The Attorney General of Texas
July 13. 1982
MARK WHITE This Opinion
Attorney General Overrules M W 342
Mr. George N. Rodriguez, Jr. Opinion No. m-494
Supreme Court Suildin9
County Attorney
P. 0. Box 12548
Austin. TX. 79711. 2549 County of El Paso Re: Whether counties must
51214752501 206 City-County Building require competitive bids on
Telex 910/974.1367 El Paso, Texas 79901 insurance contracts whose
Telecopier 512f475-0296 premiums exceed $5.000.00
1607 kin St., Suite 1400
Dear Mr. Rodriguez:
Dallas. TX. 7s201-4709
21417423944 You have asked whether article 2368a. V.T.C.S., or any similar
statute, requires contracts for the purchase of insurance by counties
to be awarded through the competitive bidding process.
4824 Alberta Ave.. Suite 160
El Paso. TX. 799652793
915633384 Article 2368a. V.T.C.S., provides in part:
county, acting through its
1220 Dallas Ave.. Suite 202
liouston. TX. 770024988
CoSe~Lo2ner8(a~ou~~ and no city in this state
7t- shall hereafter mak: any contract calling for or
requiring an expenditure or payment in an amount
exceeding five thousand dollars ($5.000.00) out 'of
808 Broadway. Suite 312 any fund or funds of any city or county or
Lubbock. TX. 794ota479
8Mn47.5239
subdivision of any county creating or imposing an
obligation or liability of any nature or character
upon such county or any subdivision of such
4309 N. Tenth. Suite S county, or upon such city. without first
McAllen. TX. 78501-1685 submitting such proposed contract to competitive
51216824547
bids.
200 Main Plaza. Suite 400 (b) ....
San Antonio. TX. 78205.2797
51212254191
Provided, that in case of public calamity, where
it becomes necessary to act at once to appropriate
An Equal Opportunity/ money to relieve the necessity of the citizens.
Affirmative Action Employer or to preserve the property of such county,
subdivision, or city, or when it is necessary to
preserve or protect the public health of the
citizens of such county or city, or in case of
unforeseen damage to public property, machinery or
equipment, this provision shall not apply; and
provided further, as to contracts for personal or
professional services; work done by such county or
p. 1759
Mr. George N. Rodriguez. Jr. - Page 2 (MW-494)
city and paid for by the day, as such work
progresses; and the purchase of land and
right-of-way for authorized needs and purposes,
the provisions hereof requiring competitive bids
shall not apply and in such cases the notice
herein provided shall be given but only with
respect to an intention to issue time warrants
with right of referendum as contemplated in
Sections 3 and 4 hereof respectively.
Section 2(a) is a comprehensive provision applying to "any
contract" requiring an expenditure of over $5,000. It is subject to
the specific exceptions stated in section 2(b). including an exception
for "personal or professional services." In addressing your question,
we have to determine whether'an insurance contract falls within the
comprehensive terms of sectibn 2(a) or whether an exception ~1s
applicable. The exception for personal and professional services is
the only one which needs examination.
In Attorney General Opinion MW-342 (1981) we held that school
district8 need not let insurance contracts on competitive bids. That
opinion construed section 21.901 of the Education Code which has since
been amended without change in the languagesrelied upon in Attorney
General Opinion MW-342. Section 21.901 reads in part:
(a) Except as provided in Subsection (e) of
this section, all contracts proposed to be made by
any Texas public school board for the purchase of
any personal property shall be submitted to
competitive bidding when said property is valued
at $5,000 or more.
(b) Except as provided in Subsection (e) of
this section, all contracts proposed to be made by
any Texas public school board for the
construction, maintenance, repair or renovation of
any building or for materials used in said
construction, maintenance, repair or renovation,
shall be submitted to competitive bidding when
said contracts are valued at $5,000 or more.
(c) Nothing in this section shall apply to
fees received for professional services rendered,
Including but not limited to architects fees,
attorney's fees, and fees for fiscal agents.
.. . .
(e) If a school building or school equipment
is destroyed or severely damaged, and the school
p. 1760
Mr. George N. Rodriguez, Jr. - Page 3 @U-494)
board determines that the time delay posed by the
competitive bidding process would prevent or
substantially impair the conduct of classes or
other essential school activities, then contracts
for the replacement or repair of such building or
equipment may be made without resort to
competitive bidding as otherwise required by this
section.
Section 21.901 of the Education Code is structured differently from
article 2368a, V.T.C.S. The Education Code provision states two
categories of contracts subject to competitive bidding -- those for
personal property and those for the construction, maintenance, repair,
or renovation of any building or for the materials used in these
projects. It is not apparent that these two categories cover every
type of contract a school district might enter into. Nor is it
apparent that the exceptions for professional services and for
emergency repairs cover all contracts excluded from the competitive
bidding requirements of section 21.901. See, e.g., Attorney General
Opinion M-950 (1971) (school district may negotiate computer lease
contract without competitive bids).
Attorney General Opinion MU-342 stated that an insurance contract
did not fit squarely into the category of "personal property" or the
exemption for "professional services" under section 21.901 of the
Education Code. The services provided under it were significant
enough ,to remove the contract from the category of "personal
property," event though they did not constitute "professional
services." Under section 21.901 it is unnecessary to show that an
insurance contract is a contract for "professional services" to remove
it from the competitive bidding requirement. It is only necessary to
show that it cannot fairly be characterized as a contract for the
purchase of personal property. The discussion in Attorney General
Opinion MU-342 of the service aspect of an insurance contract must be
read with section.21.901 in mind. 'It does not resolve the question
before us concerning the construction of article 2368a, V.T.C.S.
Turning to your question, we next consider whether a contract for
insurance constitutes a contract for personal or professional services
within article 2368a, V.T.C.S. Attorney,General Opinion MU-344 (1981)
considered whether the Board of Trustees of Galveston Wharves must bid
a contract for the services of a container terminal operator at the
port. The opinion concludes that a contract to operate container
terminal facilities was not a~ contract for personal services, even
though the operation of the facilities was complex and technical, and
even though it involved considerable labor costs. It relied on
judicial definitions which indicated ,that a contract was one for
"personal services" only if the contract price was largely for
employee wages rather than for machinery, profit, taxes, insurance,
p. 1761
Mr. George N. Rodriguez. Jr. - Page 4 (MW-494)
and other items. See Van Zandt v. Fort Worth Press, 359 S.W.2d 893
(Tex. 1962); RadioTKE, Inc. v. Tiemann. 378 S.W.2d 952 (Tex. Civ.
APP. - Austin 1964, writ ref'd n.r.e.).
An insurance contract is clearly not a contract for personal
services under the standard developed in Attorney General Opinion
WI-344. In exchange for premiums paid under an insurance contract,
the insured receives financial protection against stated risks.
Incident to the provision of protection the insurance company provides
various services such as claims processing and investment services.
However, the costs of equipment, materials, other overhead, taxes,
profits, and the cost of the financial protection itself contribute in
large part to the total amount of premiums. Since the cost of
employee wages does not form the major part of the contract price, an
insurance contract is .not a contract for personal services within
article 2368a. V.T.C.S.
Attorney General Opinion MW-344 discussed the meaning of the
"professional services" exemption in article 2368a, V.T.C.S. It
relied on cases from other jurisdiction8 which emphasized the body of
special knowledge attributable to a profession, the years of study
necessary to attain competence, and the wide recognition of the
profession and its standards of study. In our opinion, the provision
of insurance coverage does not constitute the provision of
professional services. See Attorney General Opinion MW-342 (1981).
It is therefore subject= the competitive bidding requirements of
article 2368a, V.T.C.S.
Your question concerns only the purchase of a contract for
insurance coverage. We do not address the question of whether the
employment of an insurance consultant would be within the exception
for personal or professional services. Contracts for the purchase of
insurance by counties are, however, ,required by article 2368a,
V.T.C.S., to be submitted to competitive bids.
SUMMARY
Article 2368a, V.T.C.S., requires counties to
award contracts for, the purchase of insurance
through the competitive bidding process.
&Tg
Attorney General of Texas~
p. 1762
Mr. George N. Rodriguez, Jr. - Page 5 (MW-4?4)
JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
Prepared by Susan L. Garrison
Assistant Attorney General
APPROVED:
OPINION COHMITTEE
Susan L. Garrison, Chairman
Rick Gilpin
Jim Moellinger
p. 1763