Request By:
Ms. Joyce A. Morse
Commissioner
Bureau of Administrative Services
Department for Finance and Administration
Capitol Annex Building
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Elizabeth E. Blackford, Assistant Attorney General
You have stated that the Division of Purchases issued an invitation for bids for the purchase of miscellaneous trucks for the use of various state agencies. Your invitation for bids was sent to bidders from a bidders list maintained by the Division (pursuant to KRS 45.390 [now repealed]) of vendors who are interested in supplying motor vehicles to the Commonwealth. There has never been a specific prerequisite to placement on the bidders list that interested vendors be franchised dealers. However, the invitation to bid and, we are assuming, the prerequisites for placement on the list do require that the vendors be licensed motor vehicle dealers pursuant to KRS 190.010 to 190.080.
The apparent low bidder on two items specified on the Invitation to Bid was King-Woodall Motors, Inc. King-Woodall Motor, Inc. is a licensed motor vehicle dealer. However, you have reason to believe that it is not a franchised dealer for a manufacturer.
Your question, generally, is whether the Commonwealth can and should require a franchise relationship with a manufacturer as a prerequisite for bidding. More specifically, you wish to know whether a non-franchised motor vehicle dealer can qualify as a "responsible and responsive bidder" as defined in KRS 45A.070(6) and (7), and, if the dealer can qualify, whether it may be precluded from bidding based solely upon the fact that it is not a franchised dealer.
We will answer the last question first. The Secretary of the Department may make regulations governing the prequalifications of prospective bidders which are consistent with the Code. 45A.035. Those regulations must be reasonable, and may not contravene the provisions it was designed to carry out.
Winston Ford Construction Company v. Maggard, Ky.App. 560 S.W.2d 562 (1970);
Lovern v. Brown, Ky., 390 S.W.2d 448 (1965). The Kentucky Procurement Code is designed to accomplish, among other things, these purposes:
45A.010(f) To provide increased economy in state and local activities by fostering effective competition;
(g) To provide safeguards for the maintenence of a procurement system of quality and integrity.
The Code contains a provision designed generally to safeguard the system by stating that contracts may be awarded, in competive sealed bidding, only to responsible and responsive bidders. KRS 45A.080(7). A responsible bidder is defined in KRS 45A.070(6) as being one "who has the capacity in all respects to perform fully the contract requirements, and the integrity and reliability which will assume good faith performance."
Assuming for the moment that a motor vehicle dealer who does not hold a franchise could fully perform the contract requirements, the Department could not promulgate a regulation which stated that being a franchised dealer was a prequalification for prospective bidders. For under this circumstance, such a prequalification standard would add no safeguard to the procurement system, but would hinder effective competition by foreclosing a class of potential bidders from participating therein. Therefore, the regulation would directly contravene a stated purpose of the Procurement Code, and would be invalid. Winston Ford Construction Company, supra.
By the same token, such a regulation would be arbitrary and unreasonable and, therefore, would violate Kentucky Constitution 52. Cf.
Akers v. Floyd County Fiscal Court, Ky., 556 S.W.2d 146 (1977). (There must be a reasonable relationship between a resolution and the purpose it is intended to accomplish. ) Finally, such preclusion of non-franshised dealers where that preclusion is not based upon a need to safeguard the system could well be a practice in violation of the anti-trust provisions of the Sherman Act.
Therefore, it is the opinion of this office that licensed dealers who do not hold a franchise may not be disqualified from participating as bidders solely because they are not franchised dealers. If they can perform the contract and are otherwise reliable, the lack of a franchise cannot be a disqualifying factor.
As to your second question, this office is of the opinion that a dealer who does not hold a franchise can be a responsible bidder, within the meaning of 45A.070(6). Acquisition of the vehicles necessary to fulfill a contract is, of course, a simple and direct matter for a franchised dealer. Though a non-franchised dealer may have to go through a more complex process in order to acquire the vehicles necessary to satisfy the contract, there is certainly nothing that this office knows of which would stand for the proposition that they cannot, or on a regular basis, will not, be able to completely satisfy the contract. Thus, unless your department knows of something which would create a real doubt, something more than a mere suspicion, as to a non-franchised dealer's ability to fulfill any contract it might be awarded, this office can see nothing which would prevent a non-franchised dealer from being a responsible bidder within the meaning of KRS 45A.070(6).
Conversely, if your department now knows that there is some real doubt concerning any and all non-franchised dealers' capacity to fulfill a contract, a regulation precluding the non-franchised dealers from participating in the bidding process would be valid and within the power of the Department.
In light of this office's lack of knowledge of any factor which would demonstrate that non-franchised dealers are incapable of fully performing a contract, and, assuming that your department has no contrary information, we recommend that you do not promulgate a regulation which makes holding a franchise a prequalification to being a prospective bidder, and that you do not disqualify a winning bid on that basis alone. Until such time as you have information demonstrating the inability of non-franchised dealers to fulfill the contract in every respect, you should not require a franchise relationship as a prequalification for prospective bidders.
Before closing, there is one matter which should be dealt with at this time. You did note that the dealers are required to be licensed pursuant to KRS 190.010-190-080. In KRS 190.040(g) there is a provision which states that it will be grounds for revoking the dealer's license if one who is not a franchised dealer of a licensed manufacturer, factory branch or distributor dealing in a particular make of motor vehicles advertises a new motor vehicle of that make for sale. This raises the question of whether participation in the bidding procedure is advertisement, and thus, if such participation would be grounds for license revocation. In fact, a bid is not an advertisement within the meaning of KRS 190.040(g).
An advertisement is an offer made to more than one offeree. The offer/advertisement is non-specific in that any of the offerees may accept the offer. Cf.