Court Opinion

ID: 4129366
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:51:09.853997+00
Date Added: 2024-06-11T14:27:21.886959
License: Public Domain

OFFICE OF THE ATTORNEY   CeNeRAL.   STATE OF TEXAS

     JOHN    CORNYN

                                                December     15,200O

Mr. C. Tom Clowe, Jr.                                     Opinion No. JC-03 15
Chair
Texas Lottery Commission                                  Re: Whether the Texas Lottery Commission may
P.O. Box 16630                                            count a lottery vendor’s contracts with a broker or
Austin, Texas 78761-6630                                  “pass-through” entity toward the vendor’s good
                                                          faith historically underutilized business participation
                                                          goal (RQ-0247-JC)

Dear Mr. Clowe:

         On behalf of the Texas Lottery Commission (the “Commission”), you ask whether the
Commission may count a lottery vendor’s contracts with a broker or “pass-through” entity toward
thevendor’s good faith historically underutilized business (“HUB”) participation goal. We conclude
that the Commission may do so.

          We understand that your question arises from the contract award for the Commission’s
instant tickets and services.’ Apparently, the Commission’s instant ticket vendor “requested
clarification of the steps it may take in fulfilling its requirement to make a good faith effort to
include HUBS        . as subcontractors and suppliers in connection with its contract with the
Commission.” Commission Letter of 1O/l 3/00, note 1, at 1. You ask about the permissibility of the
following arrangement:

                          The Commission enters into a contract with a vendor who
                 provides goods and/or services to the Commission. The Commission
                 establishes   a good faith minority business          or Historically
                 Underutilized Business (“HUB”) participation goal for the vendor.
                 The vendor enters into a contract with a minority business or HUB to
                 provide goods and/or services in connection with the contract the
                 vendor has with the Commission. The minority business or HUB is
                 a supplier or broker of goods to the Commission’s vendor. Such
                 goods are used by the Commission’s vendor in connection with
                 providing the goods and/or services to the Commission.            The

        ‘See Letter from Kimberly L. Kiplin, General Counsel, Texas Lottery Commission, to Susan D. &sky, Chair,
Opinion Committee, Oftice of the Attorney General (Oct. 13, 2000) (on file with Opinion Committee) [hereinafter
Commission Letter of 10/13/00].
Mr. C. Tom Clowe, Jr. - Page 2                     (X-0315)

                minority business or HUB purchases or obtains all or part of the
                goods provided to the Commission’s vendor from a non-minority
                business or non-HUB entity. The Commission’s vendor counts the
                dollars it pays to the minority business or HUB toward its good faith
                minority or HUB participation goal.’

You ask whether counting a lottery vendor’s contracts with a broker or “pass-through” entity toward
the vendor’s good faith HUB participation goal is permissible under chapters 466 and 2161 of the
Government Code and section 9-9.03 of the General Appropriations Act. See Request Letter, note
2. at 1.

         Before turning to your specific questions, we briefly review the statutory framework.
Procurement for the state lottery is generally governed by subchapter C of chapter 466, the State
Lottery Act. That subchapter includes a provision, section 466.107, which requires the executive
director of the Lottery Commission and each lottery operator to “take positive steps” to encourage
minority business participation, including “award[ing] contracts for lottery equipment or supplies
to minority businesses when possible” and “requir[ing] all bidders or contractors, when appropriate,
to include specific plans or arrangements to use subcontracts with minority businesses.” TEX. GOV’T
CODE ANN. 5 466,107(a)(3),        (7) (V emon 1998). Section 466.107 includes as “minority group
members” African Americans, American Indians, Asian Americans, Mexican Americans, and other
Americans of Hispanic origin; women are not included. See id. 3 466.107(b)(2).

         On the other hand, under chapter 2161 of the Government Code, which generally governs
state agency contracts with historically underutilized businesses, a historically underutilized business
is one owned, or owned in part, by an “economically disadvantaged person.” It provides that:

                “[elconomically    disadvantaged person” means a person who is
                economically disadvantaged because of the person’s identification as
                a member of a certain group, including Black Americans, Hispanic
                Americans, women, Asian Pacific Americans, and Native Americans,
                and who has suffered the effects of discriminatory practices or other
                similar insidious circumstances over which the person has no control.

Id. 5 2161.001(3) (Vernon 2000). Chapter 2161 authorizes the General Services Commission to
adopt implementing rules, to certify HUBS, and to encourage state agencies to use HUE&s. See id.
§§ 2161.002, ,061, ,063. A state agency is required to “make a good faith effort to increase the
contract awards for the purchase of goods or services that the agency expects to make during
a fiscal year” to HUBS based on the rules adopted by the General Services Commission.        Id.
5 2161.181. The other provision you ask about, section 9-9.03 of the General Appropriations Act,
expresses the legislature’s “intent” with respect to HUB participation in state contracts.   See

         ‘Letter from Mr. C. Tom Claw, Jr., Chair, Texas Lottery Commission, to Honorable John Comyn, Texas
Attorney General at 1 (June 14,200O) (on tile with Opinion Committee) [hereinafter Request Letter].
Mr. C. Tom Clowe, Jr. - Page 3                     (X-0315)

General Appropriations Act, 76th Leg., RX, ch. 1589, art. IX, 5 g-9.03,1999 Tex. Gen. Laws 5446,
6309-l 1. It is generally redundant of chapter 2161, and we do not discuss it separately.

         Before addressing your specific questions, we must address whether the Lottery
Commission’s lottery contracts are governed by the minority business participation provisions of
section 466.107 or the m           contracting provisions generally applicable to all state agencies.
Chapter 2161 of the Government Code is located in subtitle D of title 10 of the Government Code.
Section466.105 ofthe Government Code, a provision ofthe State Lottery Act specifically governing
contracts of the Commission, provides that a contract for “the acquisition or provision of facilities,
supplies, equipment, materials, or services related to the operation of the lottery” is not subject to
subtitle D, title 10 of the Government Code. See TEX. GOV’T CODE ANN. 5 466.105(a)(2) (Vernon
Supp. 2000). The Lottery Commission’s general counsel informs us that the contract at issue falls
within this exemption. See Commission Letter of 10/l 3100, supra note 1, at 2. However, section
2161.003 of the Government Code requires a state agency to adopt the General Services
Commission’s rules regarding historically underutilized businesses and provides that those rules
apply to the agency’s “purchases of goods and services paid for with appropriated money without
regard to whether a        purchase is otherwise subject to this subtitle.” TEX. GOV’T CODE ANN. 5
2161.003 (Vernon 2000). In addition, section 2161.004 provides that chapter 2161 and the General
Services Commission’s rules “apply to state agency.       purchases ofgoods and services that are paid
for with appropriated money and made under the authority of this subtitle or other law.” Id. 9
2161.004.     The general counsel also informs us that the contract at issue was paid for with
appropriated money. See Commission Letter of 10/13/00, supra note 1, at 2.

         With respect to minority or HUB participation in Lottery Commission lottery contracts paid
with appropriated funds, chapters 466 and 2161 of the Government Code conflict. Chapter 466 of
the Government Code provides its ownminority participation provisions for lottery contracts, which
are much less detailed and comprehensive than the chapter 2161 provisions and do not extend to
women-owned businesses, and generally exempts the Lottery Commission from all of subtitle D,
title 10 of the Government Code, including chapter 2161. On the other hand, sections 2161.003 and
2161.004 ofchapter 2161 mandate that all state agencies adopt therulespromulgated    by the General
Services Commission under section 2161.002 and apply those rules and chapter 2161 to purchases
paid for with appropriated money without regard to whether a purchase is otherwise subject to
subtitle D. See TEX. GOV’T CODE ANN. $5 2161.003, ,004 (Vernon 2000).

         We conclude that sections 2161.003 and 2161.004 prevail. Under the Code Construction
Act, “if statutes enacted at the same or different sessions of the legislature are irreconcilable, the
statute latest in date of enactment prevails.” Id. 5 311.025(a) (Vernon 1998). Section 466.107, the
minority business participation provision for state lottery contracts dates from 199 1, as does section
466.105, the provision exempting lottery contracts from subtitle D, title 10.’ The legislature adopted

        “SeeActofAug. 13, 1991,72dLeg., 1st C.S.,ch. 6, $2, sets. 2.04,2.06, 1991Tex. Gen. Laws 197,201,203.
Mr. C. Tom Clowe, Jr. - Page 4                   (X-0315)

sections 2161.003 and 2161.004 in 1999.4 Because sections 2161.003 and 2161.004 are the later
enacted provisions, we conclude that they prevail. In addition, the Code Construction Act generally
provides that a more specific provision will prevail as an exception to a general provision “unless
the general provision is the later enactment and the manifest intent is that the general provision
prevail.” Id. 4 3 11.026(b). Although section 466.107 is more specific to the Lottery Commission
and lottery contracts, we believe that sections 2161.003 and 2161.004, later-enacted general
provisions, manifest the legislature’s intent that they prevail. See id. 5s 2161.003 (mandating that
General Services Commission rules apply to an agency’s “purchases of goods and services paid for
with appropriated money without regard to whether a . purchase is otherwise subject to this
subtitle”) (emphasis added); .004(a) (“This chapter and rules adopted by the commission under this
chapter apply to state agency construction projects and purchases of goods and services that are paid
for with appropriated money and made under the authority of this subtitle or other law.“) (emphasis
added), (c) (excepting only project or contract under section 201.702 of the Transportation Code
from section 2161.003 and subsections (a) and (b) of section 2161.004).

         The Commission has promulgated a rule adopting the General Services Commission’s rules
as its own rules, as required by section 2161.003. See Commission Letter of 10/13/00, supra note
1, at 3; see also 25 Tex. Reg. 7300, adopted 25 Tex. Reg. 9954 (2000) (to be codified at 16 TEX.
ADMIN. CODE 4 403.301). We assume that the contract at issue is governed by the Commission’s
rule, which became effective October 2,200O. Accordingly, we conclude that your questions are
governed by the General Services Commission rules adopted by the Lottery Commission as required
by section 2161.003.

       The General Services Commission rules adopted by the Lottery Commission,         sections 111.11
through 111.28 of title 1 of the Texas Administrative Code, provide that:

               [i]t is the policy of the commission to encourage the use of
               historically underutilized businesses (HUBS) by state agencies and to
               assist agencies in the implementation   of this policy through race,
               ethnic, and gender-neutral means. The purpose of this program is to
               promote full and equal business opportunities for all businesses in
               state contracting in accordance with the goals specified in the State
               of Texas Disparity Study.

25 Tex. Reg. 3232-35 (2000) (to be codified as an amendment to 1 TEX. ADMIN. CODE 5 111.11).
The rules establish criteria for HLTBs, require state agencies to make a good faith effort to utilize
HUBS in contracts, and provide that agencies may achieve goals by contracting directly with HUBS
or indirectly through subcontracting opportunities. See 25 Tex. Reg. 3 119-2 1, adopted 25 Tex. Reg.
5621(2000) (to be codified as an amendment to 1 TEX. ADMIN. CODE $111.12); 25 Tex. Reg. 3232.
35 (2000) (to be codified as an amendment to 1 TEX. ADMIN. CODE 111.13).

       ‘See Act ofMay 30, 1999,76th Leg., R.S., ch. 1499,s 1.23,1999 Tex. Gen. Laws 5164,5169
Mr. C. Tom Clowe, Jr. - Page 5                   (X-0315)

         We now turn to your specific questions. First, you ask “[wlhether.        purchases made [by
the vendor] through a minority business or HUB ‘pass-through’ entity or broker [may] be counted
toward the [vendor’s] good faith minority business participation goal.” Request Letter, supra note
2, at 1. We conclude that the General Services Commission rules permit the Lottery Commission
to count purchases made through a HUB “pass-through” entity or broker toward a vendor’s good
faith HUB participation goal. Nothing in the rules prohibits the use of a “pass through” entity or
broker. Indeed, the rules specifically embrace subcontracts, providing that agencies may achieve
goals by contracting directly with HUBS or indirectly through subcontracting opportunities. See 25
Tex. Reg. 3232-36 (2000) (to be codified as an amendment to 1 TEX. ADMIN.CODE$5 111.13, .14).
Furthermore, the rules define the term “HUB” quite broadly, as a business a certain percentage of
which is owned by a person or persons who have been “economically disadvantaged because oftheir
identification as members”ofcertain    groups. See 25 Tex. Reg. 3 119-21, adopted 25 Tex. Reg. 5621
(2000) (to be codified as an amendment to 1 TEX. ADMIN.CODE5 111.12( 1 l)(A), (B)). The business
may be a corporation, sole proprietorship, partnership, joint venture, or a supplier contract in which
the HUB supplier is directly involved in the manufacture or distribution ofthe supplies or materials
or otherwise warehouses and ships the supplies. See id. (to be codified as an amendment to 1 TEX.
ADMIN. CODE § 111.12(11)(C)-(G)).         Even more generally, the business may be one “which is
formed for the purpose of making a profit and is otherwise a legally recognized business
organization under the laws of the State of Texas.” Id. (to be codified as an amendment to 1 TEX.
ADMIN.CODE5 111_12(1 l)(H)). Although we cannot determine whether a particular business meets
any ofthese criteria, we believe that a “pass-through” entity or broker could qualify as a historically
underutilized business as that term is defined in the General Services Commission rules.

         If we conclude that purchases made through a HUB “pass-through” entity or broker may be
counted toward a vendor’s good faith HUB goal, you also ask whether “the amount to be counted
toward the goal [is] the total amount of goods and services purchased from the non-minority
manufacturer through the . HUB ‘pass-through’ entity or broker or the amount actually retained
by the minority or HUB ‘pass-through’ entity or broker for its services.” Request Letter, supra note
2, at 2. The General Services Commission rules do not address this issue, nor does any other rule,
statute, or legal opinion of which we are aware. In the absence of any controlling law, we believe
your question is a policy question, rather than a legal question within the purview of an attorney
general opinion. The legislature, by authorizing the General Services Commission to promulgate
HUB contracting rules, to require information from state agencies regarding their HUB contracts,
to certify HUBS, and to assist state agencies in using HUBS, see TEX. GOV’T CODE ANN.
5s 2161.002, .061, .063 (Vernon 2000), has vested the General Services Commission with the
authority to implement state law and make policy in this area. Accordingly, we suggest that the
Lottery Commission seek the advice of the General Services Commission with respect to this
question.
Mr. C. Tom Clowe, Jr. - Page 6                 (K-0315)

                                       SUMMARY

                        The Texas Lottery Commission may count a lottery vendor’s
               contracts with a broker or “pass-through” entity toward the vendor’s
               good faith historically underutilized business participation goal.

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General - Opinion Committee