Untitled Texas Attorney General Opinion

May 28, 1987

Mr. R. E. Stotzer, Jr. Opinion No. JM-712

Engineer-Director

State Department of Bighways Re: Applicability of the out-of-

and Public Transportation state bidder provisions of article

Dewitt C. Greer Highway Bldg. 6Ok, V.T.C.S., to an Arkansas

11th and Brasos Streets statute which gives preference to

Austin, Texas 78701 certain bidders on highway con-

struction projects

Dear Mr. Stotzer:

You have submitted the following facts. In the course of

awarding contracts for highway projects during the month of April,

1987. the State Department of Highways and Public Transportation

(hereinafter the department) received bids for a particular project,

the lowest of which was submitted by an Arkansas firm. Contracts for

highway improvements must generally be awarded through a competitive

bidding process to the lowest bidder. V.T.C.S. arts. 6674h; 6674i.

Article 601g, V.T.C.S.. however, creates a limited exception to this

procedure for contracts which.do not involve federal funds. Attorney

General Opinion JR-484 (1986). The latter statute provides the

following in pertinent part:

The state or a governmental agency of the state

may not award a contract for general construction,

improvements, services, or public works projects

or purchases of supplies, materials, or equipment

to a nonresident bidder unless the nonresident's

bid is lower than the lowest bid submitted by a

responsible Texas resident bidder by the same

amount that a Texas resident bidder would be

required to underbid a nonresident bidder to

obtain a comparable contract in the state in which

the nonresident's principal place of business is

located.

V.T.C.S. art. 6Olg. $1(b).

The state of Arkansas has enacted a number of statutes which

favor certain bids on state contracts over others. The most relevant

to this opinion are Arkansas Statutes sections 14-293 and 14-614.2.

The first section establishes a preference for firms "resident in

Arkansas":

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Mr. R. E. Stotzer, Jr. - Page 2 (JM-712)

Preference of Arkansas firms over non-resident

firms in purchases under competitive bids. All

public agencies shall, in the purchase of commo-

dities by competitive bidding, accept the lowest

qualified bid from a firm resident in Arkansas,

provided that said bid does not exceed the lowest

qualified bid from a non-resident firm by more

than five percent (5%). and provided that one or

more firms resident in Arkansas made written claim

for a preference at the time the bids were sub-

mitted. In calculating the preference to be

allowed, the appropriate purchasing officials

pursuant to Act 482 of 1979 shall take the amount

of each bid of the Arkansas dealers who claimed

the preference and deduct five percent (5%) from

its total. If after making such deduction, the

bid of any Arkansas bidder claiming the preference

IS lower than the bid of the non-resident firm,

then the award shall be made to the Arkansas firm

which submitted the lowest bid regardless of

whether that particular Arkansas firm claimed the

preference.

The preference provided herein shall be

applicable only in comparing bids where one or

more bids are by a firm resident in Arkansas and

the other bid or bids are by a non-resident firm,

and shalp have no application with respect to

competing bids if both bidders are firms resident

in Arkansas as defined herein. . . . (Emphasis

added).

Ark. Stat. Ann. §14-293(b)(1979). The term "commodities" is defined

a8 "supplies, goods, material and equipment of every kind and

character." Id. 114-293(A)(4). Section 14-614.2 establishes a

preference for certain bidders on contracts for the performance of

services or construction of improvements:

Preference for certain bidders. - In awarding

contracts covered by the provisions of Act 159 of

1949, as amended, by Act 183 of 1957, bids of

contractors who have satisfactorily performed

prior contracts, and who have paid taxes for not

less than two (2) successive years immediately

prior to submitting a bid under The Arkansas

Employment Security Act, and amendments thereto

and either The Arkansas Gross Receipts Act and

amendments thereto or The Arkansas Compensating

Tax Act and amendments thereto, on any property

used or intended to be used for or in construction

or in connection with the contractors construction

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Mr. R. E. Stotzer. Jr. - Page 3 (JM-712)

business, and further within the two (2) year

period have paid any taxes to one (1) or more

counties [school districts. or municipalities] of

the State of Arkansas on either real or personal

property used or intended co be used in per-

formance of or in connection with construction

contracts, shall be deemed a better bid than the

bid of a competing contractor who has not paid

such taxes, whenever the bid of the competing

contractor is less than three percent (3%) lower,

and the contractor making a bid as provided by

this Act which is deemed the better bid, shall be

awarded the contract. (Emphasis added).

The first provision applies strictly to contracts for the purchase of

commodities, while the second applies to contracts which involve the

construction of improvements and sire preparation. See Op. Ark. Att'y

Gen. No. 86-404 (1986). The general counsel to thedepartment has

informed us that the contract for which the Arkansas firm submitted

the lowest bid is for the planing and asphalt paving of certain

highways. The contract in question, if it were to be awarded in

Arkansas, would therefore be subject to section 14-614.2. See

APAC-Mississippi, Inc. v. Deep South Construction Co., Inc., 704

S.W.2d 620 (Ark. 1986) (114-614.2 is applicable to contracts awarded

by the Arkansas State Highway Commission). You ask whether the

bidding preference established by Arkansas Statutes section 14-614.2

is within the purview of article 601g. V.T.C.S. That is, you ask

whether the Arkansas statute requires a Texas bidder on an Arkansas

highway construction contract to submit a bid at least three percent

lower than the lowest bid submitted by an Arkansas bidder, thereby

imposing the same requirement via article 601g on the Arkansas firm

bidding on the Texas contract. Based on our review of the relevant

Arkansas authorities, we conclude that the Arkansas provision does not

establish a preference for Arkansas contractors over Texas contractors

based solely upon the residence of the contractor. Therefore, the

Arkansas provision does not trigger the article 601g preference for

Texas bidders over nonresident bidders.

Article 6Olg. V.T.C.S., was enacted in 1985 by the Sixty-ninth

Legislature. Acts 1985, 69th Leg., ch. 83, at 499. The act was

motivated by statutes in other states, including Arkansas, which

require out-of-state contractors to submit bids on state contracts

which are lower by a stated percentage than bids submitted by resident

contractors in order to be considered for the contract. Bill Analysis

to B.B. No. 620, 69th Leg. (1985), prepared for House Committee on

Business and Commerce, filed in Bill File to H.B. No. 620, Legislative

Reference Library. The purpose of the act is to

establish a reciprocity requirement in the award

of state contracts so that bidders from other

states would face the same underbid requirement

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Mr. R. E. Stotser, Jr. - Page 4 (JM-712)

in Texas contracts that Texas bidders would

experience when bidding on comparable contracts in

those states.

The legislative history of article 6Olg was examined in Attorney

General Opinion JM-696 (1987). There we concluded that

the act is intended to impose on any out-of-state

company seeking to bid on construction, supplies,

or services contracts with a uolitical subdivision

in Texas the same burdens that are imposed, if

any, upon Texas resident bidders by the state

in which the nonresident's principal place of

business is located. (Emphasis added).

Although no single member of the legislature can be heard to say what

the meaning of a statute is, Commissioners' Court of El Paso County v.

El Paso County Sheriff's Deputies Association, 620 S.W.Zd 900 (Tex.

Clv. AQQ. - El Paso 1981, writ ref'd n.r.e.), we found the following

testimony of the author of the bill containing article 601g instruc-

tive:

-,

In neighboring states like Louisiana, Arkansas,

and New Mexico, there is a rule that says that any

public work awarded in that state, if an out-ot-

state contractor like a contractor from Texas bids

a project in that state, then the Texas bidder, in

order to receive the contract, has to be five

percent lower than the lowest bidder in that

state. This is Arkansas, for instance. . . . If

a state like Arkansas, New Mexico, Louisiana, New

York, wherever, requires that an out-of-state

contractor be lower by a certain amount in order

to receive that bid, we will require those state

contractors to do the same thing in Texas. . . .

Testimony of Rep. Mark Stiles on H.B. No. 602 before House Committee

on Business and Commerce, 69th Leg., public hearing (Feb. 18, 1985)

(transcript available from House Staff Services). In discussing the

meaning of the phrase "comparable contract," further explanation was

made of the apparent intention of the bill:

[W]hat it means is that if in the state of

Arkansas you have to be five percent lower than

the lowest bid to receive a state highway project

bid, that it would be the sama thing here.

. . . .

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Mr. R. E. Stotzer, Jr. - Page 5 (JM-712)

I think what it basically comes down to, of a

government entity, if the state of Arkansas

requires that on all municipal and state work

that . . . the Texas contractor be five percent

lower than the lowest [Arkansas resident con-

tractor's] bid, that basically we'd do the same

thing here. . . .

Id. It was further emphasized that the act would not establish a

preference for Texas resident bidders over a nonresident contractor

unless a preference for resident bidders was already in effect in the

other state. Id. It becomes necessary, then, to examine Arkansas law

-- specifically, Arkansas Statutes section 14-614.2 -- to determine

whether the state of Arkansas imposes particular burdens on out-of-

state contractors bidding on Arkansas state highway contracts that it

does not impose on Arkansas firms solely on the basis of residence.

The preference for certain bidders provided in Arkansas Statutes

section 14-614.2 does not hinge on the residence of the bidding

contractor. Rather, Arkansas law gives preference to the bids .of

contractors who satisfy three requirements. First, the contractor

must have "satisfactorily performed prior contracts," which is defined

in section 14.614.6 to mean the contractor must have substantially

completed performance of one or more contracts in the state of

Arkansas within two years of the date the bids are to be submitted.

Second, the contractor must have paid taxes for at least two succes-

sive years immediately prior to submitting the bid under (a) the

Arkansas Employment Security Act, as amended (Ark. Stat. Ann.

$981-1101 -- 81-1108, 81-1111 -- 81-1121) and (b) either the Arkansas

Gross Receipts Act, as amended (id. 9584-1901 -- 84-1904, 84-1906 --

84-1919) or the Arkansas Compensating Tax Act, as amended (id.

§§84-3101 -- 84-3128). on any property used or intended to be used G

or in connection with the contractor's construction business. Third,

the contractor must have paid taxes of any kind within the same

two-year period directly to one or more Arkansas counties, munici-

palities, or school districts. - See APAC-Mississippi. Inc. v. Deep

South Construction Co., Inc., supra. The bid of a contractor who has

Paid such taxes "shall be deemed a better bid" than the bid of a

contractor who has not paid such taxes and whose bid is less than

three percent lower than the bid of the contractor claiming the

statutory preference. In such cases, the contractor making the bid

deemed "the better bid" shall be awarded the contract.

Section 14-614.2 was motivated by an interest to provide

safeguards and procedures where public funds are expended and by an

interest in granting a preference in the bidding process to those who

contribute to the Arkansas economy through construction activities

within the state. APAC-Mississippi, Inc. v. Deep South Construction

Co., Inc., supra. It evidently was not motivated by an interest to

C

favor Arkansas contractors in the awarding of construction contracts,

although the three elements of section 14-614.2 do require the

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Mr. R. E. Stotser, Jr. - Page 6 (JM-712)

----.

contractor claiming the preference to have had previous business

connections with the state. Conceivably, the preference established

in section 14-614.2 could work in favor of a Texas contractor bidding

against an Arkansas contractor who had not satisfactorily performed

prior contracts in Arkansas or paid the designated taxes within the

prescribed two-year period. Significantly, the Arkansas statute does

not dictate that an Arkansas contractor be given preference over a

nonresident contractor when both claim the preference. In such

instances, the lowest "better bid" would be accepted. See, e.g., Op.

Ark. Att'y Gen. No. 82-81 (1982). Finally, the statutory preference

is unavailable when the bid of the contractor claiming the preference

exceeds the competing contractor's bid by three percent or greater.

In contrast to Arkansas Statutes section 14-614.2 stands section

14-293, quoted earlier in this opinion. Section 14-293 plainly

imposes a burden on nonresident contractors submitting bids on

contracts for the purchase of commodities by Arkansas public agencies.

It is only available in the event a nonresident firm and at least one

Arkansas firm submit bids on the sama contract. It requires the

Arkansas public agency to accept the lowest bid submitted by an

Arkansas firm if the adjusted bid of any Arkansas firm claiming the

statutory preference is lower than the bid of the nonresident firm.

Clearly, section 14-293 discriminates solely on the basis of residence

and is the type of provision which article 6Olg, V.T.C.S., was --.

intended to reciprocate. As we noted earlier, however, section 14-293

is not relevant to the contract offered by the department in this

instance.

SUMMARY

The provisions of Arkansas Statutes section

14-614.2, which establishes a preference for

certain contractors submitting bids on certain

contracts awarded by Arkansas public entities, do

not trigger the bidding preference provided in

article 6Olg, V.T.C.S. An Arkansas contractor

submitting a bid on a highway construction contract

awarded by the Texas Department of Highways and

Public Transportation is not, therefore, subject to

article 6Olg.

JIM MATTOX

Attorney General of Texas

JACK HIGHTOWER

First Assistant Attorney General

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Mr. R. E. Stotzer, Jr. - Page 7 (JM-712)

P

MARY KELLER

Executive Assistant Attorney General

JUDGE ZOLLIE STEMLRY

Special Assistant Attorney General

RICK GILPIN

Chairman, Opinion Committee

Prepared by Rick Gilpin

Assistant Attorney General

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