase of property insurance must comply with the competitive bidding procedures Texas law sets forth. You state that a school district has chosen to seek bids for the purchase of property insurance, although the school district understands that section 21.901 ofthe Education Code does not require it to do so. You have further informed us that, as part ofthe school district’s routine, members ofthe school board review each bid and subjectively evaluate which bid would provide the most benefit to the school district. The school district does not necessarily award the contract to the lowest bidder.

You cite section 21.901 of the Bducation Code, which you understand governs when a school district must obtain a contract through competitive bidding. Section 21.901 states inpertinent part asfollows:

(a) Except asprovided inthis section, ah contracts proposed to be made by any Texas public school board for tbe purchase of any personal property, except produce or vehicle fuel, shall be submitted to competitive bidding for each 1Zmonth period when said property is valued at S25,OOO

or more, in the aggregate for each 12-month period. (b) Except as provided in Subsection (e) of this section, all contracts proposed to be made by any Texas public school board for the construction, maintenance, repair or renovation of any building shall be submitted to competitive bidding when said contracts are valued at more than Sl5,OOO.

. . (c) Nothing in this section shall apply to fees received for professional services rendered, including but not limited to architect[‘]s fees, attorney’s fees, andfees for fiscal agents.Honorable Bill Sims - Page 2 @M-347)

(d) providing that school board noti* public oftime when and place where “such contracts” willbe let andbids opened] (e) lproviding for replacement or repair of school building or school equipment in certain emergency situations] (t) ~ovidmg for purchase of computers and computer-related 

## eq~p-4 (g) [providing for purchase of item available tkom only one SOIUW] Q [Providing for lease ofone or more school buses]
Your question is premised upon an assumption that, under section 21.901 of the Education Code, a school board need not competitively bid a contract for the purchase of insurance. Indeed, this office concluded in Attorney General Opiion h4W-342 that section 21.901 of the Education Code does not require a public school district to competitiveiy bid a contract for the purchase of insurance.. Attorney General Opiion MY-342 (1981) at 3. We now wish to m-examine that decision.
Attorney General Opinion MW-342 specifically considered subsections (a) and (c) of Education Code section 21.901. In particular, Attorney General Opinion MW-342 focused on whether the purchase of insurance was the purchase ofpersonal property, and therefore governed by subsection (a), or the purchase of professional services, and therefore governed by subsection (c).

If “insurance*’involved nothing more than the insurance policy which is finally negotiated, we would conclude that the purchase of insurance involved the purchase ofproperty. [Citations omitted.] It is clear, however, that insurers do much more than write policies. A purchaser of property insurance, for example, will be vitally interested in such things as the professionalism exhibited by the insurer, the frequency and thoroughness with which he inspects the insured property, and ,the promptness, eflkiency and honesty with which he set-&es claims and provides assistance. An insurer’s ability to provide certain services in a wmpetent manner, in other words, is
a dominant, if not the primary, consideration in any purchase of insurance.

. [T]he purchase of insurance cannot be neatly characterized as the purchase of either “personal property” or “professional service,” within the meaning of section 21.901; to some extent, both categories are involved. Section 21.901 does not, however, indicate whether a purchase involving both property and services must be made on the basis of competitive bids. But in our opinion, the

p. 1846Honorable Bi Sims - Page 3 @M-347)

weight of authority compels us to conclude that, at least where insurance isinvolved, such apurchase need not be so made.
We therefore conclude that a wntract for the purchase of insurance would most accurately be described as one for tbe purchase of services, and themfore, that it need not be awarded through the competitive bidding process.
. . . Attorney General Opinion MW-342 (1981) at 2-3.

In an opinion issued the day after this office issued Attorney General Opiion MW-342, this office considered the parameters ofthe term “professional services” in the context of V.T.C.S. article 2368a, now Locsl Government Code section 252.021.* Article 2368a governed the competitive bidding and competitive proposal processes of counties and cities ofthis state. According to Attorney General Opinion MW-344, a professional service is one requiring “‘predominantiy mental or intellectual, rather than physical or manual,“’ skills. Attorney General Opiion MW-344 (1981) at 4 (quoting Mqkmd Gasua&yCo. v. Crq BGrferCo., 160 S.W.2d 102, 105 (Tex. Civ. App.-Eastland 1942, no writ)). Furthermore, a“professional” works in aprofession that “‘requires years of education and service for one to attain competence and [that] calls for a high order of intelligence, skill and leaming.“’ Id. (quoting Tranrpwration Disp.@, Inc. v. City ofNewOrleans, 346 So. 2d 359,363 n.5 (La. Ct. App. 1977)).
Finally, the opinion discussed “[t]he most useful standard forjudging the scope of

‘profession’” from W&ii v. Drriley, 230 S.E.Zd 466 (W. Va. 1976). Id. at 5. The Woo&J1 wurt concluded that the services of an interior decorator were not professional services. The WooddeNcourt did not, however, limit the term “professional services” to the professions oftheology, law, or medicine, nor to professions specifically recognized as such by statute. Id. (citing Woo&Tell, 230 S.E.Zd at 469-70). Rather, while “‘most occupations, trades, business or callings require a diversity of knowledge and skill,“’ not all such occupations, trades, business or callings could be called “professions.” Id. (quoting WooaiM, 230 S.E.Zd at 470). Aprofessional is only one who “‘is a member of [a] discipline with widely accepted standards ofrequired study or specified attainments in

%omey Genaalopiion Mw-344(1981)alnsidcmd wbahs theboard

ef tNstcesofthe GalvcstonWharvcswasrequindtocomptitivclybidrcontractforthcpavicadacontaiarrtcrminal operator. Article 2368a.section

2(a),V.T.C.S.,

required II comny towmpctitivtly

bidcettain

wn~mcts; however,subsedoo @)precludeda political&divisionfromcompetitively bidding Bm&act “for persooalorpmkssiolvilservice&”Acwdingiy, iftheamtractforIheservice8 ofacontainer

tmminai operator wasaam-actforpersonal orprofessional

services within theconlex~

ofarticle 2368a, sution 2(a),lbchod ofhusteeswasforbidden tocompeiitivdy

bidit. Altomey

General Opinion MW-344 emmined themeanings

ascribed totheterms

“personal scrvicxs” and Upmfssional

scrviccs” todetermh wktberthecatmctatiswcfellwithin thescope of&herCategoIy.

p. 1847Honorable Bill Sims - Page 4 @M-347)

specialknowledge asdistinguished from mere~kill.‘“~Id. (quoting Woou&ll, 230 S.E.2d at 470).Subsequently, this office issued Attorney General Opiion MW-494 (1982), which concluded that a county must competitively bid a wntract for the purchase of insurance under V.T.C.S. article 2368a, section 2. The opinion distinguished article 2368a, section 2 from section 21.901 of the Education Code and therefore was not bound by the conclusion in Attorney General Opiion MW-342. Notably, according to nomey Oeneral Opinion MW494, section 21.901 specifically set out two categories of wntracts
a public school board must competitively bid: subsection (a) pert&s to wntracts for the purchase of personal property, and subsection (b) pertahu to wntracts for the wnstruction, maintenance. repair, or renovation of a building or for the purchase of materials to use in such aproject. Attorney General Opinion MW-494 (1982) at 3. These two categories do not “cover every type of contract a school district might enter.

.” Id. A school district need not competitively bid wntracts outside of the two categories listed inEducation Code section 21901(a) and (b).s Id.
By wntrast, V.T.C.S. article 2368a. section 2(a) prohibited a county or city from making any contract requiring an expenditure in an amount exceeding S5,OOO.oO unless the county or city had competitively bid the contract. See id. at2. Section2(b) createdan exception to the wmpetitive bidding requirement for, among other things, “contracts for personal or professional services.” Id, This office thus declined to apply its conclusion in Attorney General Opinion MW-342 to the situation before it in Attorney General Opinion MW-494. See id. at 3.

%asedonthestandad it setforth,Attorney GanualOpinion

W-344 concluded

thata container termimI operator is nota member

ofa rccognizdprofession.Attorney General Opinion AN-344 (1981)at 5. Accordingly, the Ciaheston

Wharves boardof mtstczswas required to umpetitivdy

bidacontract

for thescr%iccs

ofacontainer

terminal opnator.Id. 3AttomyGeneraI

Opiion MW-494

summaid thereasoning andconclusion

ofAttorney General OpiionMW-342

asfollows: Attorney General Opinion h4W-342 stated thataninsmmceamtmet did notfitsqoady intothecategory of‘paaonalproperty”

ortheexemption

for “pmfcssi0nalscrvices~undcrsccti0n21.901 oftheEducationCo&Theservices pmvidcdunderitwnchignificantenoughmrrmovcthccontractfromthc category of“personal

propetty,” even though they didnot constitute “professional smkxs.” U&t section

21.901it is lJtmamytoshowtbataniasulaoce amtmctis a wnhact for “professional services” to mnovc it fromthe competitive

bidding requirement.

Itisonlynuxssmytoshowthatit QuLnot fairhlkcharanerizcdasawntractforthcpurchascdpersonalpropcrty. The disco&onin AttorneyGeneralOpinionMW-342 ofthe serviceaspectofan inwmoceumtmetmostlx madwithsection21.901 inmind. Attorney General OpinionMW-494

(1982) at3.Honorable Bill Sims - Page 5 @M-347)

Instead, the drag applied the standards Attorney General Opinion MW-344 assigned to the term “personal and professional services” to determine whether a contract for the purchase ofinsurance was apersonal or professional service under V.T.C.S. article 2368a, section 2. Attorney Generai Opinion MW-494 (1982) at 3-4. The opinion Ihst found that such a wntract was not for personal services. Id. at 4. Second, the opinion found that such a wntract was not for professional services because the provision of insurance coverage does not entail a “body of special knowledge attributable to a profession, the years of study necessq to attain wmpetence, and the wide recognition of the profession and its standards ofstudy.” Id.

We believe the analyses and conclusions reached in Attorney General Opinions MW-344 and MW-494 are wrrect; on the other hand to the extent Attorney General Opinion MW-342 is inwnsistent with these opinions by concluding that, under section 21.901 of the Education Code, a contract for the purchase of insurance “would most accurately be descrii as one for the purchase of’ professional services, we believe the opinion isincorrect. Accordingly, we hereby overrule Attorney Generai Opinion MW-342 to the extent it concludes that a contract for the purchase of insurance under Education Code section 21.901 is a contract for professional services that section 21.901 excepts from the competitive bidding process. Furthermore, to the extent Attorney Generai Opinion MW-342 concludes that a wntract for the purchase of insurance is not a contract for the purchase of personal property subject to competitive bidding under Education Code section 21901(a), we overrule it. Likewise, to the extent Attorney Generai Opinion Attorney Generai Opiion MW-494 suggests a contract for the purchase of insurance is not personal property for purposes of section 21.901 of the Education Code, we overrule it. “Personal property” generally is“allproperty other than real estate,” BLACK’S LAWDKTIONARY

10% (5th ed. 1979); it includes “goods, chattels, money, notes, bonds, stocks and chases in action generally, including intangible property,” id. (citing Bismarck Tribune Co. v. OmahhI, 147 N.W.Zd 903, 906 @I.D. 1966)). An insurance policy wnstitutes a contract between the insurer and insured, International Travelers’Ass ‘nv. Gunther, 269 S.W. 507, 508 (Tex. Civ. App.--San Antonio 1925), rev’d on other puna& 280 S.W. 172 (Tex. Comm’n App. 1926,judgm’t adopted). The Texas Supreme Court has concluded that the right to receive insurance proceeds payable in the future is “property.” See Brown v. Lee, 371 S.W.2d 694, 696 (Tex. 1963). Siilarly, a wurt of civil appeals has concluded that a spouse’s disability insurance policy is aproperty right belonging to the community estate. Mathews v.Mathews, 414 S.W.Zd 703, 707 (Tex Civ. App.-Austin 1967,no writ).

In sum, we conclude a contract for the purchase of insurance is a contract that section 21.901 of the Education Code requires a school board to competitively bid ifthe value ofthe contract is 825,000 or more for a twelve-month period. We do not, by this

.’ conclusion, discount our suggestion in Attorney Generai Opinion MW-342 that a wnscientious wnsumer purchases an insurance policy on the basis of an insurer’s professionalism and the promptness, etliciency, and honesty with which the insurer services claims, as well as on the basis of price. See Attorney General Opinion MW-342

p. 1849Honorable Bill Sims - Page 6 @M-347)

(1981) at 2. We believe that a school board properly may consider these factors in the process of competitive bidding, however. Nothing in Education Code section 21.901 requires a school board to accept the lowest bid submitted. Timothy T. Cooper & JanetL.Horton, Competitive Bid Requirements 

### forSchool District Contract%,46 TEX. B.J. 1154, 1154 (1983). Furthermore., we are unaware ofany other statute that requires a school hoard to select the lowest bid submitted in response to a request for bids on the purh of insurance or any other personal property. See Local Gov’t Code 5271.005;
see ulro id. 53271.004. .021 - .030 (providing for wntracts for purchase of real property and for public improvements).
Rather, the school board only must “act faithgtlly and in the exercise of [its members’] best judgment so as to best serve the interest of [its] district.” See Teurs Roofing Co. v. Whiteside, 385 S.W.Zd 699, 702 (Tex. Civ. App.-Amsriho 1964, writ ref dn.r.e.); Skzpleton v. Trwsell, 196 S.W. 269, 270 (Tar. Civ. App.-Fort Worth 1917,
no writ); see also Cooper & Horton, supru, at 1154. Generally, in wmpetitive bidding situations, a governmental body may reject the lowest bid “‘if inthe exercise of an honest discretion, another seems to be better for the object to be accomplished.” Cooper & Horton, supro, at 1154 (quoting EUGENEMCQUILLIN,THE LAW OF M~NICPAL CoRpoRAToNs 429.734 at429-30 (1971)).

In relation to the procedures a school board must use when competitively bidding
a wntract under section ,21.901(a), we note that, with the exception of the notice requirements provided in subsection (d), section 21.901 articulates no mandatory procedures a school district must follow in the competitive bidding process, See &o id. Section 271.005 of the Local Government Code authorizes the board of trustees of a school district to contract for the use or purchase ofpersonal property, but it does not set forth any mandates with which a board must comply. other sections of the Local Government Code articulate competitive bidding requirements to which a governmental body must comply in certain situations, but the sections are inapplicable to a contract for the purchase of insurance. See Local Gov’t Code $8271.004, ,021 - .030 (per&ring to contract for use or purchase of real property or improvement to real property and to contract for wnstruction, repair, or renovation of structure, road, highway, or other improvement or addition to real property requiring expenditure of more than SlO,OOO). Instead, we believe the school board may devise its own bidding procedure, so long asthe procedure is wnsistent with good business management. See Educ. Code 523.26(b) (providing board of trustees with exclusive power to manage and govern district’s schools); Punen v. Con&o Connv, 196 S.W.Zd 833, 835 (Tex. Civ. App.-Austin 1946,
no writ); see also TexasRoofing Co., 385 S.W.Zd at 702; Stqleton, 1% S.W. at 270; cJ Attorney General Opinion DM-14 (1991) at 3 (concluding that federal law requires local school board to competitively bid contracts for purchase of food service management services because “[i]n the absence of applicable state regulations, the selection of specifk procedures iswithin the sound discretion oflocal school boards”).

of course, ifa contract is valued at less than S25,OOO for a twelve-month period, Education Code section 21.901 does not require aschool board to competitively bid it. In

p. 1850HonorableBill Sims - Page 7 @M-347)

such a situation, a school board may opt to competitively bid the contract if the board determines that good business management requires it. See Paten, 196 S.W.2d at 835;
see also Texas Roofing Co., 385 S.W.2d at 701; S&pIelon, 196 S.W. at 270; Attorney General Opinion DM-106 (1992) at 2 (stating that, even if municipality determines that auctioneering services are professional se.rvicesand that municipality therefore need not competitively bid contract for purchase. of such services, municipality may choose to competitively bid contract). Ifthe board opts to competitively bid a contract, the board must devise a wmmitive bidding procedure that is consistent with good business management. Be Educ. Code 823.26@) (providing board of trust= with exclusive power to manage and govern district’s schools); PuUen, 196 S.W.Zd at 835; see also TexasRoofing Co., 385 S.W.Zd at 702; Shplebn, 196 S.W. at 270; cf. Attorney General OpiionDM-14 (1991) at 3.

To specitically answer your question, then, a school board may not choose whether to competitively bid a contract for the purchase of insurance ifthe value of the contract is S25,OOO

or more for atwelve-month period, rather, under section 21.901(a) of tbe Education Code, a school board must wmpetitively bid such a wntract. You do not indicate the value of the wntact about which you ask, we cannot, therefore, determine whether the school board must have competitively bid the contract. If the contract was vahted at S25,OOO

or more for atwelve-month period, the school board must comply with the notice requirements articulatedin section 21.901(d) ofthe Education Code. ABto the remaining competitive bidding procedures, the school board must select a procedure that is consistent with good business management. If the contract is valued at less than S25,OOO for atwelve-month period, the school board may competitively bid the project if tbe board determines that good business management requires it. In such a situation, the board must devise a competitive bidding procedure that is wnsistent with good business management.

SUMMARY

To the extent Attorney General opinion MW-342 (1981) wneludes that a contract for the purchase of insurance under Education Code section 21.901 is a wntract for professional services that section 21.901(c) excepts from the competitive bidding process, it is overruled. Furthermore, to the extent Attorney General Opinion MW-342 concludes that a contract for the purchase of insurance is not a contract for the purchase of personal property subject to wmpaitive bidding under Education Code section 21.901(a), it is overruled. Likewise, to the extent Attorney General Opinion Attorney General Opinion MW-494 (1982) suggests that a contract for the purchase ofinsurance isnot personal property for purposes of section 21.901(a) ofthe Education Code, we overrule it.

Under section 21.901(a) of the Education Code, a school board must wmpetitively bid a contract for the purchase of insurance ifthe

p. 1851Honorable Bill Sims - Page 8 @M-347)

contract isvalued at S25.000 or more for a twelve-month period. In evaluating which bid to accept, the school board may consider factors other than cost, such as the insurer’s professionalism and the promptness, e&iency, and honesty with which the insurer services Claims.

When a school board must competitively bid a contract under section 21:901(a), it must comply with tbe notice requirements set out in subsection (d). The school board must devise the remainder of the competitive bidding procedure wnsistent with good business management. In the event a school board need not competitively bid
a contract for the purchase of insumnw because the wntract is valued at less than S25,000 for a twelve-month period, the school board may choose to competitively bid the wntract if the board determines that good business management requires it. The school board must devise a competitive bidding procedure that is consistent with good business management.

DAN MORALES Attorney General ofTexas

JORGE VEGA First Assistant Attorney General

SARAH J. SHIRLEY Chair, Opiion Committee
Prepared by Kymberly K. Oltrogge Assistant Attorney General

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