Request By:
William E. Rueff, Jr., Esq.
Warren and Ohio Streets
Morgantown, Kentucky 42261
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter presenting a question concerning the provisions dealing with the bidding requirements. You represent the Morgantown Water Company. You state that a question has been raised with respect to bidding for materials and supplies, KRS 424.260, and whether the requirements apply to the purchase of chemicals for water purification by the water company.
The water company has for several years purchased various chemicals from the same company without bids on an irregular schedule, sometimes monthly. None of the chemical purchases exceeded $5000 per year except, perhaps, purchases of alum might have exceeded that amount, depending upon floods and the amount of silt variation in the water. The company cannot store a year's supply of the chemicals and, furthermore, it does not want to retain more than a month's supply because of the unstable and expendable nature of the chemicals involved.
You maintain that if the water company advertises for bids, it would have to advertise on a monthly basis which would be expensive, time consuming and detrimental to public health. You also state that since the chemicals purchased, except alum, do not exceed $5000 per year and the purchases are on an irregular basis, KRS 424.260 is not applicable. The purchases in question, in your opinion, are exempt under the principle set forth in
Board of Education of Floyd County v. Hall, Ky., 353 S.W.2d 194 (1962).
First of all, assuming that the water company is a "local public agency," the governing statutory enactment is not KRS 424.260 but, rather, that section of the "Kentucky Model Procurement Code" dealing with procurement by a local public agency, KRS 45A.345 to 45A.460, which was enacted by the 1978 session of the Kentucky General Assembly and became effective January 1, 1980. KRS 45A.350 provides in part that KRS 45A.345 to 45A.460 shall apply to every local public agency in this state. A "local public agency" is defined in KRS 45A.345(8) as follows:
"'Local public agency' shall mean a city, county, urban-county, school district, special district, or an agency formed by a combination of such agencies under KRS Chapter 79, or any department, board, commission, authority, office or other sub-unit of a political subdivision which shall include the offices of the county clerk, county sheriff, county attorney, coroner and jailer."
KRS 45A.385, dealing with small purchases, provides in part that small purchase procedures (without advertised bids) may be used for the award of any contract or purchase which does not exceed an aggregate amount of $2500. In OAG 79-447, copy enclosed, utilizing principles of statutory construction, we concluded that as of January 1, 1980, 45A.385, providing a cutoff of $2500, will govern over KRS 424.260, providing a cutoff of $5000, as to the necessity of the advertisement for bids. Thus, at this time purchases exceeding $2500 must be advertised for bids, although the 1980 session of the General Assembly may enact legislation concerning the matter.
The Model Procurement Code does, however, set forth situations where purchases can be made without competitive sealed bidding. KRS 45A.365, dealing with competitive, sealed bidding, provides in subsection (1) as follows: "All contracts or purchases shall be awarded by competitive sealed bidding, except as otherwise provided by KRS 45A.370 to 45A.385." Thus, it is possible for purchases exceeding $2500 to be made without competitive, sealed bidding and still not violate the terms and provisions of the Model Procurement Code.
KRS 45A.370, dealing with competitive negotiation, provides that a local public agency may contract or purchase through competitive negotiation upon a written finding that certain fact situations exist and those situations are set forth in the statute. Competitive negotiation may be utilized under the statute when, for example, the available sources of supply are limited, the time and place of performance cannot be determined in advance or a fixed price contract is not applicable. Note the other provisions of KRS 45A.370 concerning the required procedures to follow if competitive negotiation is utilized.
KRS 45A.380, dealing with noncompetitive negotiation, provides that a local public agency may contract or purchase through noncompetitive negotiation only when a written determination is made that competition is not feasible and it is further determined in writing by the local public agency that certain situations, a list of which are enumerated in the statute, exist. Noncompetitive negotiation may be utilized, for example, when an emergency exists which will cause public harm as a result of the delay in competitive procedures, there is a single source of the product to be procured or the contract is for the purchase of perishable items purchased on a weekly or more frequent basis. Note the other provisions of KRS 45A.380 pertaining to the required procedures to follow if noncompetitive negotiation is utilized.
As previously mentioned, KRS 45A.385 provides that purchases which do not exceed an aggregate of $2500 may be made without competitive bidding, providing that the local public agency has established small purchase procedures. That statute further states that supplies, services or construction normally supplied as a unit cannot be artificially divided for the sole purpose of using small purchase procedures. As we understand your particular situation, the water company may purchase more than $2500 worth of some chemicals over a year's time but individual purchases are below that amount and the question arises as to whether the bidding provisions are applicable or whether the exemption procedure can be utilized for those purchases under $2500.
A question to be resolved, then, is how to determine the amount of the public purchase and whether each transaction can stand as a separate and distinct purchase or whether one basic purchase is involved which has been split into smaller units to avoid the bidding requirements. See 53 ALR2d 498. Chemicals present problems not involved with paint and hardware supplies, which were involved in
Board of Education of Floyd County v. Hall, Ky., 353 S.W.2d 194 (1962), but that case recognized not only that public contracts must be reasonably adapted to the customs and channels of trade but that transactions legally and factually separate can utilize the exemption from the bidding requirements.
The specific fact situation applicable to the water company involves the following factors: a small town water company that cannot accurately predict the amount of chemicals it will need, limited storage space to store chemicals that deteriorate somewhat in storage and that are somewhat unstable in nature, and a history of purchasing chemicals in small quantities, indicating that such a practice was not just recently instituted to avoid the requirements of the Model Procurement Code. After considering these factors it is our opinion that officials are acting in good faith, they are not purchasing in "dribbles and dabs" and they are not artificially dividing purchases for the sole purpose of using small purchase procedures when they purchase chemicals in smaller amounts several times a year rather than one large annual purchase. Each purchase of these types of chemicals is a legally and factually separate transaction which, if under $2500, is not subject to the bidding requirements and may be handled as a small purchase if small purchase procedures have been adopted pursuant to KRS 45A.385.