Untitled Texas Attorney General Opinion ( 1984 )

The Attorney General of Texas
M MAlTOX December 28, 1984
.-dorney General
Eonotable Lloyd Ctira Opinion No. JM-282
>prsma coufl sulldlw
P. 0. aor 12545 Cheirun
Austin. TX. 7671%2646 Comittce on Labor and Re: Usa of construction manage-
2f475-2601 Employment Relatioos ment contracts by stata univor-
.,.I 61oi67&1347
Texas Eouae of Representatives sities
Teluophr 512147w266
P. 0. Box 2910
&
Au6tin. Texas 7876~9
.4 Jackwn. Suit6 700 <
Dallas, TX. 762624608 Deer Representetive Cris6:
5wl42-6644
You beve requested our opinion about the legality of a bidding
4624Albarta Ave., Sull6 166 procedure used by one or more atate tinivcr6ities to award construction
Cl Pm& 7x. -2762 contract6. You descxibe the procedure aa follour:
tzssx64
f
(a) B:r formel advertiaiae,, general contracting
-901 Taxer. SUN6760
flms ara invited to bid on the fee 6od other
o~s~o~.
TX.77002-m rate6 tbe:r vould charge to build the project based
,1Y2ZMKl5 w a generrl project description. They are asked
to bid on:
29 sro*cJw~y.Suit. 312
Lubbock.TX. 79401-3479
(1) A percentage fee ba6ed oo project
6ow747.6236 CO6t6;
(2) A bood rste;
(3) A 6avlng6 ratio for dividing any
409 N. TonuZ SW6 S
6avingr in job co6t6 under the guar6nteed
MCAIIUI.7x. 76661.1666
‘12i662.4!547 maA.mu~ price;
(4) A vorkmen’ 6 compen6atlon inrurance
rate; and
200 M&l Plus, suns 400 (5) An hourly rate for conrultfng services.
-an ~ntonlo. TX. 76266.2767
122254191
(b) The fee aod rate bids are evaluated In tvo
6tep6:
(1) A 6et of predctenninad units of measure
and a preset total cost are used to arrive at
the total dollar cost of the fee and commitment
of eac:h bidder;
(21 A final evaluation i6 made based on
total ,dollar amount of the bid, contractors’
financial rCLIOUICe6, surety and insurance
Honor6ble Lloyd Cri66 - Page 2 (J’H-282)
experience. con6t~uctioo axperience, completion
lbflfty, persome:, available. rquipxent avail-
able, vork load, md client relationship.
(c) A contract i6 avarded ba6ed ou the
proposal most advanttq:eou6 to the univerrity after
ao evaluation of the bid6. A contracti6 exacuted
and bonds aod insurance certificates are provided.
(d) The coutracl:or begin6 doing preltrirurg
cowulting vork vith the de6igUe?6 of the project
and prepare6 co6t ~!otim6ter a6 the dcrign vork
progre6ae6.
(c) As variou6 phase6 i ‘of the plan6 are
completed. the cout,ractor \ obtain6 competitive
rubcontract bid6. l’lle contr6ctor i6 Dot required
to rubcontract all of the vork. The contractor
may declignete the portion6 of the vork to be done
by~the contractor, rod provide6 detailed l6tixates
of the propccled CsJIst of tho6e pOrtiOn6. The
univer6ity/may accc:Flt the estimate or elect to
take 6UbCoUtr6Ct bid6. Alro. the univerrity may
require the contractor to perform prelimiomy
conrtructiou vork c.el -be paid for on a time and
wteriel be6i6.
(f) The contractor then 6ubmit6 a guaranteed
winurn price to t’neuaiver6ity. Thi6 price f6
baaed on the 6ubcou:l:act bid6 and the estimates of
the portion6 of tL! vork to be performed by the
contractor. If th$c guaranteed uaximum price is
not acceptable, the contractor 16 paid ouly for
it6 con6ulting vork.
(g) If the 6ax!.mm price ir accepted, a vork
order is irsued for the construction of. the
project. The project i6 then built and the
contractor is paid l11 co6t it incurs, pLu6 the
percentage fee and rate6 ba6ed on it6 original bid
up to the auount of the guaranteed vaximuu price.
You have posed a nualber of specific questions about this
procedure, all of which deal vith the compatibility of the procedure
with section 51.907 of the ‘fexas Education Code. In order better to
address you? specific conc4!?*6, “e vi11 first discuss the matter
generally.
p. 1247
Ronorable Lloyd Cri66 - page 3 (JH-282)
Section 31.907 of the lexas Education Code va6 enacted in 1977.
Act6 1977, 65th Leg., ch. 191, 6t 562. It 6tatC6 in P-tine- Part:
All contract6 for the con6truction or erection of
pe-uent irprG!rts at an institution of higher
educetiou . . . a?(! void UUh66 m6de lf ter
ldverti6ing for bidatheraou in a manner
pre6crlbed by it6 governinS board. ?ecaiviuS
sealed coopetitivtr bid6. and awarding of the
cootract to the l&vest re6pou6ible bfdder by the
gpvemlag body. . ,I . (poPha6is added).
It i6 important to di6tingui6h between contracts for the
construction or lrectiou of a building and contrsctsfor planning the
construction and erection of it. Only’the former are vithln 6ectioa
51.907. Architectural 6ew:Lce6, enSinee?ing service6. con6ultant
service6, and the manner 01 procuring them are controlled by other
6tatute6. See V.T.C.S. ll’t. 664-4 (prof lssional service6) ; art.
6252-11~ (prxte conaultantr). In our opinion, the vork to be done
prior to the time a decirios i6 to be made about vho vi11 engage In
actual con6tructiou vork (as coutamplated by the procedure under
reviev) COUSi6t6 o’p rofe66:;onal or consultant service6 not governed
by election 51.907 o the Education Code. Cf. Attorney General Opinion
MU-530 (1982) (“construction manager”). -
Article 664-4. V.T.C.S., provides that oo 6tate agency “rhall
make any contract for, or tmgage the profeclsional 6ervice6 of ,” any
licensed architect or regi6tered lo g ineer “6elected ou the basis of
competitive bid6 . . . , but 6hell select and award ruch contracts and
engage 6uch service6 on tllc! ba6i6 of dexonstrated competence and
quelificatioss for the type of professional, service6 to be performed”
at fair 6ud reasouable lwfce6. Any contracts, agreements, or
arrangement6 for 6uch servLce6 made directly or indirectly by any
state lgewy in any w6y in violation of the 6tatute are void.
V.T.C.S. art. 664-4, I4. Cf. State V. Steck. 236 S.W.Zd 836 (Tex.
Civ. Ape. - Au6tln 1951, k&?ef’d).
Profemional 6ervlce6. trithln the ueaning of the above statute,
include all those vlthin the scope of law6 defining such professional
practices or tho6e perforswtl by any such licensed practitioner “in
counection~ith his profewional lmploynant or practice.” V.T.C.S.
art. 664-4. 52. The praccQ:e of architecture is defined at article
209a. section IO(a), V.T.C.!;.. The practice of engineering is defined
at article 3271a. section 2((i). V.T.C.S. Section 19 of article 32718
specifically makes it unlrvful for the state to engage in the
con6tructioa of any public wc,rk estinated to co6t more than $3.000 and
involving professional engineering (where public health, public
welfare. or public safety 11s involved) unless the engineering plans
and rpecificatlons and lsti~a;~res are prepared by. and the engineering
Hooorable Lloyd Crisr - Page 4 (JH--282)
construction 16 executed under,. the dlrecc rupervi6ioo of a registered
proferrional engineer. *
Ibe caployment of other ,p?iv6te eon6ult6ntr by rtate 6gencie6 16
governed by article 6252-11,~. V.T.C.S. The rtatute defioer 6
consultlog rervice a6 “the human 6ervice of 6tudying o r ldvi6inS an
agency under an independent cwntract.” Jd& 11(l). The act exprecrrly
does not apply to the employueat of regi6tered profe66iouaL engineer6
or reglatered architect6 (1) for architectural or engineering 6tUdia6
or (2) for the derign or con6truction of 6tete faCilitie6. Id. 12.
But the act i6 applicable, in our opinioo, to other6 empla a6
management cwn6ultaflt6 on t'he de6ign or COUltrUCtiOII of 6tate
facilitier. Cf. V.T.C.S. art. 601b. 93.01(b) (“6ewice6” include6
6killed or unskilled labor or profe66iooal work).
2
The criteria for the UIC and 6elCction of such a conmltant by a
state agency is act out io the third section of article 6252-11~.
Sub6ection (3) of the fiY6t 6c,CtiOn include6 four-yea? iU6titutiOn6 Of
higher education vithin the i.cfinitiou of “6tate agency.” Selection6
of private consultauts are not to be made on the ba6i6 of competitive
bide, but if the coutract may be valued in exce66 of $lO.OGO, the
agency 16 required p invite offers publicly for eonaulting 6erviceo.
-Id. 96(a). _See Attorney General Opinion N-1173 (1978).
With chore preliminary ob6ervatiooo made, ue can proceed to your
rpecific quecltiow. the fir6t of which follcw6:
1. hay the u6iverrity 6olicit and receive
competitive bide for construction of permanent
improvement6 ba6ed on 8 general project dercrip-
tlon before plans r.od specifications are complete?
Pirrt -king a di6tinction betveen bide for the cm6truction of
permanent improvcmcntr and csffe?a to act a6 6 m66gem6nt cousultanc
regarding 6uch con6truction. aa above dircusred, our anaver 16 in the
negative. A general projef:t de6Cription of incomplete plan6 and
rpecification6 vi11 not :k?ni6h a eufflcient barls on vhich
competitive bid6 for the can6truction of a project e6n be received
purruanr to section 51.907 of the Education Code. As noted in
Attorney General Opinion R-24 (1973). a procedure does not re6ult in
competitive bids where bid document6 leave to conjecture requirement6
soverninn the bids and onlv by haDDanStanCe would all interested
biddera irrive at a common ;:onfluri& regarding their awaning. See
also Attorney General Opiniolr W-299 (1981). In Starrett v. Bell. 210
m2d 516. 520 (Tex. Civ. App. - Dallas 1951. (LO vrit). cited vich
approval in Texas Highvay Conmission v. Texas Association of Steel
ImDorters. 372 S.U.Zd 525 (T'Gc. 1963). it was said:
p. 1249
Honorable Lloyd Cries - Psgc 5 (J*2g2)
‘Cmpetitiva biddiql” requires due l dvertiremant,
giving opportunity to bid. and contemplatas a
bidding 00 tha same undertaking upon each of the
same material item (covered by the contract; upon
the same thing. It requirea that all bidders be
placed upon the saw plane of equality and that
they each bid upon the aame terms and conditions
Involved In all the items and parts of the
contract, and that t’he propoaal specify as to all
bids the same, or aut~ataatially similar speciflca-
tions. . . . There caa ba no competitive bidding
in a legal sensa whwe the terms of the letting of
the contract ptcwut or restrict competition,
favor a contractor or materialman. or increase the
coat of the work DC of thi’msterlals or other
items going Into the: project.’
Your second questioo aekr:
(2) Ma? the university award contracts on ~tha
basis of lpplica’c:Lon of the bid itams to
predetermipd units ,of me.aaure not fully disclosed
in the bid documents?
This question refers to the avarb of a consulting contract and
not a cbnstruetion contract wnder the postulated procadure. since it
is lntmdad to establish a Frlce to be paid .for consulting services
whether or not the eontrwtor’s “guaranteed maximm price” to
construct the facility is later accepted. Awards of such contracts
are goverued by artlclas 66’i.A and 6252-11~. V.T.C.S.. rather than
section 51.907 of the Education Code. Those statutes do not prohibit
the incidantal use of such criteria In awarding such contracts.
Your third and llxth qtu:stions involve the “guaranteed maximum
price” aspect of the procedure and will ba consldarad together:
(3) Ma9 the unlvereity award a contract on the
basis of cost plue a percentage fee with a
guaranteed maximum price? Does it mattar that the
maximum price is agreed to without competitive
bidding?
. . . .
(6) Are the c,ompetitive bidding statutes
satisfied by the wtting of a guaranteed maximum
price for the constmction of the project. rather
than a fixed price!
p. 1250
Honorable Lloyd Crisa - Page 6 (JH-282)
The usual bidding proceduc,c is one where a general contractor,
having already msde iudepeodant arran~ementa vith any npecialty
contrsctora (“subcoutractors”) be intends to use. offers to build a
coutemplated facility for a fixed price. The owuer. in that case,
looka to the general contrscmr alone and usually has no direct
control over the choice of subcoatmctors to be used on the project or
the price paid them, sod no cmtrol over the luouut of profit built
into the bid for the general cantractor.
In contrast, the procedwo at Issue results in an arrangemant
similar to one where the ovner’ of a projact acts as his own ganaral
contractor. farmlng out various phases of the uork directly to
specialty contractors of his selection. Hare, the “consultant” is
expected to act 6oMYhSt as though he were the uafversity’s agent for
that purpose, and the profit or “fig’ of the “consultant/general
contractor” remains in the control of the university unless It allows
the consultant to do part of the sctual cnnstructfon, thus becoming a
specialty contractor as veil.
gotwithstanding the control this procedure gives the university,
in his legal relatloaahip ,rlth other epecialty contractors the
consultant/general cpntractor remains the only contractor to whom the
university is under contractual obligation. In our opinion, the
consultant/general contractor is the prima contrector to whom all the
subcontractors are contractually bound and is not the agent of the
university in dealing with aubtootractors. Indicative of that
relationship is the fact that the “consultant’s” bond in favor of the
university covers the subcontractors’ work as well as his own. See
Lytle P. McAlpln. 220 S.U.2d 216 (Tax. Civ. App. - San Antonio 19x
writ diam’d).
In such a setting, the “guaranteed maximum price” ia substan-
tially the sama thing as a f:.a:ed price (from the university’s stand-
point) because it fixes the maximum amount the university Is obligated
to pay for the co+eted project, and if project cost exceeds that
amount, the lxeesa is absorbwl by the consultaot/genaral contractor.
The fact that occurrence of certain contingencies will reduce the
actual a-t the unlvernity is required to pay does not change its
character. See Black v. Phil+ Miller Co., 14 P.2d 11 (Wash. 1932).
Cf. Gay v. SGtton, 559 S.U.2,d 131 (Tex. Civ. App. - Texarksna 1977,
xt ref’d n.r.e.). Bowever, the price contemplated by the particular-
arrangement here is a eated price for construction work -- not
one determined by competiclvcYbids as section 51.907 of the Education
Code requires for construction vork -- and is therefore fmpenafssible.
In ansuer to your questions, then, in our opinion. a university
nay award a negotiated “consultant services” contract that provides
ior compensatjon to the Gsultant based upon a percentage of the
total cost for a project vi,th a guaranteed maximum, assumfng that
p. 1251
Honorable Lloyd Criss - Page 7 (JM-282)
other requirements of article 6252-11~. V.T.C.S.. are met.
And may it
award a construction contract: on the basis of a guaranteed maximum
price vith automatic reductit~m~a based upon specified and advertised
contingencies. in our opinion, if the award is based upon competitive
bids as required by section .51.907 of the Education Code. See Texas
--
goofing CO. v. Whiteside, 38!i S.Y.Zd 699 (Tex. Civ. App. - Amarillo
1964, writ ref’d n.r.e.); cf. .kttorney General Opinion MU-299 (1981).
But it cannot avard a “c~ltant sewices” contract on competitive
bids In the section 51.90’1 lenee.sad it cannot negotiate a
“constroctfoa” contract in c:be article 6252-11~ or article 664-4
sense. Nor can the requfrevmts of these statutes be avoided by
soliciting both “consultant services” proposals and “constNction”
bids at the same time for fnc:l.usion in a single contract. Cf. Kelly
v. Cochran Counte. 82 S.W.Zd 641 (Tax. 1935) (separ*te cOntract6
executed by county to avoid statutotg requirements held void and
subject to cancellation). \
Contracts based upon bid:6 made by subcontractors to e -general
contractor for incorporation In the price submitted by the general
contractor to the ovnar (whether it be designated a “fixed price” or a
“guaranteed msximum price”) xce not contracts on “competitive bids”
within the maanlng )rf secticro 51.907 of the Education Code, because
they are not contracts made “s.fter . . . receiving sealed competitive
bids . . . by the governing ‘k9.l’ The acceptance of a subcontract
bid by the genetal contractor, acting not as agenr for the university
but on his own behalf (even though he allova the university a right of
prior approval), crease a contract between the general contractor and
the subcontractor - to which the university is a stranger or, at
best, merely a beneficiary. Sat Texas goofing Co. v. Whiteside.
s; Lytle v. McAlpin. -L,, -
0019 a competitive bid wcepted by the governing board of the
educational institution can 1~; the basis of a construction contract
suthoriaed by section 51.907,, For that reason. also. a construction
contract based on a general contractor’s “guaranteed maximum price”
cm be awarded only upon a ccnpetitive bid submitted in competition
with other ganeral contractors .vying for the “guaranteed maximum
price” contmct. It is s md,snomer, however. to refer to a contract
for construction with a “guaranteed maximum price” as a “cost plus”
contract, because the “guarant:eed maximum” creates a risk of loss to
the contractor that is absen,t in a true “cost plus” contract. Cf
-2
Sterrett v. Bell, supra.
Your other cvo questioniwe:
(4) Hay the untversity have some early con-
struction vork done on 8 project and pay for it on
s time and materials bas3sl
Houorabla Lloyd Cries - Psge II (~~-2132)
(5) gay the university negotiate some of the
work on a project with the general contractor
without taking bids cm that portfon of the work?
Both these queatioua muat be lnauered the negative in
if a “time
and materials basis” means m open-ended arrangement for pricing
uterlala and labor, see L.aVeXe
--- v. DeLuca. 180 W.Y.Zd 710 (Wls. 1970)
(defining “time and materials baaia”). and if the work is for the
conetruction or erection of ~wmaoent llprovementa at an institution
of higher education. Sectloc. 51.907 of the Education Code specifies
that all contracts for such ,uork are void unless they are let ln
reaponai to sealed competitive
bids. “Ilandyman” work is a different
matter, of course.
Beyond that, in our ophion, l~k mtr a eto r
who has acted as a
consultant for a university in the design of a facility. the
latlmstion of its costs. or the prepar*tlon of the specificatious
therefor. is disqualified frcu. bidding on the resulting construction
contract. The Texas Suprem Court. in Texas Riglway Cotiasion v.
Texas Association of Steel Importers, Inc., B, adopted the
eaplanation of Texas cohpati&e bfddlng statutes given in Sterrett v.
gel15 lupra, saying/he purpo:545 and intent of such statutes were veil
stated chars. In part. the Sterrett court said competitive bidding
“requires that all bidders be placed upon the same plaoe of quality.” l
240 S.U.Zd at 520. XC also said the purpose of such a statute; song
other thingi, was to “prevent favoritism,” and “[t]hat there eon be no
competitive bidding in a legal. aenae where thi terme of the letting of
the contract prevent or raatrlct coopetition. [or] favor a contractor
or rterlalmsn. . . .” fd.
A poteuttal bidder is un~ioubtedly put in a favored position over
other potmtlal bidders if he ~drafta the specifications of the job to
be let or participates In the design and cost-estimating decisions of
the owner. All bidders are nwt placed on the same plane of equality.
In our oploion. such dual lctl.vitias create a conflict of lnteraats as
well. It is unnecessary ta determine vhether one employed by a
university as an independent, consultant is within the meaning of
“employee” as used lo article 6’252-9b. V.T.C.S. (setting out standards
of conduct for state employcurl and officers but exacting no penalty
for ooucompllaoce in most c8*~5~5), for If the consultaut is not vlthin
the letter, he is at least vlthin the spirit of that statute, which
announces a policy that
no state officer or rscate employee shall have any
interest, financial or othervise, direct or
indirect, or engage ia any business transaction or
profcssioual SCtiVi’:]r or incur 8ny obligetfon of
any nature vhich is in substantial conflict with
p. 1253
S
Aonorable Lloyd Cries - Page 9 (Jn-ze?)
the proper discharge of his duties in the public
interest.
V.T.C.S. art. 6252-9b.51; sea! also
--- 552(7), 2(8)(B), 8.
~~tlill4hRY
Although offers for consultant services vith
respect to COnStNCtiOII projects ma9 be solicited
by a university t~asad upon a general project
description before plans and specifications are
emplate, bids for mnattuction of the’project ma9
not be so solkited. Consultant setvices
contrscts ma9 be awarded upon negotiated fee
proposals made with rafarenti to a percentage of
projected or lst;imated &aats. but building
contracts for conatructlon of a facility must he
let by the unlv~s:ralty upon coopetitlve bids
received by its gcverning body. Contracts for a
guaranteed maxim price can be the subject of
such competitive bids so long as the cootfngiacies
upoo whicfrthe maximum price vi11 be reduced sre
properly speclf iei, and advertised to potential
bidders. But thR! constNction of permanent
improvements at an lnatitution of higher
education, or a plxtion of such work, cannot be
undertaken on a “ttne and utari8la” or negotiated
basis, and a comultant for the university who
participates in the design, estimation of costs).
or preparation of Che plans and specification of a
project is dlsqualifled from bidding on the
resulting conatructiou contrmt tharefor.
JIM HATTOX
Attorney General of Texas
TOMGREEN
First Assistant Attorney Gewxal
DAVID R. RICHARDS
Executive Assistant Attorney General
RICK CILPIN
Chairman, Opinion Committee
Honorable Lloyd Ctirn - Pas8 10 (311-282)
Prepared by Bruce Youngblood
Amistant Attorney Gener81
APPROVED:
OPINIOtiCmMITTEE
Rick Gilpin, Chairmau
Colin Car&
Suw Garrium
Tony Guillory
Jim Hoellinger
Jennifer Riggs
Bruce Youn8blood
p. 1255