The Honorable Jerry Madden Chair, Committee on Corrections Texas House of Representatives Post Office Box 2910 Austin, Texas 78768-2910
Re: Whether an out-of-state company may be considered a "resident bidder" under particular circumstances (RQ-0703-GA)
Dear Representative Madden:
You ask several questions regarding provisions of the State Purchasing and General Services Act (the "Purchasing Act").1 See generally TEX. Gov'T CODE ANN. §§ 2151.001-2177.103 (Vernon 2008). Your questions arise out of the implementation by the Texas Department of Transportation (the "Department") of a program involving the marketing and sale of specialty license plates through a private vendor. See Request Letter, supra note 1, at 1; TEX. TRANSP. CODE ANN. §§ 504.851-.852 (Vernon 2007). That program requires, in part, that the Department "enter into a contract with the private vendor whose proposal is most advantageous to the state, as determined from competitive sealed proposals that satisfy the requirements of [section 504.851] for the marketing and sale of certain personalized license plates. TEX. TRANSP. CODE ANN. §
A contract under this specialty license plate program was awarded to a firm. See Request Letter, supra note 1, at 1-2. You tell us that you have information indicating that the firm that was awarded the bid
*Page 2listed a Texas address in its proposal and certified it was a Texas Resident Bidder yet conducted no business in Texas, nor had a place of business save for apparently using an address in Austin of a company that has no legal connection to the bidder. [The information you have] also suggests that the firm's president appears to have been the only employee of the entity prior to award of the contract, [and he] purportedly resides and offices in Australia, and performs nearly all of his business in that location rather than Texas.
Id. at 2. You explain that the award of this bid resulted in a protest by another firm that had also submitted a proposal but was not awarded the bid. See id. at 1-2. The appeal of the bid award by the other firm was ultimately denied by the Department's executive director. Seeid. at 2.
As a result of arguments raised in the protest of this bid award and determinations made by the Department as to the protest, you ask the following questions:
If a non-Texas resident or company located outside of Texas sets up a Texas business entity, and that business entity conducts no business in Texas other than retaining an attorney, is that company considered a Texas Resident Bidder, and is it considered to have a Principal Place of Business in Texas?
If a company does not have a Principal Place of Business in Texas and is not a Texas Resident Bidder, and signs an affirmation that it is a Texas Resident Bidder, and is subsequently awarded a state purchase order, what recourse exists to address this discrepancy?
If there is a competitive procurement and each competing firm submitted a $1 bid, and presented proposals to generate additional state revenue which are scored differently by the procuring agency, should bidding preferences apply, and if so which preferences are applicable?
If bidding preferences were not appropriately applied by a state agency during a procurement, and the agency disagrees that bidding preferences should have been applied, what recourse exists to compel the agency to re-consider preferences?
See id. at 2-3.
I. Procedural Issues
Before we begin our analysis of your questions, we must address procedural challenges regarding this request. First, briefs received in our office contend that by responding to your questions we are conducting an "appellate review" of the Department's bid award.2 This office has historically refused to consider questions about the award of particular contracts or whether a *Page 3 contract is subject to specific competitive-bidding requirements because those questions require factual determinations. See, e.g., Tex. Att'y Gen. Op. No.Second, briefs received in our office argue that we "should not issue an opinion in this matter because the opinion request" does not come from an authorized requestor and the subject matter of the request "does not concern a question of public interest or . . . [the] official duties of the requestor." See MyPlates Brief, supra note 2, at 2-3. Government Code section
II. Analysis
A. Section 2155.444Government Code section
Section 2155.444(e) provides that
state agencies procuring services shall give first preference to services offered by a Texas bidder that is owned by a service-disabled veteran who is a Texas resident and shall give second preference to services offered by other Texas bidders if:
(1) the services meet state requirements regarding the service to be performed and expected quality; and
(2) the cost of the service does not exceed the cost of other similar services of similar expected quality that are offered by a bidder that is not entitled to a preference under this subsection.
TEX. GOV'T CODE ANN. §
For the purposes of section 2155.444, the term
"Texas bidder" means a business:
(A) incorporated in this state;
(B) that has its principal place of business in this state; or
(C) that has an established physical presence in this state.
TEX. GOV'T CODE ANN. §
B. The type of business that constitutes a "Texas bidder"
Your first question asks about the circumstances under which a company is considered a "Texas Resident Bidder." Request Letter, supra note 1, at 2.5 Section 2155.444 does not use the *Page 5
term "Texas Resident Bidder." Rather, that section uses the term "Texas bidder." See TEX. GOV'T CODE ANN. §
You ask "[i]f a non-Texas resident or company located outside of Texas" could constitute a Texas bidder if the business "sets up a Texas business entity" but "conducts no business in Texas other than retaining an attorney." You do not explain what you mean by "sets up a Texas business entity." Request Letter, supra note 1, at 2-3. To the extent that you mean a business that incorporates as a Texas business entity, the Legislature has expressly provided that this action alone is sufficient to make a business a "Texas bidder" as that term is defined by the Legislature in section 2155.444(c)(2)(A).
You also ask whether the business you describe is one that has its principal place of business in Texas. Id. at 2. Neither section 2155.444 nor any judicial decision we find defines the term "principal place of business" as used in section 2155.444. Moreover, the legislative history does not provide insight as to the meaning of this term. And while there are discussions of the meaning of *Page 6
this term as used in other statutes, whether a business "has its principal place of business in this state" under section 2155.444(c)(2)(B) requires the determination of facts that cannot be resolved in the opinion process. Cf. Tex. Att'y Gen. Op. No.
C. Remedies and responses available when a bidder inaccurately affirmsit is a Texas bidder
In your second question you ask what recourse exists in a situation in which a company is not a Texas bidder but signs an affirmation that it is a Texas bidder and is subsequently awarded a state purchase order. Request Letter, supra note 1, at 2. You raise section 2.25 of The State of Texas Procurement Manual (the "Manual") in relation to your questions. See TEXAS COMPTROLLER OF PUBLIC ACCOUNTS, The State of Texas Procurement Manual § 2.25, available at http://www.window.state.tx.us/procurement/pub/manual/2-25.pdf (last visited Oct. 28,2008). Section 2.25 of the Manual contains various affirmations that are characterized as "standard terms and conditions that are required in all solicitations." Id. at 80. One such affirmation provides that "[b]y signing this bid, bidder certifies that if a Texas address is shown as the address of the bidder, bidder qualifies as a Texas Resident Bidder as defined in Texas Administrative Code, Title 34, Part 1, Chapter 20." Id. at 81. We do not find the term "Texas Resident Bidder" defined or used in the portion of the Administrative Code referenced in the Manual. See 34 TEX. ADMIN. CODE ch. 20 (2008) (Tex. Comptroller of Pub. Accounts, Tex. Procurement Support Servs.).
Regardless, a range of remedies and responses may be available under the Purchasing Act if a bidder makes inaccurate representations in its bid proposal. See Tex. Logos, L.P. v. Tex. Dep `t ofTransp., 241 S.W.3d 105,121 (Tex.App.-Austin 2007, no pet). Agency protest procedures can be initiated by other bidders in response to proposals that contain inaccuracies. See TEX. GOV'T CODE ANN. §
Additionally, a contract may be rendered voidable as a result of a vendor's misrepresentations or fraud in its proposal. See Tex. Logos,
D. Whether the section 2155.444(e) preference applies in the case of atie bid
You ask the following in your third question: "If there is a competitive procurement and each competing firm submitted a $1 bid, and presented proposals to generate additional state revenue which are scored differently by the procuring agency, should bidding preferences apply, and if so which preferences are applicable?" Request Letter, supra note 1, at 2. You explain that it is the Department's contention that "no preferences should have been applied [in the award of the specialty license plate program] because there was no tie in the scoring of the different proposals" but that legal counsel for the protesting firm "asserts that it is not a tie of the proposal scores that matters, but a tie in the dollar amount that was actually bid." Id. (emphasis added).
There are a multitude of preferences that might, depending on the facts, apply to a particular purchase. See, e.g., TEX. GOV'TCODE ANN. §§
As to section 2155.444(e) — the apparent focus of your question — it provides that preferences under this subsection apply if:
(1) the services meet state requirements regarding the service to be performed and expected quality; and
(2) the cost of the service does not exceed the cost of other similar services of similar expected quality that are offered by a bidder that is not entitled to a preference under this subsection.
Id. § 2155.444(e) (Vernon 2008) (emphasis added). Assuming that the requirement in section 2155.444(e)(1) is met, if there is an actual tie in the proposed cost of the service, as your question suggests, the preferences in section 2155.444(e) apply only if the service is "of similar expected quality [to] that . . . offered by a bidder that is not entitled to [the] preference." Id. § 2155.444(e)(2).
E. The recourse available to compel a state agency to reconsider theapplication of a bid preference
In your fourth question you ask what recourse exists to compel a state agency to reconsider the application of bidding preferences when it is believed that preferences have been incorrectly *Page 8
applied by a state agency during a procurement process. Request Letter,supra note 1, at 2-3. Section 2155.076 of the Purchasing Act requires the "commission and each state agency by rule [to] develop and adopt protest procedures for resolving vendor protests relating to purchasing issues." TEX. GOV'T CODE ANN. §
The term "Texas bidder" as defined by Government Code section2155.444 (c)(2) means a business that is incorporated in Texas, a business that has its principal place of business in Texas, or a business that has an established physical presence in Texas. See TEX. GOV'T CODE ANN. §2155.444 (c)(2) (Vernon 2008). Whether a business has its principal place of business in Texas under section 2155.444(c)(2) is a fact-sensitive inquiry.A range of remedies and responses may be available under the State Purchasing and General Services Act ("Purchasing Act") if a bidder inaccurately represents it is a Texas bidder in its proposal. Agency protest procedures can be initiated by other bidders and vendors can be barred from participating in state contracts or be removed from certain bidders lists as the result of such inaccuracies. Additionally, a contract entered into pursuant to such a proposal may be rendered voidable and, in some instances, criminal prosecution may be pursued. The availability of any remedy or response in any particular bidding context depends upon the facts.
The purchasing preferences in Government Code section
2155.444 (e) apply when (1) the service otherwise meets the state's requirements and expected quality, and (2) "the cost of the service does not exceed the cost of other similar services of similar expected quality that are offered by a bidder that is not entitled to a preference under th[e] subsection." Id. § 2155.444(e) (emphasis added). Under the express provisions of section 2155.444(e)(2), if there is an actual tie in the proposed cost of the service, a preference applies if the service is "of similar expected quality."Any statutes applicable to a particular state agency as well as any rules adopted by the agency must be reviewed to determine what recourse might be available when a bidder believes bidding preferences were applied incorrectly.
Very truly yours,
*Page 10GREG ABBOTT Attorney General of Texas
KENT C. SULLIVAN First Assistant Attorney General
ANDREW WEBER Deputy Attorney General for Legal Counsel
NANCY S. FULLER Chair, Opinion Committee
Christy Drake-Adams Assistant Attorney General, Opinion Committee
Texas Bidder-As applies to the use of the preference to "Texas and United States Products and Services", "Texas Bidder" means a business:
(A) incorporated in this state;
(B) that has its principal place of business in this state; or
(C) that has an established physical presence in this state.
Id. The rule was transferred to the Comptroller of Public Accounts without change and is currently codified at