THE ATTORNEY GENERAL
OF TEXAS
Honorable Joe Lucas Opinion No. JM-1038
El Paso County Attorney
Room 201, City-County Building Re: Whether a third party
El Paso, Texas 79901 administrator of an insur-
ance contract is a "profes-
sional" for purposes of
exemption from competitive
bidding (RQ-1552)
Dear Mr. Lucas:
You ask whether the services of a "third party adminis-
trator" (TPA) are "professional services" within the meaning
of Local Government Code, section 252.022(a)(4). That
provision provides that the requirement of chapter 252 that
contracts by municipalities requiring expenditures in
certain amounts be made on competitive bids, does not apply
to an expenditure for *Iaprocurement for personal or profes-
sional services." Having researched your question, we
conclude that whether the services of a TPA are professional
services under chapter 252 depends on the particular
services which a municipality contracts with a TPA. to
perform, and that your question is thus a question of fact.
We are unable in the opinion process to determine questions
of fact.
As pointed out in the brief accompanying your request,
TPA's are required by Texas law to obtain and maintain a
"certificate of authority" issued by the commissioner of in-
surance in order to operate in Texas. Section 2(3)(A) of
Insurance Code article 21.07-5 provides:
'Administrator' or 'third party admini-
strator' or 'TPA' means a person who receives
any form of administrative or service fee,
consideration, payment, premium, reimburse-
ment, or compensation for performing or
providing any service, function, or duty, or
activity respecting insurance or alternatives
to insurance in any administrative or
management capacity, including but not
limited to claims or expense review,
underwriting, administration, and management,
under a contract or other agreement to be
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Honorable Joe Lucas - Page 2 (JM-1038)
performed in this state or with respect to
risks located or partially located in this
state or on behalf of persons in this state
for:
(i) any plan;
(ii) any insurance carrier: or
(iii) any person that self insures.
Clearly, the definition of a TPA as a person "perform-
ing u service, function, or duty, or activity respecting
insurance or alternatives to insurance in any administrative
or management capacity" (emphasis added) is very broad, and
could include services ranging from simple clerical ones to
complex ones requiring high levels of expertise.
In Attorney General Opinion JM-940 (1988) we noted with
respect to the scope of the term "professional services" in
a competitive bidding requirement exception:
The courts have not adopted a universal
definition of the term: however, several
cases suggest that it comprehends labor and
skill that is 'predominately mental or
intellectual, rather than physical or,
manual.' Marvland Casualtv Co. v. Crazy
Water Co., 160 S.W.2d 102 (Tex. Civ. App. -
Eastland 1942, no writ). It no longer
includes only the services of lawyers,
physicians, or theologians, but also those
members of disciplines requiring special
knowledge or attainment and a high order of
learning, skill, and intelligence. See
Attorney General Opinion 'NW-344 (1981):
Black's Law Dictionary 1089-90 (5th ed.
1979)(definition of *profession').
Attorney General Opinion JM-940 concluded that the services
of a construction management consultant, as described in the
request, were within the "professional services" exception
to the competitive bidding requirements of Education Code
section 21.901, relating to contracts for the construction,
maintenance, repair, or renovation of school buildings.
A brief submitted in connection with your request
points to Council of Citv of New Orleans v. Morial, 390 So.
2d 1361 (La. Ct. App. 1980), as "the only case directly on
point." That case held that the services of a TPA in
connection with the city's health plan were not "profes-
sional services" under an exception to the city charter's
competitive bidding requirements. Notably, however, the
P. 5381
Honorable Joe Lucas - Page 3 (JM-1038)
Louisiana court considered in its opinion the specific terms
of the contract between the city and the TPA for the lat-
ter's services.
In addition to Insurance Code article 21.07-5, we find
one other reference to TPA's in the Texas statutes. Article
6252-3b, V.T.C.S., authorizes the establishment of deferred
compensation plans for public employees, and requires the
solicitation of bids prior to the adoption of a particular
plan. Section 3B(b) of that article directs the comp-
troller, when soliciting bids for plans authorized under
section 401(K) of the Internal Revenue Code, to "consider
bids from companies requiring the use of their own agents to
sell their products as well as companies selling their pro-
ducts through a third nartv administrator or otherwise"
(emphasis added). There is no professional services excep-
tion provided for in article 6252-32, to the competitive bid-
ding requirements of that article an indication, we think,
that the legislature considered that public contracts in-
volving the services of TPA's, at least in connection with
the deferred compensation plans authorized by article
6252-3b, could efficiently and economically be subjected to
competitive bidding requirements.1
To reiterate, however, we cannot rule whether the ser-
vices of TPA's generally are "professional services" under
the competitive bidding requirement exception in Local
Government Code section 252.022(a)(4). Again, we think the
characterization of such services as professional or not
a Gulf Bithulithic Co. v. Nueces Co., 11
s.w.2:. 3E &x: Comm'n App. 1928, judgm't adopted),
considering applicability of competitive bidding
requirements to a county contract for supervision of county
road construction:
To hold that contracts for the supervision
of work done directly by the county must be
let to the lowest bidder would result in the
county obtaining the least competent
supervision, as those possessing the
necessary skill, experience, and business
judgment to supervise a large construction
program in the most efficient and economical
manner could not hope to sucessfully compete
with those of lesser skill, experience, or
business judgment.
p. 5282
Honorable Joe Lucas - Page 4 (JM-1038)
depends in the first instance on the specific TPA services
to be provided under a specific contract.2
SUMMARY
Whether the services of a third party ad-
ministrator are professional services within
the meaning of the competitive bidding re-
quirement exception in section 252.022(a)(4)
of the Local Government Code is a question of
fact, and depends on the particular services
to be provided under a specific contract.
-
JIM MATTOX
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
LOU MCCREARY
Executive Assistant Attorney General
JUUGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by William Walker
Assistant Attorney General
2. Please note, however, that the ruling in Attorney
General Opinion MW-494 (1982) indicates that a contract for
the purchase of insurance would be subject to the
competitive bidding requirements. While specifically not
addressing whether the "employment of an insurance
consultant would be within the exception for personal or
professional services," that opinion concluded that
"contracts for the purchase of insurance by counties are
required . . . to be submitted to competitive bids." While
Attorney General Opinion MW-494 considered the applicability
of the competitive bidding requirements of former article
2368a, V.T.C.S., to insurance purchases by counties, we see
no reason why the same conclusion would not be reached with
respect to insurance purchases by municipalities under the
current chapter 252 competitive bidding requirements.
p. 5383
Honorable Joe Lucas - Page 5 (JM-1038)
LOU MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLRY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by William Walker
Assistant Attorney General
p. 5384