Request By:
Patricia Todd Thomas
General Counsel to the Board of Education of Fayette County
Fayette County Public Schools
701 East Main Street
Lexington, Kentucky 40502-1699
Opinion
Opinion By: Frederic J. Cowan, Attorney General; D. Brent Irvin, Assistant Attorney General
This is in response to your recent letter in which you requested an opinion from this office concerning the Model Procurement Code, KRS 45A.335, et seq ., which has been adopted in part by the Board of Education of Fayette County pursuant to authority granted it, as a local public agency, under KRS 45A.343. More specifically, your questions concern KRS 45A.420(2), an apparent exception to the Code's usual competitive sealed bid requirements, if a vendor offers the public agency supplies that are the subject of a price agreement with the state and at a price no higher than that offered to the state under the state price agreement.
You have raised two questions concerning this section of the Model Procurement Code:
1. In application does this section allow a public agency to contract, without bidding, with a vendor who is on the state price contract but is offering a price lower than on the list?
2. If yes, does the definitional section of "negotiation, " found in KRS 45A.345(11), restrict this flexibility?
The section of the Code in question, KRS 45A.420, provides in relevant part:
Nothing in KRS 45A.345 to 45A.990 shall deprive a local public agency from negotiating with vendors for supplies where such supplies are the subject of a price agreement with the Commonwealth of Kentucky provided, however, that no contract executed under this section would authorize a price higher than is contained in the price agreement with the Commonwealth of Kentucky for such specific supplies.
The cardinal rule of statutory construction is to ascertain and give effect to the legislative intent. Fiscal Court Commissioners of Jefferson County v. Jefferson County Judge/ Executive, Ky.App., 614 S.W.2d 954 (1981). Usual methods of construction include considering the plain language of the statute and, if that language is ambiguous, the history of, and the underlying purposes and policies of the legislation. Prin - cess Manufacturing Company v. Jarrell, Ky., 465 S.W.2d 45 (1971). Therefore, in order to answer your first question, we will analyze the act, considering each of these methods of construction.
The plain language of the statute supports the view that a local public agency may negotiate, without bidding, with a vendor willing to offer that agency a contract on specific supplies, which is the subject of a state price agreement, at a lower cost than on the list. KRS 45A.365 ordinarily requires sealed bids. This office has stated in past decisions that the whole thrust of the Model Procurement Code is to encourage and insist that local public agencies purchase services and supplies only after competitive sealed bidding unless good reason is shown why competitive sealed bidding is inappropriate. The policy underlying the usual bidding requirement is to invite competition, guard against favoritism, extravagance, fraud and corruption, and promote economy. See OAG 80-449 and OAG 82-337. Nevertheless, a plain reading of KRS 45A.420(2) shows that the General Assembly intended for this section to be an exception to the usual bidding requirements. The language in this section, "Nothing in [this part of the act] shall deprive . . ." suggests that this section was meant to be an exception; otherwise, this section would be superfluous. Moreover, if the General Assembly had intended to require sealed bidding in this circumstance it could have said so clearly.
In addition to the plain language of the statute, the legislative history of this section of the Code supports a view that the General Assembly intended to allow a limited exception to the usual sealed bid requirements. The Model Procurement Code was initially enacted in 1978. (1978, ch. 110, eff. Jan. 1, 1979.) Kentucky's Code was modeled after the A.B.A. Model Procurement Code.
The section in question was enacted two years later, at the same time local public agencies were first authorized to adopt a new portion of the Code known as the Local Model Procurement Code, specifically, the provisions of KRS 45A.345 through KRS 45A.460. (1980, ch. 250, §§ 9 and 14, effective April 9, 1980.) No comparable exception is contained in the ABA Model Procurement Code.
Prior to the adoption of the Code, in 1966, the General Assembly enacted legislation, similar to the act in question, authorizing an exception to the bidding requirements of the Division of Purchases [now Finance and Administration Cabinet] when it negotiates with a vendor for an equal or lower price than the vendor maintains with the United States government through a general service administration contract for the same goods. (1966, Ch. 235, § 1.) It seems likely that the General Assembly modeled KRS 45A.420(2) after this similar statute, KRS 45.360(2), which now provides in relevant part:
Nothing in this section shall deprive the finance and administration cabinet from negotiating with vendors who maintain a general service administration price agreement with the United States of America or any agency thereof, provided however, that no contract executed under this provision shall authorize a price higher than is contained in the contract between the general service administration and the vendor affected.
(KRS 45.360(2) has been recodified as KRS 45A.045 in the 1990 legislative session.)
Given the similarity of language in each statute, we think it likely that the General Assembly intended to give local public agencies the same right to negotiate contracts with vendors offering supplies on the state price agreement list that it previously gave to the Finance and Administration Cabinet when negotiating with vendors offering goods on the G.S.A. price agreement list. In sum, KRS 45A.420(2) was grafted on to the Model Code -- which ordinarily requires seald bidding -- as an exception to that requirement. It was modeled after KRS 45.360(2).
The purposes and policies of the Model Procurement Code also support a view that the General Assembly intended that KRS 45A.420(2) be an exception to the usual bidding requirements. KRS 45A.010 sets forth the policies underlying the Kentucky Model Procurement Code including:
To simplify, clarify, and modernize the law governing purchasing . . . ;
To provide for increased public confidence. . . ;
To insure the fair and equitable treatment of all persons who deal with the procurement system . . . ;
To provide increased economy . . . by fostering effective competition; and
To provide safeguards for the maintenance of a procurement of quality and integrity.
The Court of Appeals of Kentucky has held that the primary function of the Model Procurement Code is to benefit the citizens. Ohio River Conversions v. City of Owensboro, Ky.App., 663 S.W.2d 759 (1984). This office has previously opined that three important benefits of the bidding process are: (a) an offering to the public; (b) an opportunity for comparison; and (c) a basis for an exact comparison of bids. OAG 82-125. As previously stated, sealed bidding guards against favoritism, fraud or corruption and promotes economy through competition.
Construing KRS 45A.420(2) as an exception to the usual bidding requirements is not contrary to the underlying policies of the Code. Allowing a public agency to negotiate without bidding, in those instances where the state has already obtained a price agreement, does not sacrifice these benefits because the state, in most instances, already undertook the bidding process. Also, the usual economies of scale should motivate a vendor to offer supplies to the state at a lower price, in most instances, than it would be willing to offer a local agency. The greater volume of supplies sold to the state should justify a lower profit margin per item. This tends to safeguard the public treasury.
In some instances, a vendor may offer a local agency a greater discount than it previously gave the state. For example, a computer company might give a school district an educational discount on personal computers as a way of promoting sales to students or parents. If a local agency is able to purchase supplies at the lowest possible price, without bidding, then the underlying policies of the Code to provide increased economy and simplify the law support a view that this flexibility was intended in a situation where the supplies are on the state price agreement list.
Therefore, it is our opinion that KRS 45A.420(2) allows a public agency to contract, without bidding, with a vendor who is on the current state contract list but is offering the agency a price lower than on the state price list, provided the local agency has adopted the provisions of KRS 45A.345 through 45A.460 as authorized under KRS 45A.343. Local public agencies which have not adopted the Model Procurement Code are governed by a different statute, KRS 45.365, entitled "Central Purchasing," and have different requirements.
The second question presented, "Does the definitional section of 'negotiation, ' found in KRS 45A.345(11), restrict [the] flexibility [to negotiate without bidding] " requires the same type of analysis, but is a more difficult question.
The definitional section of this portion of the Model Procurement Code, KRS 45A.345, provides in relevant part:
As used in KRS 45A.345 to 45A.460, unless the context indicates otherwise : . . .
(11) "Negotiation" shall mean contracting by either the method set forth in KRS 45A.370, 45A.375, or 45A.380. [Emphasis added.]
These three proscribed methods of negotiation are: competitive negotiation [KRS 45A.370]; negotiations after competitive sealed bidding when all bids exceed available funds or where no bids are received [KRS 45A.375]; and noncompetitive negotiation [KRS 45A.380]. Each method is authorized in certain instances and upon certain conditions.
The statute upon which KRS 45A.420(2) appears to have been modeled has no similar definitional section which defines the term "negotiation" or "negotiating. " Thus the issue presented requires a determination of the intent of the General Assembly when it adopted KRS 45A.420(2). Did the General Assembly intend, in the context of the statute, to use the term "negotiating" in the nontechnical sense as it is used in KRS 45.360(2), or did it intend to use the word as a term of art, as defined by KRS 45A.345(11)? Persuasive arguments can be made either way.
On the one hand, if indeed KRS 45A.420(2) was modeled after KRS 45.360(2), then its words logically should be given a consistent meaning.
On the other hand, it is presumed that the Legislature was aware it had previously defined "negotiation" when it adopted this section in 1980, and recognized that the term had a specific, defined meaning. Thus, arguably, it did intend to use the word in a more specialized way in the later instance. This view is also supported by the fact that in the same act where the General Assembly adopted this section of the Code, it also defined the term "noncompetitive negotiation" as meaning, "informal negotiation with one or more vendor, contractor or individual without advertisement or notice." KRS 45A.345(12) (1980, ch. 250 § 8). Noncompetitive negotiation seems likely to be the method of negotiation most likely to apply where a local agency negotiates with a vendor offering supplies at a price lower than the state price list.
We are persuaded by the policies of fairness and openness underlying the Procurement Code that the term "negotiating" used in KRS 45A.420(2) was intended to be the same term of art as defined by KRS 45A.345(11). Therefore, it is our opinion that the agencies' flexibility is meant to be somewhat restricted.
This restriction on flexibility, however, should not be construed as a straight jacket on the good faith discretion of the local public agency to take advantage of a discount offered. We think the requirements of KRS 45A.380 concerning "noncompetitive negotiation, " as that term is defined by KRS 45A.345(12), allows a local public agency to enter into contracts by noncompetitive negotiations and without bidding, if it simply makes a written determination that competitive negotiation is not feasible and the contract is for a sale of supplies at reduced prices that will afford a purchase at savings to the local public agency. See KRS 45A.380(11).
Properly viewed, we think the Model Procurement Code allows local public agencies to be flexible in order to take advantage of discounts or cost savings available by means of noncompetitive negotiations if competitive negotiations would not yield greater savings in a given circumstance.
In summary, KRS 45A.420(2) is an exception to the bidding requirements contained elsewhere in the Model Procurement Code, under the conditions announced therein, but the Code also requires negotiations to be done as required and defined in the Code, in an open manner with the goal of savings and economy in mind, and the negotiation method chosen must be justified in writing.