Request By:
Thomas C. Brite, Esq.
Duke and Brite
Court Square
Hardinsburg, Kentucky 40143
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter stating that in 1974 the city used a $340,000.00 bond issue to finance a new water treatment plant. After the plant was completed some funds remained and the city is considering using these monies for extending water lines. Bids were taken for materials and construction costs for the project. An acceptable bid for materials was received but, in the city's opinion, the bids for construction costs were unacceptable. Your question is whether the city can lease the necessary equipment to do the work and hire the appropriate employes needed for the project without violating the law.
Before considering the specific question you have presented, another matter needs to be mentioned and considered and that involves the bond issue and the surplus funds remaining therefrom. We do not know the statutory provisions pursuant to which the bonds were issued nor do we know the terms and requirements of the bond ordinance. We, therefore, cannot state what requirements or limitations, if any, have been attached to the application of the proceeds received from the bonds and whether the applicable statutes and the bond ordinance, pursuant to which funds for the construction of the water treatment plant were obtained, permit or authorize the construction of the proposed water lines by the city. Note, for example, the provisions of KRS 96.370 et seq. concerning the issuance of bonds and, more specifically, KRS 96.400, dealing with the application of the proceeds of the bonds, as well as KRS Chapter 58 and KRS 58.050, pertaining to the application of the proceeds of the bonds.
At this point, in an attempt to answer your specific question, we will assume that the applicable statutes and the bond ordinance permit the city to use surplus funds from the construction of the water treatment plant to construct the water lines but the city should investigate the matter further.
In our opinion the city, pursuant to the above-noted assumption, has the authority to hire the necessary personnel and to lease the needed equipment. In connection with leasing equipment we direct your attention to KRS 424.260 which is set forth in its entirety in OAG 76-521, copy enclosed. The statute provides in part that a city may not make a contract, lease or other agreement for materials, supplies or equipment, or for contractual services, other than professional, involving an expenditure of more than $2,500 without first making newspaper advertisement for bids.
In Board of Education of Floyd County v. Hall, Ky., 353 S.W.2d 194 (1962), the Court said "a statutory requirement of competitive bidding in the letting of public contracts is mandatory, and nonobservance renders the contract void." The Court further stated that merchandise, supplies and services cannot be purchased in "dribbles and dabs" to avoid the statutory bidding requirements.
The cost of a project includes all expenditures but not all the items for which sums are expended are subject to bidding requirements. Professional services such as engineering and legal services are excluded from the bidding requirements. The value of the work to be done by the city itself is not added to materials, services and equipment the city must secure from other sources to determine if the bidding provisions are applicable. The applicability of the bidding requirements in connection with the leasing of equipment by the city is more fully discussed in OAG 76-521.
You are apparently referring to the renting of equipment and not some sort of lease-purchase agreement for the equipment. If, however, a lease-purchase agreement is involved, see OAG 70-242, copy enclosed, and the principle to follow in determining the value of the contract to ascertain if the bidding statute applies.
Assuming that the statutes pursuant to which the bonds for the construction of the water treatment plant were issued, and the bond ordinance concerning those bonds permit or authorize the use of surplus funds by the city to extend the water lines, it is our opinion that the city may hire the necessary personnel and lease the needed equipment to install the water lines. If the equipment to be leased involves an expenditure of more than $2,500, the city must follow the bidding requirements set forth in KRS 424.260.