Untitled Texas Attorney General Opinion

The Attorney General of Texas

JIM MATTOX
June 19, 1986
Attorney General

Supreme Court Building Honorable Mike Driscoll Opinion No. JM-505
P. 0. BOX 12549
Harris County Attorney
Austin, TX. 7871% 2549
512/475-2501 1001 Preston, Suite 634 RS: Bonds for Harris County
Telex 9101574.13S7 Houston, Texas 77002 public works contracts, and
related questions

714 Jackson. Suite 700
Dear Mr. Driscoll:
Dallas. TX. 752024506
214R42-8944 You have asked five questions concerning "the bid, performance
and payment bond requirements for public works contracts" let by
Harris County: "l?ublicworks" are works constructed for public use,
4824 Alberta Ave.. Suite 180
El Paso, TX. 799052793
protection or enjoyment, ordinarily of a fixed nature. See Overstreet
9151533.3484 V. Houston County, 365 S.W.2d 409 (Tex. Civ. App. - House 1963, writ
ref'd n.r.e.); 47 Tex. Jur. 2d. Public Works and Contracts §l at 458
(1963); 64 Am. JUL.. 2d, Public Works and Contracts 61 at 842 (1972).
-1 Texas, Suite 700 A brief accompanying your request suggests an "apparent conflict"
uston. TX. 77002.3111
between articles 21368a.5,the recently enacted County Purchasing Act,
7131222-5888
and article 5160, 'V.T.C.S..last amended in 1977, the statute which
has long governed czontractors'performance and payment bonds for most
808 Broadway, Suite 312 public works.
Lubbock, TX. 79401-3479
509,747.5238 The problem r.risesbecause article 5160, V.T.C.S., provides that
prime contractors on public works contracts for more than $25,000 with
4309 N. Tenth, Suite E the state, county, or another political unit
McAllen. TX. 795Ol.lSS5
512mS2-4547 shall bc, required before commencing such work to
execute . . . statutory [performance and payment]
200 Main Plaza. Suite 400 bonds . . . but no governmental authority may_
San Antonlo. TX. 782Q5.2797 require a bond if the contract does not exceed the
51212254191 sum of $y5,000 (emphasis added).

whereas section 12 of the new County Purchasing Act reads:
An Eaual O~~~rt~nil~l
Affirmative Action Employer
sec. 12. (a) If the contract is for the con-
struction of public works or is under a contract
exceeding $50,000, the bid specifications or
request for proposals may require the bidder to
furnish a good and sufficient bid bond in the
amount of five percent of the totalcontract price
and executed with a surety company authorized to
do business in this state.

p. 2315
Honorable Mike Drlscoll - Page 2 (JM-505)

-,

(b) Not later than the 10th day after the
signing of a corxract or issuance of a purchase
order following the acceptance of a bid or
proposal, the b:.dder or proposal offeror shall
furnish a performance
-- bond to the county, if
required by the county, for the full amount of the
contract if that contract exceeds $50,000.

(c) For those contracts that are for $50,000 or
less, the county may provide in the bid notice or
request for proposals that no money will be paid
to the contractor until completion and acceptance
of the work or the fulfillment of the purchase
obligation to the county.

(d) A bidder or proposal offeror whose rates
are subject to regulation by a state agency may
not be required to furnish a performance bond or a
bid bond under this section. (Emphasis added).

The extent of the conflict is more apparent than real inasmuch as
a close reading of the Count:yPurchasing Act and the bill enacting it
-- particularly when read jn conjunction with other legislation passed
during the regular session of the Sixty-ninth Legislature -- discloses
that the County Purchasi1.g Act was designed primarily to replace
previous statutes governing county purchases, not public works, and
was intended to have only .avery limited effect in the "public works"
sphere. Cf. Attorney General Opinions JM-486, JM-449 (1986). JM-385
(1985) (article 2358a.5 bidding requirements).

The competitive biddir.grequirements of the County Purchasing Act
are applicable only to "items" under a contract. V.T.C.S., art.
2368a.5 53(a). An "item" is defined to mean "any service, equipment,
good n or other tangible or intangible personal property." V.T.C.S.
art. 2368a.5 %2(3). Under some circumstances, the performance of a
construction contract can be considered a "service." See Mathews
Construction Company, Inc.-v. Jasper Housing ConstructionCo., 528
S.W.2d 323, 327 (Tex. Clv. App. - Beaumont 1975, writ ref'd n.r.e.).
Cf. Woods V. Littleton, Ii?;4S.W.2d 662, 666 (Tex. 1977). But in
ordinary usage the term ill not applied to public works construction
contracts. Moreover, another statute amended in 1985, article
2368a.3, V.T.C.S., expresrily governs competitive bidding on public
works contracts. We do not think the word "item," as used in the
County Purchasing Act, was meant to include public works generally.

The statutory definition of "item" quoted above has appended to
it the following sentence: "The term includes insurance and high
technology items." V.T.C.S. art. 2368a.5, §2(3). The term "high
technology item" is separat:elydefined as

p. 2316
Honorable Mike Driscoll - Page 3 (JM-505)

a service, equipment, or good of a highly technical
nature, includin;l::data processing equipment and
software and firaware used in conjunction with data
processing equipment; telecommunications, radio,
and microwave systems; electronic distributed
control systems .including building energy manage-
ment systems); and technical services related to
these items. (Enphasis added.)

Id. 52(4). That the 1egis:Laturefelt it necessary to include such
work specifically in the definition of "item" is an indication that,
absent the elaboration, sor.eof it would ordinarily be excluded. That
some such work might be considered "public work" under other statutes
is clear. See Overstreet v. Houston County, supra. at 365 S.W.2d, at
409 (air conditioning of ccirthouse).

The only express reference in the County Purchasing Act to
contracts for public works is found in section 12(a) thereof, which
provides that the county may require a 5 percent "bid bond" of bidders
if the contract "is for the construction of public works or is under
[sic] a contract exceeding S50,OOO." In Lopez v. Ramirez, 558 S.W.2d
954 (Tex. Civ. App. - San Antonio, 1977, no writ), the court termed it
improper in construing another contracting statute, the Certificate of
Obligation Act, to treat jsolated words in the statute as making it
applicable to contracts otter than those the statute was intended to
reach. The court read'the disputed words in the context of the entire
act.

When we read the Couxy Purchasing Act section 12 "public works"
language in the context of the full act, we conclude that the passage
refers only to "high techr.ology"installations which in some aspects
would be considered "public works" under other statutes.

This conclusion is bclstered by the extraordinary rearrangement
and integration in 1985 of statutes dealing with similar matters. The
enactment of the County I?rrrchasingAct was clearly tied to other
changes in the law. Both t:heBond and Warrant Law of 1931 (article
2368a, V.T.C.S.) and the Certificate of Obligation Act (article
2368a.l. V.T.C.S.), an act pertaining only to public works, see Lopez
v. Ramirez, supra. were amended by the same session of.the lezlature
that passed the County Purchasing Act. The bill which extensively
revised the Bond and Warrant Law, among other things, to delete
counties from its coverage, Acts 1985, 69th Leg., ch. 505, at 4201,
provided that a portion of it tentatively restoring coverage of
counties was to become effective only if the bill enacting the County
Purchasing Act, Acts 1985, 69th Leg., R. S., ch. 641 at 4897, did not
become law. The County Purchasing Act bill also amended other
statutes, including the CctuntyRoad and Bridge Act (article 6702-1,
V.T.C.S.), articles 2351a, 2351a-1, 2351a-2, and 2367a, V.T.C.S. In

p. 231.7
Honorable Mike Driscoll - Pa%e 4 (a-505)

addition, it repealed articles 1658, 1659, 1659a, 1659b. 2358, 2359,
2360, 2361, 2362, 2363, 2364, 2365, 2366, 2367. and portions of
articles 6702-l and 6812b, V.T.C.S., all concerned with county
procurement. bidding, and t'onds. But it did not expressly repeal (or
even mention) article 5160.

The Bond and Warrant Law from which counties were excluded by
1985 amendments now provides that if a 9 contract is for public
works, the successful bidder will be required to execute a performance
bond "in accordance with . . . Article 5160," but continues:

However, the city in making any contract calling
for or requiring the expenditure or payment of less
than $100,000 may, in lieu of the bond requirement.
provide in the contract that no money will be paid
to the contractor until completion and acceptance
of the work by the city. (Emphasis added).

V.T.C.S. art. 2368a. 52 3) . Significantly, the similar County
Purchasing Act subsection 12(c) "no money" provision neither refers to
article 5160 nor indicates that the option of withholding the entire
contract price from the ccntractor is "in lieu of the bond requlre-
ment 181.'I

We do not believe the ,referencein the Bond and Warrant Law, as
amended in 1985, to article 5160 performance and payment bond require-
ments for public works, ani the omission of any reference thereto in
the 1985 County Purchasing Act, was accidental. The bill amending the
Bond and Warrant Law and 1:he one enacting the County Purchasing Act
were each passed in express contemplation of the other. In our
opinion the legislature intended to leave County Purchasing Act
contracts outside the ambit of article 5160.

The statute latest in time -- in this case, the County Purchasing
Act -- ordinarily controls in case of conflict, see Gov't. Code
1311.025(a), but it is the duty of the courts toharmonize the
provisions of statutes,in pari materia. if reasonably possible, and
implied repeals are not jiavored. A construction that allows both
statutes to stand is to be preferred. See 53 Tex. Jur. Zd, Statutes
5100, at 146 (1964). An il,reconcilableconflict between a special and
a general provision is resolved by treating the special provision as
an exception to the general.provision unless the manifest intent is
otherwise. Gov't. Code $311.026.

Under an interpretation that views the new County Purchasing Act
as one designed primarily to replace previous statutes governing
county purchases, not construction contracts for public works, the
statute does not conflict l#:ith
article 5160, which is applicable only
to public works, except in ,thespecialized area of "high technology."
--.

p. 2318
Honorable Mike Driscoll - Page 5 ~(JM-505)

This construction explain:3 why the new statute does not mention
payment bonds or article 5160. (The usual "public works" relationship
of prime contractors and cubcontractors on construction jobs is not
typical of high technology contractors.) And it makes understandable
the subsection 12(d) provision that forbids requiring performance or
bid bonds of contractors wh'ose rates are subject to state regulation
(s, public utilities). It also leaves intact an integrated system
designed to protect workmon and suppliers on ordinary public works
jobs -- a system which the legislature has shown no intention to scrap
generally. See V.T.C.S. art. 2368a.5, 53(b) [making article 2368a.l
control certain county contracts. which statute, in turn, requires
bonds on public works in m:cordance with article 5160, per sections
3(a) and 6(d) thereof].

We conclude that the, County Purchasing Act does not embrace
"public works" contracts except insofar as "high technology" items can
be considered public works. With the foregoing in mind, we turn to
your specific questions.

1. May Harris County require performance bonds
on all public works contracts?

We answer your first jplestionin the negative. Requirements for
performance bonds in comection with public works contracts are
ordinarily governed by art:tcle5160, V.T.C.S., which forbids counties
from requiring such bonds co contracts of $25,000 or less.

2. May Harris County require payment bonds on
all public works contracts?

No. Requirements for payment bonds in connection with public
works contracts are ordlmrily governed by article 5160, V.T.C.S.,
which forbids counties fz,om requiring such bonds on contracts of
$25,000 or less.

3. May Harri:l County require a five percent
bid bond and/or bid check, either certified or
bank cashier's check, on all public works pro-
jects?

Bid bonds and "bid checks" are both species of forfeitable "bid
security" designed to asss:ce that the bid is a serious one. Cf.
United States v. Conti, ll!)F.2d 652 (1st Cir. 1941). The article
5160 provisions for statutcry performance and payment bonds have never
been thought to preclude ccmpanion common law agreements not expressly
forbidden or in conflict with the statute. Masher Manufacturing Co.
v. Equitable Surety Co., 229 S.W. 318, 319 (Tex. Comm. App., 1921)
held that independent of a statute, a county with the power to
contract for the construction of public buildings had implied

p. 2319
Honorable Mike Driscoll - Page 6 (J&505)

authority to bind contractems to pay the claims of material men and
laborers -- upon the theory that such agreements, although for the
primary benefit of particular persons, protect the public Interest.
See also Attorney General Opinion H-813 (1976).

We believe counties al:so have implied authority to require bid
security on public works contracts in the form of bid bonds, cashier's
checks or certified checks, if they choose, unless the practice is
specifically prohibited, ac in subsection 12(d) of article 2368a.5.
Such requirements protect the county and the public interest. - See
J. Canterbury, Texas ConstrE:tion Law Manual 93.13 (1981).

4. May partir.1 payments be withheld in con-
nection with public works contracts of $50,000 or
less?

Article 5160 does not require the county to pay the full contract
price prior to the accomplishment of the work. Building and construc-
tion contracts frequently provide for payment of the contract price in
installments during the progress of the work, either in fixed amounts
or in amounts based 011esttiaatesof an architect or engineer as to the
quantity and value of the nlaterialfurnished and work performed. -See
10 Tex. Jur. 3d, Building Cz!rtracts531, at 258 (1980).

That Texas statutes ccntemplate partial payments on public works
contracts is shown by section 53.235 of the Property Code, which
prohibits a public officis:l from paying the money due the prime
contractor upon receiving uotice of an unpaid claim from one who
furnished labor or material to the contractor on a public works job of
$25,000 or less. If the law required the full contract price to be
paid before the work was deme, there would be no money remaining due
the contractor to be wil:hheld for the benefit of laborers and
materialmen.

We advise, in answer to your fourth question, that Harris County
is not statutorily prohibl.ted from contracting to withhold partial
payments in connection with public works contracts. Cf. Trinity
Universal Insurance Company,v. McLaughlin, 373 S.W.2d 66.54 S.W.2d
350 (Tex. Civ. App. - Ausctn 1963, writ ref'd n.r.e.) (contractual
agreement based on statute ,abrogatedby consent).

5. May the county's bid specifications for
public works con':racts for $50,000 or less give
the bidder the cption of posting a performance
bond or receiving payment after completion and
acceptance of the project?

We have concluded that section 12 of the County Purchasing Act is
ordinarily not applicable i:o public works contracts. Therefore, the
?

p. 2320
Honorable Mike Driscoll - l'age7 (JM-505)

section 12(c) provision allowing all money to be withheld until the
completion of contracts fo,:$50,000 or less does not control: article
5160 is the pertinent statute.

If article 5160 were Ilivenmandatory effect, the county could not
give contractors an "option" to forego posting a performance bond in
connection with public works contracts exceeding $25,000 inasmuch as
article 5160 requires the posting of such a bond for such contracts.
However, although the article 5160 bond requirement is couched in
mandatory language, the courts have not given it mandatory effect
where counties have chosen to waive the requirement.

The most recent court decision to discuss the matter, Greenville
Independent School District:v. B & .IExcavating, Inc., 694 S.W.2d 410,
411 (Tex. App. - Dallas 191Fi,writ ref'd n.r.e.1, held that a govern-
mental body has no duty uni.erarticle 5160 to require bonds from prime
contractors, either for its own protection or the protection of sub-
contractors, laborers or mzxerialmen. Its only duty, according to the
court, is to approve bonds 8,sto form c they are tendered.

In two earlier cases where a school district and a city each
elected to forego requiring bonds of its prime contractor and stepped
into the shoes of the contx'actorafter he defaulted, the public bodies
were held liable to subcotxractors, materialmen and laborers, but the
failure to require bonds did not render the original contracts void.
Prairie Valley Independent !LzhoolDistrict v. Sa er, 665 S.W.2d 606
(Tex. App. - Fort Worth 19Ea. writ refdg of Ingleside v.
Stewart, 554 S.W.2d 939 (1ex. Civ. App. - Corpus Christi 1977, writ
ref'd n.r.e.). See also --
Overstreet v. Houston County, supra.

Nevertheless, we do net believe counties may allow contractors to
post non-statutory perforunce bonds for public works contracts of
$25,000 or less in lieu of awaiting the completion of the work before
receiving any money. Since!the county may not require such a bond in
such an amount because art:.c
le 5160 prohibits the practice, we do not
believe the direct prohitition can be circumvented by coercing a
"voluntary" bond from contractors faced otherwise with non-payment of
any portion of the contract price until completion and acceptance of
the work. We believe such an "option" would conflict with the purpose
and intent of the article 5160 prohibition.

In recapitulation, we advise that Harris County may not require
performance or payment bon,irron public works contracts of $25,000 or
less, except for "high technology" items, but may require bid security
on all public works contrxts except where the practice is specifi-
cally prohibited by statute. The county is not statutorily prohibited
from contracting to withhold partial payments in connection with
contracts for public works, but it may not give bidders an option to
furnish performance bonds "voluntarily" on contracts of $25,000 or

p. 2321
Honorable Mike Driscoll - Pape 8 (JM-505)

less in lieu of awaiting the completion and acceptance of the work
before receiving any part oE the contract price.

SUMNARY

Flarris County may not require performance or
payment bonds on public works contracts of $25.000
or less, but ma:r require bid security on most
public works. 'The county is not statutorily
prohibited from contracting to withhold partial
payments in conncztion with contracts for public
works, but it ma:7 not give bidders an option to
"voluntarily" furn.ish performance bonds on con-
tracts of $25,000 or less in lieu of awaiting the
completion and acceptance of the work before
receiving any part of the contract price.

Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney Ge:xeral

MARY KELLER
Executive Assistant Attorne:rGeneral

ROBERT GRAY
Special Assistant Attorney l;eneral

RICK GILPIN
Chairman, Opinion Committee

Prepared by Bruce Youngbloo,!
Assistant Attorney General

p. 2322