The Attorney General of Texas 

October 10, 1980 

MARK WHITE 

Attorney General 

Honorable Hilmar G. Moore . Opinion No. M+354 

Chairman 

Board of the Texas Department 

of Human Resources 

706 Banister Lane 

Austin, Texas 78769 

Re: Whether the Texas Board of 

Human Resources entered into a 

contract with Bradford National 

Corporation for administration of 

part of the Texas Medicaid Program 

Dear Mr. Moore: 

You inform us that on July 15, 1980, the Texas Board of Human 

Resources reviewed proposals submitted by National Heritage Insurance 

Company and Bradford National Corporation in response to the department’s 

posal for Administration of a Portion of the Texas Medicaid 

This document, which consists of the bid specifications and 

information an bidding procedure, contemplates that the award of the 

contract to a bidder will create a binding obligation. See RFP 8.L13.0.0.0. - 

On July 16, 1980, the board heard reports on the activities of the Bid 

Evaluation Committee, which analyzed the technical and pricing proposals 

of both bidders, and on the review of those activities by the Executive 

Review Panel. The chairman of the Executive Review Panel and a 

consulting actuary stated that Bradford afforded the more favorable price. 

After additional discussion and remarks by the representatives of each 

bidder, board members stated as follows: 

Mr. Bray: Mr. Chairman, I would like to make a 

motion if I may. [discud$n abput evaluations made 

of both bidders Hnth remarks about 

Bradford1 . . . on those bid elements Bradford comes 

out significantly to the good for the State of Texas. 

Thus, I wish to make a motion that this contract 

be awarded to Bradford s&ject to successful consummation of a contract that would include maximum use 

of the Texas Banking system with respect to the 

funding and which would include consideration mt 

necessarily in the mntract but consideration &ring 

the contract deliberations of trying to specify some 

methodology for premium setting in future years. 

p. 800 
. . - 

Honorable Hilmar G. Moore - Page Two (~254) 

Mr. Jimenez: There would be a clause that the money would be 

in the State of Texas. 

Mr. Bray: To the maximum extent feasible. 

Mr. Jimenez: In that case, I will second the motion, Mr. 

Chairman. 

Mr. Moore: the chair concurs-unanimous choice. One other 

thlrg that we have not mentioned is we are still in business with 

NHIC for at least 15 more months. I just want to echo what 

Terry a~ eloquently said that our relationships heve been 

wonderful. We expect them to continue wonderful and we hope 

when the contract comes up for bid again that we see you again. 

You first ask whether the action of the board at its July 15,198O meeting created 

a legally binding contractual obligation. In answering this question, we must apply the 

law to the facts which the department and the two bidders have provided us. Our 

opinion is necessarily limited to the facts which we discuss. You have not asked, and 

we d3 not decide, which was the lowest and best bidder. 

S3.11(e). 

See V.T.C.S., art.60lb, 

This &termination involves the resolution of fact questions and the exercise 

of discretion by the board. See generally Attorney General Opinions M-890 (1971); M392 (1969); C-788 (1966); V-1565, V-1536 (1952), Letter Advisory No. 75 (1973). 

Section 3.01 of article 601b, V.T.C.S., authorizes the Purchasing and General 

Services Commission to contract for services needed by a state agency. See also 

S3.02. However, this purchasing function has been delegated back to the department 

under section 3.06 of article 601b, V.T.C.S. The department also hss authority to enter 

into contracts under section 22.002(f) of the Human Resources Code. 

No question has been raised as to whether applicable federal statutes and 

regulations have been complied with and we do not address this issue. 

Our opinion is based solely cn the written documentation and transcript 

presented to us. In our opinion, the action taken by the board at the July 15, 1980 

meeting constituted an award of the contract, subject to the performance of 

conditions subsequent and they did not have to sign a formal agreement in order to be 

bound. 

Although the courts of some states have held that a public entity could rescind 

its award of a bid prior to signing a formal contract, this result is generally based on a 

statute expressly requiring a signed written contract. See Schull Construction Co. v. 

Board of Regents of Education, 113 N.W. 2d 663 (S.D. lm; Annot., 3 A.L.R. 3d 864 

868 (1965). Another line of mses sqports the view that a binding contract is created 

when the award is made and communicated to the successful bidder even though a 

statute requires a signed contract. See United States v. Purcell Envelope Co., 249 U.S. 

313 (1919). See Annot., SII~PB, at 871.- 

- 

p. 801 
. - 

Honorable Hilmar G. Moore - Page Three (A%%-254) 

In Superior Incinerator Co. v. Tompkins, 59 S.W. 2d 102 (Tex. Comm’n App. 1933) 

the court adopted the latter view. The Board of Commissioners of the City of Dallas 

accepted one of the bids for a public works contract and directed the execution of the 

contract. Before the city auditor could sign the contract, an act required by the city 

charter to form a binding contract, a newly elected Board of Commissioners voted to 

rescind the contract. The court held as follows: 

After the contract in question bed been awarded, the city 

could not lawfully rescind the same without the consent of the 

contractor. A contract is just as binding upon a municipal 

corporation as upon an indivitial. To determine that such a 

corporation may annul the obligation of its contract made with 

an individual would be to allow it a greater power than is 

possessed by the state which created it. (Emphasis added). 

59 S.W. 2d at 103. 

A prior opinion of this office dealt with the power of a state agency to rescind 

its acceptance of a bid Attorney General Opinion WW-434 (1958) concerned the 

acceptance of bids for lease of school lands by the School Land Board. The statute 

required the minutes to show the fact of acceptance or rejection of a bid and stated 

that the approval of the minutes would constitute the approval of the act of 

acceptance or rejection. Following the acceptance of bids but prior to approval of the 

minutes, a controversy arose about the award of a particular lease. The School Land 

Board wished to know whether it could reconsider a bid acceptance, prior to approval 

of the minutes. The opinion stated as follows: 

. . .it seems apparent that if the Legislature intended to give 

the Board the right to accept an offer and the right to cancel 

the action when the minutes are up for approval two or three 

weeks later, this would be an unusual arrangement and generally 

at variance with the customary method of entering into 

contractual agreements, but the Legislature could do this if 

that seemed to it to the best interest of the School Fund. 

It also noted the customary business usage of awarding contracts in one action only. 

Construing the statute in light of these considerations, the opinion concluded that the 

board tid a ministerial duty to approve the minutes which accurately reflected the 

acceptance of the bid See also Attorney General Opinion V-1536 (1952) (board for 

state hospitals may not delegate power to award contract but may delegate ministerial 

duty of signing contract). 

We believe the views expressed in Superior Incinerator Co. v. Tompkins and 

Attorney General Opinion WW-434 on the finality of the bid acceptance are relevant to 

your question. We do not believe the department may revoke its acceptance of a bid 

by later refusing to sign the contract. Whether all conditions subsequent have been or 

will be met is a fact question which we cannot resolve in an Attorney General Opinion. 

p. 802 
Honorable Hiimar G. Moore - Page Four (Ml+254) 

YOU 

language: 

state that the RFP provides that the contract contain the 

The contract may be terminated if DHR deems that such 

termination would be in the best interest of the State. Under 

this condition, those termination costs shall be paid by DHR to 

the Contractor which are stipulated in the contract. 

following 

You ask whether the contract can be terminated prior to execution pursuant to this 

provision. Whether or not this contract is in the best interest of the state is a fact 

question. In deciding to exercise your privilege under this clause, the department must 

make a reasonable. eood faith iudement that termination is in the best interest of the 

state. See Golden State Mutual Life Insurance Co. v. Kel&, 380 S.W. 2d 139 (Tex. 

Civ. ApF Houston 1964, writ rePd nr.e.l 

340 (Tex. Civ. App. - Waco 1958, no wri 

Construction Co., 529 S.W. 2d 190 (Tex. Ci 

provision does not authorize unilateral termination without cause. 

SUMMARY 

The action of the Board of Human Resources at its July 15, 

1980 meeting created a legally binding contractual obligation 

with the Bradford Company. Whether the department may 

terminate the contract as not being in the best interest of the 

state is a fact question, which the department must determine 

in the exercise of reasonable, good faith judgment. 

R 

MARK WHITE 

Attorney General of Texas 

JOHN W. FAINTER, JR. 

First Assistant Attorney General 

RICHARD E. GRAY III 

Executive Assistant Attorney General 

Prepared by Susan Garrison & David Young 

Assist~ent Attorneys General 

APPROVED: 

OPINION COMMlTTEE 

Susan Garrison, Acting Chairman 

Jon Bible 

Paul Gavia 

David Young 

p. 803