# The Attorney General of Texas
October 10, 1980 MARK WHITE AttorneyGeneral Honorable Hilmar G.Moore

. Opinion No.M+354 Chairman Board ofthe Texas Department of Human Resources 706Banister Lane Austin, Texas 78769 Re: Whether the Texas Board of Human Resources entered into a contract with Bradford National Corporation for administration of part ofthe 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 inresponse to the department’s

posal for Administration of aPortion of the Texas Medicaid This document, which consists ofthe bid specifications and information an bidding procedure, contemplates that the award of the contract to abidder will create abinding 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 asfollows:

Mr. Bray: Mr. Chairman, I would like to make a motion ifI 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 ofacontract 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 infuture years.

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Mr.Jimenez: There would beaclause that the money would be inthe State ofTexas. Mr.Bray: Tothe 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 wehave not mentioned isweare still inbusiness with NHIC for at least 15more months. Ijust want to echo what Terry a~ eloquently said that our relationships heve been wonderful. Weexpect them to continue wonderful and wehope when the contract comes upfor bidagain that wesee you again. You first ask whether the action of the board at its July 15,198Omeeting created a legally binding contractual obligation. Inanswering this question, wemust 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 wediscuss. Youhave 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 ofarticle 601b,V.T.C.S. The department also hss authority to enter into contracts under section 22.002(f) ofthe Human Resources Code. No question has been raised as to whether applicable federal statutes and regulations have been complied with and wedonot 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 bidprior to signing aformal contract, this result isgenerally based ona statute expressly requiring a signed written contract. See Schull Construction Co. v. Board of Regents of Education, 113N.W. 2d 663 (S.D. lm; Annot., 3 A.L.R. 3d 864 868 (1965). Another line ofmses sqports the view that abinding contract is created when the award is made and communicated to the successful bidder even though a statute requires asigned contract. See United States v.Purcell Envelope Co., 249U.S. 313(1919).See Annot., SII~PB, at 871.- -

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InSuperior Incinerator Co. v. Tompkins, 59S.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 apublic works contract and directed the execution ofthe contract. Before the city auditor could sign the contract, an act required bythe city charter to form a binding contract, a newly elected Board of Commissioners voted to rescind the contract. The court held asfollows:

After the contract in question bed been awarded, the city could not lawfully rescind the same without the consent ofthe 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 ofits contract made with an individual would be to allow it a greater power than is possessed bythe state which created it. (Emphasis added). 59S.W.2dat 103. Aprior 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 ofbids but prior to approval ofthe minutes, a controversy arose about the award of aparticular lease. The School Land Board wished to know whether it could reconsider a bid acceptance, prior to approval ofthe minutes. The opinion stated asfollows:

. ..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 upfor approval two or three weeks later, this wouldbeanunusual 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 ofthe School Fund. It also noted the customary business usage of awarding contracts in one action only. Construing the statute inlight ofthese 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 ofsigning contract). We believe the views expressed in Superior Incinerator Co. v. Tompkins and Attorney General Opinion WW-434onthe finality ofthe bidacceptance are relevant to your question. Wedo not believe the department may revoke its acceptance of abid bylater refusing to sign the contract. Whether all conditions subsequent have been or will be met isa fact question which wecannot resolve inan Attorney General Opinion.

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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 byDHRto the Contractor which are stipulated inthe 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. Indeciding to exercise your privilege under this clause, the department must make areasonable. eood faith iudement that termination isin 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 ofthe state is a fact question, which the department must determine inthe exercise ofreasonable, good faith judgment. R

MARK WHITE Attorney General ofTexas JOHN W.FAINTER, JR. First Assistant Attorney General RICHARD E.GRAYIII Executive Assistant Attorney General Prepared bySusan Garrison &David Young Assist~entAttorneys General APPROVED: OPINION COMMlTTEE Susan Garrison, Acting Chairman Jon Bible Paul Gavia David Young

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