Request By:
Mr. Fred B. Creasey
Executive Director
Kentucky Association of Counties
P.O. Box 345
205 Capital Avenue
Frankfort, Kentucky 40602
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Kentucky Revised Statute 45.365(1), as reenacted in 1979 (Ex. Sess.), Ch. 23, Section 1, effective January 1, 1979, reads:
"The department of finance shall include in all state agency price contracts for the purchase of materials or supplies a provision that, as approved by the secretary of the department of finance, any political subdivision, including cities of all classes, counties, school districts or special districts, may participate in such contracts to the same extent as the Commonwealth. Any politicial subdivision may purchase materials and supplies pursuant to a contract for such supplies and materials entered into by the department of finance for the Commonwealth, including those contracts negotiated by the department of finance with vendors who maintain a general service administration price agreement as provided in subsection (2) of KRS 45.360. Where other provisions of the Kentucky Revised Statutes require that political subdivisions of the Commonwealth purchase by competitive bidding, such political subdivisions must comply with the applicable statute before participating in the contract, unless the state contract has been let by competitive bidding, or the contract was negotiated as provided in subsection (2) of KRS 45.360."
Question No. 1:
"Does buying from a state purchase contract fulfill the bidding requirements counties must meet?"
Under KRS 45.365(1) the counties can purchase equipment, materials, etc. [materials or supplies], under a state price contract, without any bidding or negotiation process, under these conditions: (1) The state must have in effect a price contract covering precisely the kind of goods required to be purchased by the county; (2) The state price contract must have been arrived at through competitive bidding, or the contract was negotiated as provided in subsection (2) of KRS 45.360 [Finance Department may negotiate with vendors who maintain a general service administration price agreement with the United States of America, or an agency thereof]. We are enclosing a copy of 200 KAR 5:050, relating to specific guidelines in central purchasing for political subdivisions. Each county should have a copy of that regulation.
You will note that Section 2 of the regulation provides that the prices established for a price contract are firm for the duration of that contract; and that negotiation or bargaining by governmental units using the established prices as a base is prohibited.
Section 3 of the regulation requires that each political subdivision desiring to participate in and use the state's price contracts for the purchase of materials or supplies must file written notice of such desire with the manager, Division of Purchases, Department of Finance.
Generally under Section 3 of the above regulation, each political subdivision shall issue its own purchase orders, accept its own deliveries, and make its own payments for goods received and accepted. In the event of a dispute between a political subdivision and a price contract vendor which cannot be resolved satisfactorily, the matter shall be referred to the manager, Division of Purchases [Dept. of Finance] for mediation. Any participating political subdivision which fails to promptly pay for materials or supplies received and accepted shall be barred from further participation in the price contract for the duration of its existence.
Question No. 2:
"In Section (1) of Senate Bill 163 (1980 Session), KRS 162.070 includes the term 'lowest and best bidder. '
"What, in your opinion, does this term actually mean?"
Section 1 of S.B. 163 (1980 Session) reenacts KRS 162.070 as follows in part: "The contracts for the erection of new school buildings, additions and repairs to old buildings, except additions or repairs not exceeding five thousand dollars ($5,000), shall be made by the board of education to the lowest and best responsible bidder complying with the terms of the letting, after advertisement for competitive bids pursuant to KRS Chapter 424. . . ."
The statute, KRS 162.070, was repealed by Acts 1978, Ch. 110, Section 106, effective January 1, 1980. However, S.B. 163, as we said, reenacted that statute, and it also made the model procurement code optional for local public agencies, including school boards.
The court, in
R.G. Wilmott Coal Co. v. State Purchasing Commission, 246 Ky. 115, 54 S.W.2d 634 (1932) 635, in dealing with the term "lowest responsible bidder" , said this:
"In construing the meaning of the words 'lowest responsible bidder' , the cases are in practical agreement that they do not mean the lowest financially only, but apply as well to the business judgment, capacity, skill, responsibility, etc., of the bidder. "
Thus the answer to your question is that under the wording "lowest and best responsible bidder" , as set forth in KRS 162.070, it means not only the lowest monetary bid, but it means that the factors of business judgment, capacity, skill, and responsibility of the bidder must be carefully assessed in awarding the bid.
As relates to counties, however, and where the county does not adopt the model procurement code [See OAG 80-279], KRS 424.260 would apply to county purchases of materials, equipment, supplies, etc. However, it must be noted that KRS 424.260 contains no language concerning the "lowest and best responsible bidder. "
In the case of
Handy v. Warren County Fiscal Court, Ky. App., 570 S.W.2d 663 (1978), appellants contended that the Warren Fiscal Court and the City of Bowling Green, in letting a city-county hospital construction contract, failed to award the contract to the "lowest and best bidder. " The trial court did not agree with appellants' construction of KRS 424.260, noting that the statute contained no reference to the "lowest and best bid" ; but the trial court established no specific criteria to guide the governments in the acceptance of a particular bid. The trial court did cite
A & W Equipment Company v. Carroll, Ky., 377 S.W.2d 895 (1964), in which the latter court wrote that "We believe the fiscal court is entitled to a presumption that the bid accepted by it was the 'best' bid, though it may not have been the lowest, and that the burden of proving otherwise falls on the contesting party or parties."
The Court of Appeals, in Handy v. Warren, above, held that the circuit court's holding was an essentially correct interpretation of the governing law. The court observed that there is nothing in KRS 424.260 requiring the awarding of contracts to the lowest and best bidder. However, the court said that the bidding principle, as reflected in that statute, involves three important benefits: (a) an offering to the public, (b) an opportunity for competition and (c) a basis for exact comparison of bids. Consequently, the requirement of KRS 424.260 for advertisement by publication and competitive bidding satisfies these and other public goals, notwithstanding that the statute makes no provision for the award of contracts to the lowest and best bidder. The fiscal court is vested with discretion to accept other than the lowest bid in a given instance. However, when it does so accept other than the lowest bid, it had better be prepared to justify this action if challenged. But, as was cited approvingly in the A & W Equipment case, above, the burden is on one who challenges the bid to show not just that the award was not, in fact, to the lowest and best bidder, but that there was an abuse of discretion on the agency's part amounting to fraud, arbitrariness or capriciousness in awarding the contract.
As you can see, the concept of "lowest and best bidder" does have a place in the consideration of guidelines in applying KRS 424.260, though the concept is not explicitly written into the statute. KRS 162.070, in that regard, may be considered in pari materia with KRS 424.260, as a matter of legislative intent.