May 28, 1987

Mr. R. E. Stotzer,Jr. Engineer-Director StateDepartmentof Bighways and Public Transportation Dewitt C. GreerHighway Bldg. 11thand Brasos Streets Austin,Texas 78701 OpinionNo. JM-712

Re: Applicabilityof the out-ofstatebidderprovisionsof article 6Ok, V.T.C.S., to an Arkansas statutewhich gives preference to certain bidders on highway constructionprojects

DearMr. Stotzer:

You have submitted the following facts. In the course of awarding contracts for highway projects during the month of April, 1987. the State Department of Highways and Public Transportation (hereinafterthe department) received bids for a particular project, the lowest of which was submittedby an Arkansas firm. Contracts for highway improvementsmust generallybe awarded through a competitive bidding process to the lowest bidder. V.T.C.S. arts. 6674h; 6674i. Article 601g, V.T.C.S.. however, creates a limited exception to this procedure for contractswhich.do not involve federal funds. Attorney General Opinion JR-484 (1986). The latter statute provides the followinginpertinentpart:

The state or a governmentalagency of the state may not award a contractfor generalconstruction, improvements, services, or public works projects
or purchases of supplies,materials, or equipment to a nonresident bidder unless the nonresident's bid is lower than the lowest bid submitted by a responsible Texas resident bidder by the same amount that a Texas resident bidder would be required to underbid a nonresident bidder to obtaina comparablecontractin the state inwhich the nonresident's principal place of business is located.

V.T.C.S. art. 6Olg. $1(b).

The state of Arkansas has enacted a number of statutes which favor certainbids on state contracts over others. The most relevant to this opinion are Arkansas Statutes sections 14-293 and 14-614.2. The first section establishes a preference for firms "resident in Arkansas":

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Preference of Arkansas firms over non-resident firms in purchases under competitive bids. All public agencies shall, in the purchase of commodities by competitive bidding, accept the lowest qualified bid from a firm resident in Arkansas, provided that said bid does not exceed the lowest qualified bid from a non-resident firm by more than five percent (5%). and provided that one or more firmsresident inArkansasmade written claim for a preference at the time the bids were submitted. In calculating the preference to be allowed, the appropriate purchasing officials pursuant to Act 482 of 1979 shall take the amount of each bid of the Arkansas dealers who claimed the preference and deduct five percent (5%) from its total. If after making such deduction, the bid of anyArkansasbidder claiming thepreference IS lower than the bid of the non-resident firm, then the award shallbe made to theArkansas firm which submitted the lowest bid regardless of whether that particularArkansas firm claimed the preference.

The preference provided herein shall be applicable only in comparing bids where one or more bids are by a firm resident in Arkansas and the other bid or bids are by a non-resident firm, and shalp have no application with respect to competingbids if both bidders are firms resident in Arkansas as defined herein.

. . . (Emphasis added).

Ark. Stat. Ann. §14-293(b)(1979). The term "commodities" is defined a8 "supplies, goods, material and equipment of every kind and character." Id. 114-293(A)(4). Section 14-614.2 establishes a preference for certain bidders on contracts for the performance of servicesor constructionof improvements:

Preference for certainbidders. - In awarding contracts coveredby the provisions of Act 159 of 1949, as amended, by Act 183 of 1957, bids of contractors who have satisfactorily performed prior contracts, and who have paid taxes for not less than two (2) successive years immediately prior to submitting a bid under The Arkansas Employment Security Act, and amendments thereto and either The Arkansas Gross Receipts Act and amendments thereto or The Arkansas Compensating Tax Act and amendments thereto, on any property used or intended tobe used for or in construction
or in connectionwith the contractorsconstruction

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business, and further within the two (2) year period have paid any taxes to one (1) or more counties [schooldistricts. or municipalities] of the State of Arkansas on either real or personal property used or intended co be used in performance of or in connection with construction contracts, shall be deemed a better bid than the bid of a competing contractor who has not paid such taxes, whenever the bid of the competing contractor is less than three percent (3%) lower, and the contractor making a bid as provided by thisAct which is deemed the better bid, shall be awarded the contract. (Emphasisadded).

The firstprovision applies strictly to contracts for the purchase of commodities,while the second applies to contractswhich involve the constructionof improvementsand sirepreparation. See Op. Ark.Att'y Gen. No. 86-404 (1986). The general counsel to thedepartment has informed us that the contract for which the Arkansas firm submitted the lowest bid is for the planing and asphalt paving of certain highways. The contract in question, if it were to be awarded in Arkansas, would therefore be subject to section 14-614.2. See APAC-Mississippi, Inc. v. Deep South Construction Co., Inc., 704 S.W.2d 620 (Ark. 1986) (114-614.2 is applicable to contracts awarded by the Arkansas State Highway Commission). You ask whether the bidding preference establishedby Arkansas Statutes section 14-614.2 is within the purview of article 601g. V.T.C.S. That is, you ask whether the Arkansas statute requires a Texas bidder on an Arkansas highway construction contract to submit a bid at least three percent lower than the lowest bid submitted by an Arkansas bidder, thereby imposing the same requirementvia article 601g on the Arkansas firm bidding on the Texas contract. Based on our review of the relevant Arkansasauthorities,we conclude that theArkansasprovisiondoesnot establisha preference forArkansas contractorsoverTexas contractors based solely upon the residence of the contractor. Therefore, the Arkansas provision does not trigger the article 601g preference for Texasbidders overnonresidentbidders.

Article 6Olg. V.T.C.S., was enacted in 1985 by the Sixty-ninth Legislature. Acts 1985, 69th Leg., ch. 83, at 499. The act was motivated by statutes in other states, including Arkansas, which require out-of-state contractors to submit bids on state contracts which are lowerby a statedpercentage thanbids submittedby resident contractorsin order tobe consideredfor the contract. BillAnalysis to B.B. No. 620, 69th Leg. (1985),prepared for House Committee on Business and Commerce, filed in Bill File toH.B.No. 620,Legislative ReferenceLibrary. The purpose of the act is to

establish a reciprocity requirement in the award of state contracts so that bidders from other states would face the same underbid requirement

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inTexas contracts that Texas bidders would experiencewhen bidding on comparablecontracts in those states.

The legislativehistory of article 6Olgwas examined in GeneralOpinion JM-696 (1987). Therewe concluded that

the act is intended to impose on any out-of-state company seeking to bid on construction, supplies,
or servicescontractswith a uolitical subdivision in Texas the same burdens that are imposed, if any, upon Texas resident bidders by the state inwhich the nonresident's principal place of business is located. (Emphasisadded). Attorney

Although no singlemember of the legislature canbe heard to saywhat themeaning of a statute is,Commissioners'Court of El Paso Countyv. El Paso County Sheriff's Deputies Association, 620 S.W.Zd 900 (Tex. Clv. AQQ. - El Paso 1981,writ ref'd n.r.e.), we found the following testimony of the author of the bill containing article 601g instructive:

In neighboring states like Louisiana, Arkansas,

andNew Mexico, there is a rule that says that any public work awarded in that state, if an out-otstate contractorlike a contractorfromTexasbids
a project in that state, then the Texasbidder, in order to receive the contract, has to be five percent lower than the lowest bidder in that state. This is Arkansas, for instance.

. . . If
a state like Arkansas, New Mexico, Louisiana,New York, wherever, requires that an out-of-state contractor be lower by a certain amount in order to receive that bid, we will require those state contractorsto do the same thing in Texas.

. . . Testimony of Rep. Mark Stiles on H.B. No. 602 before House Committee
on Business and Commerce, 69th Leg., public hearing (Feb. 18, 1985) (transcriptavailable from House Staff Services). In discussing the meaning of the phrase "comparable contract," further explanationwas made of the apparent intentionof thebill:

[W]hat it means is that if in the state of Arkansas you have to be five percent lower than the lowestbid to receive a statehighway project bid, that itwouldbe the sama thinghere. -,

. . . .

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I think what it basically comes down to, of a government entity, if the state of Arkansas requires that on all municipal and state work that

. . . the Texas contractor be five percent lower than the lowest [Arkansas resident contractor's] bid, that basically we'd do the same thinghere.

. . .
Id. It was further emphasized that the act would not establish a preference for Texas resident bidders over a nonresident contractor unless a preference for residentbidders was already in effect in the other state. Id. Itbecomesnecessary, then, to examineArkansas law

-- specifically,Arkansas Statutes section 14-614.2 -- to determine whether the state of Arkansas imposes particular burdens on out-ofstate contractorsbidding on Arkansas state highway contracts that it doesnot impose onArkansas firms solely on thebasis of residence.

The preference for certainbidders provided in Arkansas Statutes section 14-614.2 does not hinge on the residence of the bidding contractor. Rather, Arkansas law gives preference to the bids .of contractors who satisfy three requirements. First, the contractor must have "satisfactorilyperformedprior contracts,"which isdefined in section 14.614.6 to mean the contractor must have substantially completed performance of one or more contracts in the state of Arkansas within two years of the date the bids are to be submitted. Second, the contractormust have paid taxes for at least two successive years immediately prior to submitting the bid under (a) the Arkansas Employment Security Act, as amended (Ark. Stat. Ann. $981-1101-- 81-1108, 81-1111 -- 81-1121)and (b)either theArkansas Gross Receipts Act, as amended (id. 9584-1901 -- 84-1904, 84-1906 -- 84-1919) or the Arkansas Compensating Tax Act, as amended (id. §§84-3101-- 84-3128).on anypropertyused or intendedtobe used G
or in connectionwith the contractor'sconstructionbusiness. Third, the contractor must have paid taxes of any kind within the same two-year period directly to one or more Arkansas counties, municipalities, or school districts. See APAC-Mississippi. Inc. v. Deep - South ConstructionCo., Inc., supra. The bid of a contractorwho has Paid such taxes "shall be deemed a better bid" than the bid of a contractor who has not paid such taxes and whose bid is less than three percent lower than the bid of the contractor claiming the statutory preference. In such cases, the contractormaking the bid deemed "thebetterbid" shallbe awarded the contract.

Section 14-614.2 was motivated by an interest to provide safeguards and procedures where public funds are expended and by an interest in grantinga preference in thebidding process to thosewho contribute to the Arkansas economy through construction activities within the state. APAC-Mississippi, Inc. v. Deep South Construction Co., Inc., supra. It evidentlywas not motivated by an interest to favorArkansas contractors in the awarding of constructioncontracts, although the three elements of section 14-614.2 do require the

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contractor claiming the preference to have had previous business connectionswith the state. Conceivably, the preference established in section 14-614.2couldwork in favor of a Texas contractorbidding against an Arkansas contractor who had not satisfactorily performed prior contracts in Arkansas or paid the designated taxes within the prescribed two-yearperiod. Significantly,the Arkansas statute does not dictate that an Arkansas contractor be given preference over a nonresident contractor when both claim the preference. In such instances, the lowest "betterbid" would be accepted. See, e.g., Op. Ark. Att'y Gen. No. 82-81 (1982). Finally, the statutory preference is unavailablewhen the bid of the contractorclaiming the preference exceeds the competing contractor'sbid by threepercent or greater.

In contrast to Arkansas Statutes section 14-614.2 stands section 14-293, quoted earlier in this opinion. Section 14-293 plainly imposes a burden on nonresident contractors submitting bids on contractsfor thepurchase of commoditiesby Arkansaspublic agencies. It is only available in the event a nonresident firm and at least one Arkansas firm submit bids on the sama contract. It requires the Arkansas public agency to accept the lowest bid submitted by an Arkansas firm if the adjusted bid of any Arkansas firm claiming the statutory preference is lower than the bid of the nonresident firm. Clearly, section 14-293discriminatessolelyon thebasis of residence and is the type of provision which article 6Olg, V.T.C.S., was --. intendedto reciprocate. Aswe noted earlier,however, section 14-293 is not relevant to the contract offered by the department in this instance.

SUMMARY

The provisions of Arkansas Statutes section 14-614.2, which establishes a preference for certain contractors submitting bids on certain contracts awarded by Arkansas public entities, do not trigger the bidding preference provided in article 6Olg, V.T.C.S. An Arkansas contractor submittingabid on a highway constructioncontract awarded by the Texas Department of Highways and Public Transportationis not, therefore,subject to article 6Olg.

JIM MATTOX AttorneyGeneral of Texas

JACK HIGHTOWER FirstAssistantAttorneyGeneral

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P

MARY KELLER

ExecutiveAssistantAttorneyGeneral

JUDGE ZOLLIE STEMLRY SpecialAssistantAttorneyGeneral

RICK GILPIN Chairman,OpinionCommittee
Preparedby Rick Gilpin AssistantAttorneyGeneral

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