Untitled Texas Attorney General Opinion ( 1990 )

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.
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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).
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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
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. 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