Court Opinion

ID: 4130226
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:01:47.089389+00
Date Added: 2024-06-11T14:31:54.608592
License: Public Domain

THE   ATTORSEY       GESERAL
                      OP TEXAS

Honorable Jim Mapel           Opinion No.   JM-1243
Criminal District Attorney
Brazoria County Courthouse    Re: Whether performance    and
Room 408A                     payment bonds are required for
Angleton, Texas   77515       certain county unit price con-
                              tracts   (RQ-1995)

Dear Mr. Mapel:

     In your letter you describe  the letting of a contract
to provide hot mix-hot laid and hot mix-cold laid asphaltic
concrete as well as asphalt  stabilized base for the repair
of county roads to be applied as required. Along with your
letter, you have submitted   the bid packet, including    the
"General Instructions and Special Provisions,8* which identi-
fies the purpose of the request for bids as follows:

        These bids are     being accepted so     that
        Brazoria County may make purchases for the
        maintenance and construction of roads on a
        'more-or-less' quantity  basis, and Brazoria
        County reserves  the right to purchase   only
        the quantity required to meet its needs on or
        before the date of expiration of the     firm
        price bid.

     The "Proposal and Bid Sheet" explains that the "guan-
tities of materials to be furnished at the unit prices    bid
may be increased or diminished   as may be considered  neces-
sary in the opinion of the Engineer."     The bid sheet con-
tains spaces for actual bid prices for hot mix-hot laid and
hot mix-cold  laid asphaltic   concrete as well as asphalt
stabilized base for each precinct in the county. The bid
sheet also contains   a notation    of "(5,000 Tons)" with
respect to the unit price to be bid for each ton laid in
place of hot mix-hot laid asphaltic concrete and a notation
of "(300 Tons)" with respect to asphalt stabilized base. No
estimated quantities are indicated with regard to either the
unit price to be bid for loading hot mix-cold laid asphaltic
concrete into county trucks or the unit price to be bid for
hauling a ton of hot mix-cold laid asphaltic concrete.

                               p. 6618
Honorable Jim nape1 - Page 2   (JM-1243)

     We understand from your letter that the notations  re-
flect the quantities estimated by the county to be required
for the contract term and that the estimated quantities are
based on historical  usage. We are also advised that the
successful bidder's unit price of S28 for each ton laid in
place of hot mix-hot  laid asphaltic concrete is consistent
with bids submitted in prior years and county estimates   of
bids to be submitted  in response to the request for bids.
Given an estimated purchase of 5,000 tons, a unit price   of
$28 per ton results in an estimated contract    price of at
least $140,000.

     You explain that, subsequent to the letting of the bid,
payment and performance   bonds submitted by the successful
bidder were found to be issued by a surety company that      is
not authorized to do business in the state. The page in the
bid packet entitled     "General Instructions    and   Special
Provisions" requires each bidder to furnish performance     and
payment bonds provided by a bonding company "licensed to do
business in the State of Texas." The question you raise      is
whether, given the uncertainty of the total contract     price,
the payment and performance bonds are required under article
5160, V.T.C.S.  Article 5160 imposes various performance and
payment bond requirements     for public works   contracts    in
excess of $25,000.1   In particular,   part A of article   5160
requires that both performance and payment bonds-"be execut-
ed by a corporate surety or corporate sureties duly author-
ized and admitted to do business in this State and licensed
by this State to issue surety bonds."

     The bid documents submitted    to us indicate that the
contract term of the proposed contract was to expire Septem-
ber 30, 1990. Although    any particular   issues concerning
that contract and the related request for bids may no longer
need resolution,  you have advised us that the county      is
currently considering requests for bids and future contracts
with the selected bidders   for provision and application  of
similar asphaltic materials.   Even though we are unable   to
find facts in the opinion process     and can therefore   not
resolve definitively your concerns about a particular bid or

     1. While a contract for the purchase of materials    for
road repair would not be considered a public works contract,
w   Attorney General Opinion JM-1027 (1989) at 6, a contract
for the purchase of the materials and their application    is
so considered.   Austin Bridae Co. v. Teaaue, 152 S.W.2d 1091
(Tex. 1941).

                                p. 6619
Honorable    Jim nape1 Y Page 3   (JM-1243)

contract, we provide the following  discussion to ass:::
you in applying article 5160 to future solicitations
contracts.2

     Attorney General opinion    J&l-1220 (1990) establishes
the framework within which we answer your question.      That
opinion   addressed the question    of competitive    bidding
requirements   for the construction     of a county vehicle
maintenance shed. We concluded therein that in adopting the
County Purchasing Act3 (hereinafter the ,lact,l),the legisla-
ture exhibited a "manifest intent', that the act take prece-
dence over subchapter B of chapter 271 of the Local Govern-
ment Code.    In reaching that conclusion,     we noted    the
irreconcilable differences between the act and subchapter    B
and the more general nature of the act, the later of the two
statutes.   Gov't Code 5 311.026(b); Attorney General Opinion
JM-1220, at 13-14.

     Although it may be considered dicta in Attorney General
Opinion JM-1220, we adhere to our additional conclusion    in
that opinion that the act, a more general provision,    also
takes precedence   to the extent  of conflict   over article
5160, a statute  enacted prior to the act. Thus, we affirm
the statement   that "our conclusion   [with regard to sub-
chapter B] also applies to conflicts between the County
Purchasing Act and V.T.C.S. article 5160." Attorney General
Opinion JM-1220, at 14. We thereafter continued that

            [slince the County Purchasing Act contains
            provisions relating to bid and performance

     2. Thus, we do not resolve the issue whether        the
quoted language concerning bond requirements in the "General
Instructions   and Special Provisions,, imposes as a bid
specification the requirement  that the bonding company   be
authorized and admitted to do business in Texas as well   as
licensed by Texas to issue surety bonds.     We also do :;L
address the issue whether other   information furnished
bidders but not submitted to us specified      the estimated
quantities with regard to all items to be bid on a unit
price basis   as required by section   262.028 of the Local
Government Code or any other issues raised by the particular
bid and proposed contract other than your question      con-
cerning the applicability of article 5160, V.T.C.S.

      3. The County Purchasing Act is currently codified   as
 subchapter C of chapter 262 of the Local Government Code.

                                  P. 6620
Honorable Jim Mapel - Page 4   (JM-1243)

        bonds, w     Local Gov't Code 5 262.032(a),
        (b), we think these provisions should prevail
        over article   5160, which provides for per-
        formance bonds but not bid bonds. Since the
        County Purchasing Act makes no provision  for
        payment bonds, a county must require con-
        tractors to provide such bonds pursuant to
        article 5160.

Id. at 15.

     In accordance with the reasoning    in Attorney General
Opinion JM-1220 and the law supporting it, the act and not
article 5160 controls to the extent of conflict the letting
of the contract under consideration    here. Thus, as was
noted in Attorney General Opinion JM-1220, bid bonds, which
are not under consideration   here, and performance   bonds,
which are, are governed by the act. Section 262.032(b)    of
the Local Government Code, the provision of the act address-
ing performance bonds, reads as follows:

           (b) Within 10 days after the date of the
        signing of a contract     or issuance of a
        purchase order following the acceptance of a
        bid or proposal,    the bidder or proposal
        offeror shall furnish a performance bond to
        the county, if reouired bv the county      for
        the full amount of the contract       if' that
        contract exceeds $50,000.   (Emphasis added.)

     Although prior to issuance of Attorney General Opinion
JM-1220, county officers may have understood that article
5160 required performance and payment bonds, the county   is
independently authorized   to require performance  bonds  in
certain contracts under the controlling provision    of the
act. &      Section 262.032(b) expressly permits the county
to require a performance bond. As discussed above, however,
Attorney General Opinion JM-1220 provides that since the act
is silent with regard to payment bonds, a payment bond,   if
required for a particular    contract, must be obtained   in
accordance with article 5160.

     We now return to your question as modified to reflect
the reasoning  in Attorney   General Opinion JM-1220    with
regard to article 5160:   whether the indefiniteness of the
final total contract price removes this contract from the
scope of the payment bond requirements of article 5160 and,
we add, from the competitive bidding    requirements of the
act, including section 262.032(b), which authorizes counties
to require performance  bonds in certain competitively   bid

                               P. 6621
Honorable Jim Mapel - Page 5~ (JM-1243)

contracts.  Just as article 5160 requires payment bonds in
county public works contracts only if the price of the
contract is in excess of $25,000, the act requires counties
to competitively bid purchases only if the the contract   for
such purchases  will require the expenditure    of more than
$10,000. Similarly, the act authorizes counties to require
performance bonds only if the contract      exceeds  $50,000.
Local Gov't Code S§ 262.023(a), 262.032(b).

     As indicated by your question, the final total contract
price is unknown because it is based on the requirements   of
the county over the course of a year, and the county cannot
know in advance what its requirements will be. This un-
certainty plays a role in all competitive    bidding -- the
final total cost cannot be known until the bids are re-
ceived. A governmental entity soliciting bids no more knows
in advance the contract price of a proposed lump sum con-
tract than it knows the unit price for a proposed unit price
contract.    Uncertainty  about the final lump sum or unit
price does not, however,     remove the purchase    from the
requirements of the act: nor does the uncertainty       about
quantity in the case of a unit price contract remove a unit
price contract   from either the scope of the act or the
payment bond requirements of article 5160. To hold other-
wise would allow counties to avoid the requirements of the
act or article 5160 simply by acquiring items on a unit
price basis.

     With regard to the requirements of the act, the legis-
lature added in 1987 a provision codified as section 262.028
of the Local Government    Code, which   allows unit price
contracts as follows:

        A purchase may be proposed on a lump-sum or
        unit price basis.  If the county chooses to
        use unit pricing    in its notice,    the in-
        formation furnished bidders must goecifv  the
        anoroximate ouantities estimated on the best
        available information,   but the compensation
        paid the bidder must be based on the actual
        quantities purchased.   (Emphasis added.)

A requirements contract that measures quantity by the pur-
chaser's good faith requirements, such as the one in issue
here, can be reasonably classified as a unit price contract
if the terms of the bid and resulting contract require unit
prices. a     Bus. h Corn. Code 5 2.306 h comment 2   (reguire-
ments contracts do not lack mutuality     of obligation   since
such.contracts require purchasers to act in good faith so
that their requirements    approximate reasonably   foreseeable

                               P. 6622
Honorable Jim Mapel - Page 6   (JM-1243)

figures).  Although section 262.020 does not expressly refer
to requirements contracts,   it does provide that purchases
may be made using quantities estimated on the best available
information.   Assuming the estimates of 5,000 and 300 tons
provided in the particular bid documents in the instant case
are based on the best available information, the letting of
the contract here is within the scope of authority conferred
on the county by this section. See Canales v. Lauahlin, 214
S.W.2d 451 (Tex. 1948): Patten v. Conch0 County, 196 S.W.2d
833 (Tex. Civ. App. - Austin 1946, no writ).

     If we read the competitive bidding threshold found in
section 262.023 together with the permissibility      of unit
pricing and the requirement    for an estimated quantity    of
each item to be purchased  found in section 262.028, we can
logically conclude only that the legislature intended the
product   obtained by multiplying    the estimated quantity
required by section 262.028 times the estimated unit price
to be the amount that triggers     the requirement   that any
particular unit price contract   be competitively bid.    This
calculation implicitly requires   the county to estimate    in
advance the unit price to determine whether      a unit price
contract must be let by competitive bids. A conclusion that
the county estimate unit prices    as well as quantities    in
advance is consistent with the general use of estimated lump
sum prices in advance to determine    if particular lump sum
contracts must be bid. If estimated      quantities and esti-
mated prices are not used to trigger the competitive bidding
requirements, a county, wanting to purchase only the amount
of an item that it will need over a period of time and
without knowing   in advance precisely    the amount needed,
would escape the competitive     bidding   requirements  alto-
gether.

     Similarly,  if we read      the threshold    in    section
262.032(b) together with the permissibility of unit pricing
and the requirement    for estimated     quantities   found in
section 262.028, we must     conclude that the amount that
triggers the authorization in section 262.032(b) for coun-
ties to require performance bonds is the product obtained by
multiplying the estimated quantities    to be purchased   times
the established unit prices. Again, to hold otherwise would
not effectuate    the    legislature's   intent    in   section
262.032(b) to authorize counties to use their discretion     to
obtain needed performance security     in contracts   exceeding
$50,000.

     Likewise, we read the express    authority  in section
262.028 for a county to make purchases on a unit price basis
in conjunction  with the requirement   in article 5160 for

                               P. 6623
.   Honorable Jim nape1 - Page 7   (JM-1243)

    payment bonds  for public works contracts     in excess   of
    $25,000.  These provisions read together lead us to conclude
    that the legislature intended to require    private  persons
    entering into unit price contracts with counties for prose-
    cution or completion of public works to satisfy the payment
    bond requirements   of article 5160 if such contracts    are
    estimated by the county, using the best available   informa-
    tion, to be in excess of $25,000.

         In support of this conclusion,  we note that the    final
    total contract price for a unit price requirements   contract
    is unknown before commencement    of the work.     Thus,   the
    county cannot assure compliance with the requirement        in
    article   5160 that required bonds be submitted       "before
    commencing the work" unless estimated quantities are used to
    determine if article 5160 applies to a particular unit price
    contract.   The total cost of the unit price contract,      in
    fact, remains unknown until the work is completed.   Further-
    more, only by such a conclusion can the legislative    policy
    behind article 5160 -- protection for suppliers of labor
    and materials against nonpayment by the contractor      -- be
    effectuated with regard to county public works      contracts
    exceeding $25,000.

         Thus, we conclude that the total estimated cost of a
    county unit price contract, based on the estimated  quantity
    and the established unit price, is sufficiently certain   to
    determine whether article 5160 applies.    In reaching  this
    conclusion, we of course have assumed,    as the contractor
    must have done when he made the bid, that the county‘s
    estimate was a reasonable one based on "the best   available
    information," as required by section 262.028   of the Local
    Government Code.

                           SUMMARY

               The County Purchasing Act, subchapter    C,
            chapter 262 of the Local Government      Code,
            allows counties to purchase items by the unit
            price method and requires counties to furnish
            bidders with an estimate of the total guanti-
            ty needed.     Requirements   contracts    are
            permitted under that section. With regard to
            county unit price requirements contracts   for
            the prosecution   or completion   of    public
            works, the product   of the estimated    total
            quantity  needed, determined   on the     best
            available information,   and the established
            unit price provides      an estimated    total
            contract price, which      if in excess     of

                                     P- 6624
Honorable Jim Mapel - Page 8    (JM-1243)

        $25,000,   will trigger     the payment   bond
        requirements   of   article    5160,  V.T.C.S.
        However,   section  262.032(b)   of the Local
        Government Code, which authorizes counties to
        require performance   bonds for certain con-
        tracts, controls the acquisition of perfor-
        mance bonds.

                                 d-h
                                     Very truly you
                                            .

                                 -J I M   MATTOX
                                  Attorney General of Texas

MARY KELLER
First Assistant   Attorney General

MU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Celeste A. Baker
Assistant Attorney General

                                P. 6625