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This article is intended to supplement and to extend the discussion of the issues raised in the September 2013 edition of the Texas School Administrators’ Legal Digest.

While the Texas legislature has not met again since that September 2013 article was published, there are additional issues and questions arising since the 83rd Texas Legislature adjourned in 2013, which are not addressed in the earlier article.

In particular, this article will seek to highlight the interplay of the provisions of Texas Government Code Chapter 2269 and Texas Education  Code Chapter 44, Subchapter  B dealing with the procurement of contracts by governmental entities, including independent  school districts in Texas.   It will also offer some practical advice to school administrators about the procurement process.

As the beginning  point of the discussion,  it is important to remember that Texas school districts are creatures of limited authority, deriving authority directly from the Constitution and statutes of Texas.   This means that a school district may only exercise those powers expressly granted to them by state law or necessarily implied to enable a district to carry out a designated legal function as the district.  For this reason, it is critically important  to analyze and to parse the language  of statutes to be certain the school district is operating within the law and its statutory authority.

Attorney  General  Opinion  JC-0492  (2002)  stated  that § 44.031 of the Texas Education Code provides an exclusive list of methods by which a district may enter into a contract (then) valued at $25,000.00  (now $50,000.00)  or more in the aggregate for a twelve-month  period.   The September  2013 article on procurement of contracts suggested that the Legislature’s enactment of Texas Government Code Chapter 2269 preempted the area of procurement of construction contracts and therefore the provisions of that chapter control over any other law dealing with the procurement of a public works contract.  Now, it seems more accurate to state that Texas Government Code Chapter 2269 and Texas Education  Code Chapter 44, Subchapter  B provide the exclusive  methods  and rules by which the school district may enter into a contract valued at $50,000.00 or more in the aggregate for a twelve-month  period.

There are provisions in Subchapter B of Chapter 44 of the Texas Education Code that continue to reference “construction services,” notwithstanding  the enactment of Texas Government Code Chapter 2269.

For instance, Education Code § 44.031(a) provides, in pertinent  part, that except as otherwise  provided  by subchapter B of Chapter 44 of the Texas Education Code, all school district contracts for the purchase of goods or services valued at $50,000.00 or more in the aggregate for each twelve-month period shall be made by the method, of the following methods, that provides the best value for the district:

1.      Competitive bidding for services other than construction services;

2.     Competitive sealed proposals for services other than construction services;

3.     A  request  for  proposals  for  services  other  than  construction services;

4.      An interlocal contract;

5.      A method provided by Chapter 2269 Government Code, for construction services.

Please note that subsection (4) is the only one that is not qualified in some way by reference to construction services.  The use of interlocal contracts for providing construction services is addressed  in more detail later in this article.   This part of the statute refers to the selection of the delivery method for procuring construction services only.

 

Delegation of Authority

Previous  opinions  of the Attorney  General of Texas have dealt with the delegation of a school district’s purchasing authority.  Attorney General Opinion DM-14 (1991) concludes that a public school board is not statutorily authorized to delegate to a food service management company the purchase of food products or supplies because the purchase necessitates  the exercise of “significant discretion…. in all phases of the competitive bidding process.”  Tex. Att’y Gen Op. No. DM-14 (1991) at 4. That opinion preceded the adoption of Chapter 44, Subchapter B of the Texas Education Code.  While it is unclear whether the adoption of Education Code Chapter 44 Subchapter B changes the results of Attorney General Opinion DM-14, it raises interesting questions regarding a school board’s limits to delegate its authority in this regard.

Attorney  General Opinion JC-0205  concluded  that under § 44.031 of the Texas Education Code, a junior college district has no authority to delegate the purchase of insurance to a designated broker of record.  Att’y Gen. Op. No. JC-0205 (2001) at 1.

Texas Education Code § 44.0312(a) provides that the board of trustees of the district may, as appropriate, delegate its authority under this subchapter to a designated person, representative,  or committee. The statute then provides:  “In procuring construction services, the district shall provide notice of the delegation and the limits of the delegation in the request for bids, proposals or qualifications, or in an addendum to that request.”  The statute states that if the district fails to provide that notice, a ranking, selection, or evaluation of bids, proposals, or qualifications for construction  services other than by the board of trustees in an open meeting is advisory only.  This means that formal action by the board and not by a person, representative,  or committee to whom a delegation of authority was attempted, would be required to bind the district.

Texas Education Code § 44.0312(b) provides as follows: “The board may not delegate the authority to act regarding an action authorized or required by this subchapter to be taken by the board of trustees of a school district.”  The distinction then is that the board may delegate decisions which the statutes require to be made by “the district,” but may not delegate the authority for what the board is authorized or required to do under Education Code Subchapter B of Chapter 44.

The companion  delegation  section  in Chapter  2269  of the Texas Government Code, that being § 2269.053, entitled “Delegation of Authority,” became effective September 1, 2014. Under that provision, the governing body of a governmental entity may delegate its authority  under this Chapter regarding an action “authorized or required by this Chapter through a designated representative, committee or person.”  The statute further requires that the governmental entity shall provide notice of the delegation, the limits of the delegation, and the name or title of each person designated under Subsection “A” either by rule or in the request for bids, proposals, or qualifications, or in an addendum to the request.

However, Government Code § 2269.053 contains no express limitations on the authority of the board of trustees to delegate, as is contained in Education Code § 44.0312(b).   Until this apparent conflict is resolved by either the Legislature, the Attorney General, or the courts, it would seem prudent to limit a delegation of authority by a board of trustees to those acts required of the district, but not to delegate any acts specifically required to be taken by the board of trustees, consistent with the limitations contained in § 44.0312(b).

Another question is whether that same provision of Government Code § 2269.053 would allow the board to delegate authority to a designated  representative,  committee,  or person who was not employed by, contracted to, or in any way affiliated with the school district in making decisions otherwise statutorily charged to the responsibility of the board of trustees.  While it is presumed that the Legislature intended that a “designated representative, committee, or other person” be affiliated with the school district in some formal way, the statute does not expressly say this.

This calls into focus the provisions  of Government  Code § 2269.003(a),  the conflict of law provision, which provides at Subsection (a) as follows:  “Except as provided by this section, this chapter prevails over any other law relating to a public work contract.” Similarly, Education Code § 44.031(a) states that except as provided by that subchapter,  all school district contracts for the purchase of goods or service valued at $50,000.00 or more in the aggregate  for each twelve-month  period shall be made by the method that provides the best value to the district.  This suggests that Texas Government  Code § 2269.003 governs the procurement of construction services while § 44.031 would govern the procurement of any other goods or services.  The issue of delegation of authority in the event of a catastrophe, emergency, natural disaster, or major unforeseen operational or structural failure of a school facility is addressed later in this paper.

 

Controlling Law

Attorney General Opinion DM-387 (1986) raised questions, which required the Attorney General to consider the interplay between the procurement provisions in Subchapter B of Local Government Code Chapter 271 and Chapter 44 Subsection B of the Texas Education Code. That Attorney General opinion stated that when a school board determines that competitively bidding a contract will provide the best value to the school district, Education Code § 44.031 requires the school to competitively  bid the project.  In that event, the school district would be required to comply with the competitive  bidding procedures  articulated in Chapter 271, Subchapter B of the Local Government Code. (Local Government Code §271.024).

Texas Education Code § 44.0351(b) provides that (except as provided by this subchapter), Local Government Code, Subchapter B, Chapter 271 does not apply to a competitive bidding process under this subchapter.   However, the statute goes on to provide that Local  Government  Code  sections  271.026,  271.027(a), and 271.0275 do apply to a competitive bidding process under Chapter 44 of the Texas Education Code.  All of these statutes and Attorney General Opinion DM-387 (1986) predate Chapter 2269 of the Texas Education Code.

 

Preference for Competitive Bidding for Construction Services

As discussed above, Education Code, Chapter 44, Subchapter B requires that a best value determination be made as to the procurement method selected by the board for any purchase or contract.  Chapter 2269 of the Texas Government Code seems to express a clear legislative preference for the use of competitive bidding for procurement of construction services.

Texas Government Code § 2269.056 entitled “Using Method Other than Competitive Bidding for Construction Services: Evaluation of Proposals: Criteria,” provides that a governing body of a governmental  entity that considers a construction  contract using a method authorized by Chapter 2269 “other than competitive bidding must, before advertising, determine which method provides the best value for the governmental entity.”  (emphasis added).  While on its face, this is consistent with the provisions of § 44.031(a), this provision is not limited to contracts valued at $50,000.00 or more in the aggregate for each twelve-month period, but rather applies to all construction contracts.

 

Construction Services Procured through Interlocal Contract or Purchasing Cooperative

By the provisions  of HB 1050, the 83rd  Texas Legislature added Subsection (j) to § 791.011 of the Government Code dealing with contracting authority and terms of contracts of local governments under the Interlocal Cooperation Act.  Subsection (j) now provides as follows:

For the purposes of this subsection, the term “purchasing cooperative” means a group or organization that governmental entities join as members and the managing entity of which receives fees from members or vendors.  A local government may not enter into a contract  to purchase  construction-related  goods or services through a purchasing cooperative  under this Chapter in an amount greater than $50,000.00 unless a person designated by the local government certifies in writing that:

1.      The project  for which the construction-related goods or services are being procured does not require the preparations of plans and specifications under Chapter 1001 or 1051, Occupations Code; or

2.      The plans and specifications required under Chapters 1001 and 1051, Occupations Code, have been prepared.

Reading Government Code § 2269.056(a) in conjunction with Government Code § 791.011(j) and Texas Education Code § 44.031(a) suggests that a school district may, under the conditions expressed in the statute, enter into a contract for construction-related goods or services through a purchasing cooperative or interlocal contract.

The board of trustees of the district would first have to make the finding that the interlocal contract method provided the “best value” to the school district. However, in a circumstance in which all of the procurement information is obtained and held solely by the purchasing cooperative, the question becomes exactly what information or criteria the school board would have or use in making the “best value” determination.

While outside the scope of this article, there are very limited circumstances under which any contract for construction-related goods or services for a school district would not require the preparation of plans and specifications under Chapters 1001 or 1051 of the Occupations Code.  Those chapters deal with the practice of engineering in the construction of public works and the practice of architecture in the delivery of construction-related services for governmental  entities and contain specific requirements for the services of engineers and architects.

Similarly, the provisions of Government Code § 791.011(a) (2) do not require any information,  identification,  or certification as to the source of the plans and specifications.  While the Professional Services Procurement Act would require the school district to go through a statutory process to engage a professional engineer or architect, this statute does not address whether the plans and specifications could be provided by an engineer or architect not engaged by the district through the process outlined in the Professional Services Procurement Act.

The Professional Services Procurement Act forbids a school district to competitively bid a contract for professional services.1 Further, a professional services contract entered into in contravention of the Professional  Services Procurement Act is “void” as against public policy.2  Prior opinions of the Attorney General have also held that a contract for the construction  of a public work may not be awarded  on the basis of competitive  bids if architectural engineering services comprise part of that contract.3

In the context of design-build procurement of construction services, Texas Government Code Chapter 2269 requires that the school district first engage its own architect separate and apart from the architect or engineer engaged by the design-build firm providing the design-build construction services.  Government Code § 791.011(j)  is silent as to which, if any, of these additional statutory requirements  would apply in the circumstance of a purchasing  cooperative  or interlocal contract procurement of construction related services.

In a procurement under Texas Government Code § 791.011, what duty and responsibility, if any, would the engineer or architect have to the school district? What recourse or cause of action, if any, would the school district have as to an architect or engineer with no direct legal relationship with the school district, especially  if those plans or specifications  were defective and/or  caused  damages,  injury,  or death?   Government Code § 791.011(h) provides that an interlocal contract between a governmental  entity and a purchasing  cooperation  may not be used to purchase engineering or architectural services.  This indicates that the school district would be left to comply with the Professional Services Procurement Act whenever the services of a licensed architect or engineer were required for the delivery of construction services.

Similarly, § 791.011(j) does not address what, if any, qualifications are required of any person selected by the board of trustees to provide the required written certification.  Specifically, the statute does not specify or require any qualifications, licensing, education, training, or experience for the “person designated by the local government” to give the written certification.  The new statutory language does not expressly require that the preparation  of plans and specifications be prepared by a licensed professional  engineer or architect.   The issue raised is whether this written certification requires technical engineering or architectural expertise, or constitutes a legal opinion.  As written, it appears that any person or group could be designated to provide that certification.

 

Management Fees Under Cooperative Purchasing Contracts

Not addressed in the previous article regarding procurement of school district contracts are the provisions of Education Code § 44.0331 entitled “Management Fees under Certain Cooperative Purchasing Contracts.”  This statute provides that a school district that enters into a purchasing  contract valued at $25,000.00  or more under Education  Code § 44.031(a)(5),  under Subchapter F, Chapter 271, Local Government Code, or under any other cooperative purchasing program authorized for school districts by law, is required to document any contract-related fee, including a management fee, and the purpose of each fee under the contract. Section 44.0331(b) provides that the amount, purpose, and disposition of any fee described by Subsection (a) must be presented in a written report and must be presented annually in an open meeting of the board of trustees of the school district.  The written report must appear as an agenda item on the board agenda.  The statute further provides that the Commissioner  of Education may audit the written report described in Subsection (b).  Presumably, the circumstances  under which a purchasing cooperative or interlocal contract can be used to deliver construction-related  services is now very limited.

 

Best Value

The concept of “best value” enters into the procurement process  in two separate  and distinct contexts.   The first time that the concept of “best value” appears is in Education  Code § 44.031(a), wherein a “best value” determination must be made in selecting the method of procurement of the contract among the seven alternative methods set forth in § 44.031(a).   The second context in which “best value” appears has to do with the award of a contract by a school district to the vendor, offeror, or contractor offering the “best value” for the school district in its bid or proposal for delivery of the services sought.

Education Code § 44.031 establishes a two-step process for letting a contract by separating the selection of the purchasing or procurement method from the ultimate award of a contract for the delivery of the contracted services.  Under § 44.031(a), a school district must first evaluate which of the listed purchasing methods will provide the best value to the district.  Only then, after the district has selected the purchasing method that will provide the best value, is the district required to follow the procedures applicable to that particular purchasing method.4

Neither Chapter 44, Subchapter  B of the Texas Education Code, nor Chapter 2269 of the Texas Government  Code define the term “best value.”   Similarly, there is no provision in either statute that would describe the methods by which a school district is to determine which purchasing or delivery method will afford the district the best value.  The Texas Attorney General has stated that “determining to whom to award a contract is different than determining which type of contract will afford the best value.”5 Accordingly, § 44.031(b) does not purport to define how a school district is to determine which purchasing method affords it the best value, although the factors contained therein may be relevant. The Attorney General then stated as follows:  “Because nothing in the statutes expressly defines or directs a school district in determining best value, we conclude that a school district should establish, by rule, its own procedure and criteria to determine the purchasing method that will provide the best value in a particular instance.”6

Making the selection of the ultimate provider of service, the school district must base its selection on the applicable criteria which has been adopted by the board of trustees, published in the request for bids, proposals, or qualifications, and published along with the criteria that would be used to evaluate the responses from the offerors.  The district is also required to establish and publish the applicable weighted value given to each of the criterion.  The same use of “best value” appears in Government Code § 2269.056, having to do with methods other than competitive bidding for construction services; in Government Code § 2269.155, dealing with selection of the offeror under a competitive sealed proposal method; in Government Code § 2269.254, dealing with selection of the offeror under the construction manager-at-risk method; in Government Code § 2269.308, regarding the selection of design-build firm; and in Government Code § 2269.255.

In the use of the construction manager-at-risk method, Government  Code § 2269.255, entitled “Performance  of Work” states that a construction manager-at-risk may seek to perform portions of the work itself, and not rely upon publicly-advertised bids or proposals from trade contractors and subcontractors if the school district determines  that the construction  manager-at-risk bid or proposal provides the best value for the school district.  A similar reference appears in Texas Education Code § 44.0352(d) and (e) dealing  with competitive  sealed  proposals.   In each case, the best value determination must be based on previously adopted and established selection criteria that is published to prospective bidders or proposers. The best value determination must be based upon the documented ranking evaluation made by the school district.   In all of these sections, the law is clear that the school district must document the basis of its selection of a service provider.  In the case of a method other than competitive bidding, Government Code § 2269.056 would require that the evaluations  be made public not later than the seventh day after the date the contract is awarded.

With regard to all of the statutes referenced, it is clear that in determining the best value for the school district, the district is not restricted to considering price alone, but may consider any other factors stated in the selection  criteria.   Texas Education Code §44.031(b) provides that the district consider the following factors in determining to whom to award a contract:

1.      the purchase price;

2.      the reputation  of the vendor and the vendor’s goods and services;

3.      the quality of the vendor’s goods and services;

4.      the extent to which the goods or services meet the district’s needs;

5.      the vendor’s past relationship with the district;

6.      the impact on the ability of the district to comply with laws and rules related to historical under-utilized businesses;

7.      the total long-term  cost to the district for the vendor’s goods or services;

8.      for a contract  for goods  and  services  (other than goods and services related to telecommunications and  information  services, building  construction  and  maintenance,  or instructional  materials),  whether the vendor or the vendor’s parent company or majority owner:

a. has its principal  place of business in this state; or

b. employs  at least 500 persons  in this state; and

9.      any other relevant factors specifically listed in the request for bids or proposals.

In addition to those factors, the district may establish, by its own local rules, additional factors to be used in the determination of best value. Suggested factors that may be appropriate and acceptable for use in determining  the best value, in addition to cost, are as follows: professionalism; efficiency; responsiveness to claims or problems; experience; ability; skill; business judgment; integrity; honesty; financial strength; possession of the necessary equipment,  staff, and supervision;  ability to bond the project; prior performance;  reputation;  promptness;  and ability to meet the school district’s desired time of completion of the project or for delivery of the product.

 

Destruction, Damage, or Failure of School Facility

Texas Education Code § 44.031(h) (there are two subsections (h) in the statute) addresses the destruction, damage, and operational or structural failure of school equipment, all or part of a school facility, and personal property of a school district.  If the board of trustees determines that the delay posed by the contract procurement  methods provided in Chapter 44 of the Texas Education Code would prevent or substantially limit or impair the conduct of classes or other essential school activities, then contracts for the replacement or repair of equipment, school facilities, or a portion of the school facilities may be made by a method other than the methods required in Chapter 44 Subchapter (b) of the Texas Education Code.   It is interesting to note that since 1995, the statute has excluded the term “school building.”

Texas Education Code § 44.0312(c) now provides that, notwithstanding any other provisions of the Education Code, in the event of a catastrophe, emergency or natural disaster affecting a school district, the board of trustees may delegate to the superintendent or designated person the authority to contract “for the replacement, construction, or repair of equipment or facilities under this subchapter if emergency replacement, construction, or repair is necessary for the health and safety of district students and staff.”

 

Modifying Contract Terms

In all of these areas, consultation with an experienced school construction lawyer will greatly benefit the school district.  As suggested in the prior article, vendors/contractors will always encourage school administrators and staff to accept and sign what is described as their “standard” contract.  What this means is the contract takes care of the vendor or contractor and, more often than not, voluntarily gives away important rights, remedies, and protections otherwise enjoyed by the school district under state law.

Experience  teaches that the school staff and administrators are primarily focused on having the goods delivered or the project completed on time and within budget.  By nature, administrators are not as concerned with the legal terms nor are they thinking about the legal position of the school district in the event of a dispute or conflict over the purchase contract or construction contract.  A school district should never sign a vendor’s contract document without examination and modification by the district’s legal counsel.


Examples of Actual Objectionable Contract Terms Proposed to Texas School Districts

This section provides only a partial list of examples of the types of contract terms found in “standard contracts that everybody signs” proposed by vendors or contractors with Texas school districts.

1.      Choice of law provision that states that in the event of a conflict, the laws of Delaware, Utah, North Dakota, or some other distant state would apply rather than Texas law;

2.      Waiver of the right to a jury trial in the event of litigation between the parties;

3.      Binding arbitration  as the exclusive  method of dispute resolution in the event of conflict.  (In other words, the school district would lose the right to ever have a court in its home county or a jury of its taxpayers and patrons decide a legal issue.  Instead, the district would have its conflict determined finally by an arbitrator from St. Louis or Kansas City.)

4.      A contract provision limiting the liability of the vendor/contractor to some percentage of the actual fee or net profit of the vendor/contractor  on this contract alone, regardless of the amount, type, or duration of the damages or harm to the district or the district’s students, employees, or patrons.

5.      A blanket indemnity of the vendor or contractor or by the school district.  (This is a provision by which the school district creates a contractual liability for itself which would not otherwise exist to pay damages to or for the vendor/contractor. Arguably, this type of contractual provision creates a new contractual source of potential liability for the school district that would not otherwise exist under state law.  In general, such an indemnity clause, which attempts to create greater liability than would exist under state law, would be void under Texas law as exceeding the legal authority of the school district, as creating a prohibited debt or as the gift of public funds.)

6.      The waiver of specific causes of actions, claims, or legal defenses which the district would otherwise enjoy under state law, without any consideration or benefit flowing to the school district for this waiver of valuable rights;

7.      Penalties, sometimes well camouflaged, for non-appropriation of funds by the school district in subsequent years of a multi-year contract.

8.      Terms which guarantee that the vendor or contractor will experience no financial loss or unanticipated costs and/or which would require the district to reimburse any unforeseen costs, loss, or reduced profit to the contractor in addition to the contract price agreed upon.

9.      Requiring  a pre-printed  opinion  of counsel  to be signed by the school district’s counsel which essentially gives away any legal defense or claim which the district might have arising out of the contract.   In essence, it pits the school district’s own legal counsel against the school district in the event of a claim and reinforces the position of the vendor/contractor.

Practical Advice

1.     Before beginning any contract procurement,  the district should engage the district’s legal counsel to assist in the development of an outline of specific steps and decisions required to be made so that all requirements of the law for board action and notice can be satisfied.   The board should give careful study to the question of which procurement or delivery method provides the “best value” for the district.  The board and the district administration should be guided by the “best value” standards throughout the procurement and contracting process.

2.     The district must carefully document in writing, contemporaneously with the action taken and decisions made, the criteria considered and the basis for the decisions made by the district.

3.     In regard to any delegation of authority, the district should consult with its legal counsel to determine that the authority it desires to delegate is delegable under current state law and that the delegation is clear, specific, and narrowly tailored to the wishes of the board of trustees.  The district should also take care that such delegation  is made early in the process and that the delegation is made in a timely fashion and in sufficient detail that satisfies the requirements of state law.

4.     The board of trustees should adopt specific rules as authorized by statute for the contract procurement and contract process. These rules, if adopted in advance of a procurement and if provided to vendors or contractors, will save the district considerable expense and time in the negotiation and arrival at a final signed contract.7

5.     The rules adopted by the board should include each and every factor needed for the determination of “best value” in the selection of the provider of services to the district.

6.     If the district has its own form for contract,  it should be adopted by the board and should be included in the procurement  package submitted to or made available to the vendors or bidders.

7.      If the district does not have established contracts, the district’s procurement document should clearly advise vendors or contractors that they must submit, with their bid or proposal, a copy of the proposed contract.  The procurement document should clearly state that the district will consider the extent to which the contract can be entered into with a minimum  of negotiations,  expense, and delay as a factor and criteria in the selecting of the successful vendor/contractor.  These provisions can be added to the criteria adopted by the board of trustees under the authority of Texas Government Code § 2269.005.

 

CONCLUSION

The primary concerns woven into the procurement and contracting process include obtaining the best value possible for the school district; obtaining favorable contract terms; preserving governmental immunity of the district; and maximizing the district’s advantage in the event of later disputes, claims, or litigation.  If every procurement and contract was entered into with an eye on cost savings, enhancing the school district’s legal position in the event of a dispute, and the preservation  of governmental immunity,  the district will avoid costly disputes altogether  and fully comply with the intricacies  of the procurement  law, thus, truly obtaining the “best value” for the district.

 

 

ENDNOTES

1.     See also Tex. Att’y Gen. Op. No. LO-96-117 at 1 and Tex. Att’yGen. Op. No. JC-0037 at 4.

2.     Texas Government Code § 2254.005.

3.     See Tex. Att’y Gen. Op. No. JM-1189 (1990); Tex. Att’y Gen. Op. No. LO-98-060; Tex. Att’y Gen. Op. No. LO-96-117.

4.     See Tex. Att’y Gen. Op. No. JC-0037 and Tex. Att’y Gen. Op. No. DM-387 (1996).

5.     Tex. Att’y Gen. Op. No. JC-0037 (1999).

6.     Tex. Att’y Gen. Op. No. JC-0037.

7.     Texas Government Code § 2269.051 and TASB Policy CD (Legal).