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                                             September 17,199l
DAN  MORALES
 Al-KmNLY
      GENERAL


      Honorable John B. Holmes                      Opinion No. DM-43
      Harris County District Attorney
      201 Fannin, Suite 200                         Re: Whether the acquisition and con-
      Houston, Texas 77002                          stmction of a monorail transit system is
                                                    subject to competitive bidding (RQ-64)

      Dear Mr. Holmes:

             You ask two questions regarding the proposed construction of a rail transit
      system by the Metropolitan Transit Authority of Harris County (METRO). You ask
      whether the construction of a rail, monorail, or fixed guideway transit system
      constitutes an improvement to real property and whether the purchase of a transit
      system is subject to the competitive bidding requirements of V.T.C.S. article 1118x.
      We conclude that the procurement of a new transit system is subject to the
      competitive bidding requirement of article 1118x, but that the board of METRO
      may grant a waiver of this requirement for portions of the project and may award
      contracts for those portions through competitive negotiation upon a finding of the
      conditions specified in section 14(a) of the statute. Whether the conditions of
      section 14(a) were met under the circumstances described in this opinion is a fact
      question that cannot be resolved by this office in the opinion process.

      I. Background

             A brief submitted on behalf of METRO acquaints us with some of the history
      of the METRO rail project. In 1988 the voters residing in the METRO service area
      approved by referendum a comprehensive regional mobility plan that included a
      proposal to construct a fixed guideway transit system Soon thereafter, the board of
      METRO embarked upon a strategy to develop a comprehensive plan to procure
      and construct the new transit system Following consultation with legal counsel, the
      METRO board concluded, contrary to its initial intentions. that the entire rail
      project could not be completed on a turnkey basis.’ The board determined that
      certain portions of the project could only be procured pursuant to competitive

             %x Attorney General Opinion JM-1189 (1990) 0.1 (dchition   of “turnkey’contracting in the
      -00       contcat).




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Honorable John B. Holmes - Page 2            (DM-43)




bidding while other portions could not. For example, the board understood that
architectural and engineering services would have to be procured in accordance. with
the Professional Services Procurement Act. V.T.CS. art. 664-4, see Attorney
General Opinion JM-1189 (1990). The board also decided to divide the rail project
into different components and pursuant to section 14(a) of article 111% to
procure some components of tbe project through competitive bidding and others
through competitive negotiation.

       The components of the rail project to be acquired by METRO through
competitive bidding include terminal complexes, parking lots, maintenance and
storage buildings, the central control facility, roadways, and guideway supports. The
portions of the project to be obtained via competitive negotiation constitute the
nucleus of the equipment involved in the project and are called “System Elements.”
These items include vehicles, the traction power system, automatic train control and
commmdcations system, the fare collection system, trackage, supporting girders,
maintenance equipment and tools, and other equipment used in the operation of the
system The METRO board determined that the contract for all of these elements
would be awarded to a single supplier selected following an evaluation of proposals
submitted in response to a detailed Request for Proposals (RFP). On March 28,
1991, the METRO board selected one proposal for the “System Elements.” The
general manager of METRO is currently engaged in negotiations with the Houston
Monorail Team (I-WI’), offerors2 of the selected proposal.

II. Metropolitan Transit Authority (MTA)statutory procurement requirements

        METRO’s purchasing practices are governed by section 14 of article 1118x.
Subsection (a) of that section requires that contracts of a metropolitan transit
authority (MTA)

          for more than SlO,OOO    for the construction of improvements or
          the purchase of materi& machinery, equipment supplies [sic]
          and all other property, shall be let on competitive bids.

V.T.C.S. art. 1118x, 0 14(a). The subsection also prescrii general procedures for
the advertising of proposed purchases. The board of an MTA may adopt rules




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governing the taking of bids and the awarding of such contracts. It is also
authorized to grant waivers of the bidding requirement under the circumstances
itemized below:

          (1) ‘in the event of emergency,

          (2) ‘in the event the needed materials are available from only
          one source;

          (3) ‘in the event that, except for construction of improvements
          on real property, in a procurement requhing design by the
          supplier competitive bidding would not be appropriate and
          competitive negotiation, witb proposals solicited from an
          adequate number of quaJified sources, would permit reasonable
          competition consistent with the nature and requirements of tbe
          procurement;’ or

          (4) “in the event that, except for construction of improvements
          on real property, after solicitation it is ascertained that there will
          be only one bidder.

See V.T.C.S. art. 1118x, 0 14(a). Subsection (a) of section 14 does not apply to
contracts for personal or professional services, for the acquisition of existing transit
systems, or for services covered by the Professional Services Procurement Act,
V.T.CS. article 664-4. Id; see u.50 Attorney General Opinion JM-1189 (1990).
The complete text of section 14(a) is set out below.3




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        The METRO board granted a waiver from competitive bidding for portions
of the rail project under the third form of waiver authorized by section 14(a), which
we will generally refer to as the “design waiver.” You question whether the board
was authorized to grant the waiver under these circumstances. Before addressing
the specific issues you raise, we will examine the competitive negotiation technique
under section 14(a) and other statutes.

III. Charactehtics of competitive negotiation

        The language of the design waiver of section 14(a) reveals that prior to
granting the waiver the board must make four critical determinations - (1) that a
particular procurement “requires design by tbe supplier,” (2) that it does not
constitute an “improvement on real property,” (3) that “competitive bidding would
not be appropriate” under the circumstances, and (4) that competitive negotiation
would permit reasonable competition under the circumstances. As indicated at the
outset of this opinion, these inquiries involve factual questions that CannOt be
resolved in an opinion of the attorney general. It is possible, however, to address
some of the issues regarding the proper interpretation of section 14(a). The balance
of this opinion wilI address such issues.

        Another sig.niiIcant feature of tbe language of section 14(a) is that it
authorizes procurement contracts to be awarded on the basis of competitive
negotiation, an alternative to competitive sealed bidding, the traditional mode of
government procurement. The approxlmate scope of the design waiver and its
precise meaning are matters left unsettled by the terms of article 11%. The statute
does not prescribe specific procedures or time frames for competitive negotiation,
but specikahy grants the board rulemaking power over the process. It nonetheless
offers some insight into the differences between the two procurement modes.

        For instance, competitive negotiation under section 14 does not require
formal advertising of the MTA’s decision to make a particular procurement as it
does for competitive bidding. Instead, the board may solicit proposals directly from
sources it determines are qualified to meet the MTA’s needs. The MTA is required
only to post an amrouncement that it is considering such a contract in its principal
office for at least two weeks before the contract is awarded. V.T.C.S. art. 111&4
814(b).


       Also, section 14 authorizes the board of the hITA to determine what level of
competition is appropriate for a contract awarded by competitve negotiators and
requires only “reasonable competition” among “an adequate number of qualified



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sources.” On the surfacx, this standard differs from the widely-recognized view that
competitive bidding requires and generates maximum open competition among all
interested parties. See Tarac Highway Conun’n v. Tarar A&n of Steel Zmporers, 372
S.W2d 525 (Ten. 1963). Yet it is apparent from the experience in other jurMictior~~
that competitive negotiation can also be conducive to maximum competition. See
gemdy Paul v. United Statfs, 371 U.S. 245,2X%53 (1963) (discussing competitive
negotiation procedures for military procurements).

       The competitive negotiation procedure is said to allow comparative,
judgmental evaluations to be made when selecting from a number of acceptable
proposals. Attorney General opinion MW440 (1982) at 3. The principal difference
between competitive negotiation and the traditional method of procurement
(competitive bidding) is that the former permits alteration and refinement of a
proposal following the opening and initial review of the proposal by the governing
body and prior to award of the contract, whereas the traditional method requires a
contract to be awarded solely on the basis of the information contained in the bid at
the time of opening. See The Council of State Governments, State and Local
Govemment Ptuddng        64-65 (3rd ed. 1988); Nash & Love, Znnovationr in Federal
Conhrdion ccmfm&g, 45 Geo. Wash. L Rev. 309,324-33 (1977). Competitive
bidding utilizes price as either the sole criterion or one of two chief criteria for
contract awards. Competitive negotiation, on the other hand allows evaluation of a
proposal in light of important criteria in addition to price, such as quality,
experience, and staff@ Id

       The competitive negotiation technique also affords a governmental body
somewhat greater flexibility than the traditional method because it is usually
associated with the use of “performance” specifications. Performance specifications
permit the governmental body to describe a need and invite prospective vendors to
devise unique solutions to the problem See Ztuwvationr in Federal Constmcthn
Contract@, supm, 1135 at 32526. Competitive bidding is typically associated with
the use of “prescriptive” or “design” specifications, which describe the means of
meeting the governmental body’s needs and customarily employ dimensional and
other physical requirements of the item being procured. See id; State and Local
Govemment Ptuddng, suptn, at 45.

        Under the negotiation technique, the governmental body is allowed to
conduct dkcussions with offerors regarding the particulars of their proposals, to
negotiate with offerors to obtain the most advantageous contract for the agency, and
to award the contract to the offeror submitting the best overall proposal. Id As
prescriid in statutes other than article Ill&r, competitive negotiation generally



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Honorable John B. Holmes - Page 6                (DM-43)




requires the governmental body to specify the relative importance of the additional
evaluative criteria and to give all offerors fair and equal treatment with respect to
any opportunity for diswssion or revision of proposals. E.g., Educ. Code
0 21.9012(g); Local Gov? Code $0 252.04~ 262.030.

Iv. Divisibility of publk works or improvement projects into separate components

        You ask whether the purchase of a transit system is subject to the
competitive bidding requirement of section 14(a), but your brief focuses on a
different issue: i.e., whether the METRO board was authorized to divide the rail
project into separate wmponents for the purpose of submitting wntracts for some
of the components to competitive bidding. You argue that the board was required
to award a single contract for the entire project pursuant to competitive bidding.
We disagree.

       It has long been the rule in Texas that a governmental body has discretion to
award separate contracts for different portions of a single public improvement
project when, in its honest judgment, separate wntracts are in the public interest.
Wbig Bnx v. Cfty qf DaUas, 91 S.W3d 336,338 (Tex. 1936); see aIro 64 AM. JUR
26 Acbk Works and Contmcts 0 56 (1972). Thus, the METRO board required no
special statutory authorization to divide the rail project into separate components.

        In this instance, section 14(a) expressly recognizes that competitive bidding
may be inapplicable to some components of a public works or improvement project
(e.g., some professional services). See V.T.C.S. arts. m       1118x, 0 14(b). Where
competitive bidding is required, a governmental body may only act to promote the
unmistakable legislative policy favoring unrestricted competition for public
wntracts. Teuzr Highway Comm’n v. Texas Ash of Steel Zmmen. supm. Likewise,
where some aspects of a contract are subject to a waiver of competitive bidding and
others not, those aspects that are not subject to waiver are controlled by the
competitive bidding statute. See Wiakce v. ~Gxnmirsioners’ Court of Madiron
County, 281 S.W. 593,595 (Tex. Civ. App.-Waco 1926), r&d on other groundr, 15
S.W.2d 535 (Tex. 1929).

       Once it resolved to divide the rail project into components, the METRO
board’s duty then became to ascertain which components were subject to
competitive bidding and to award wntracts for those components acwrdingly. In
answer to your Srst question, we conclude that article 1118x did not require the
METRO board to award a single contract for the entire rail system project.




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V. Whether eonstn~ctionof a monorail system is an improvement to red property

        In light of the preceding disc&on, your next question is whether the
contract for the “System Elements” is subject to the competitive bidding
requirements of section 14(a)? The answer to this question hinges on the meaning
of the word “improvement,” a term which appears susceptible to several different
interpretations.

        METRO and HMT direct our attention to several cases which hold that
railroad ties and trackage are personal property which do not become part of the
underlying real estate and therefore do not constitute improvements to real
property. Teaa & iKO.R Co. v. S&e&&f,            146 S.W.2d 724, 727 (Tex. 1941);
Pmton v. Sabhe & E.T. Ry. Ca, 7 S.W. (L25(Tex. 1888); Moore v. Roteb, 719
S.W.2d 372,376 (Tex. App.-Houston [14th Dist.] 1986, writ ref d n.r.e.). The HMT
brief also invokes the familiar rule of statutory wnstruction establishing the
presumption that the legislature intends to give undefiued words in a statute the
meaning given those words by the wurts. See McBride v. Cluyton, 166 S.W.2d 125,
128 (RX. 1942); Tetm Employers’Ins A&n v. Hamchild, 527 S.W.2d 270, 275
(Tex. Civ. App.-Amarillo 1975, writ refd n.r.e.). The HMT brief asserts that the
legislature’s failure to define the word “improvement” gives rise to the presumption
that it intended the word to carry the same meaning given it by the courts in the
railroad cases. Drawing an analogy to the railroad cases, the METRO brief
concludes that a monorail system does not wnstitute an improvement to real
wwv.

        These arguments are persuasive, but we do not find them fully dispositive of
the issue. You point out, in keeping with the rule of construction described above,
that “improvement” has been broadly defined by the wmts. See Nine Hundred
Main, Zne v. City of Houston, 150 S.W.2d 468,472 (Tex. Civ. App.-Galveston 1941,
writ dism’d judgm’t car.) (“improvement” comprehends all additions to the freehold,
except trade fixtures which may be removed without injury). Also, other rules of
statutory wnstruction make it possible to draw different conclusions regarding the
meaning of the word “improvement.”

      For instance, in contrast to the rule descriid above, the courts will also
presume that the legislature, in leaving certain words in a statute undefined, is


        %esc   items indnde dkb%,     the traction power system, automarie train control and
c0mmW           6yStem. the fare cdlcetion system, trackage, qpcuthg     girdeq maintenance
quipmeat and too& aad other quipmeat usedin the operation of the system.



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aware of existing statutes employing similar terms. See Gmrso v. Cannon Ball Motor
Freight Lutes, 81 S.W.2d 482,485 (Tex. 1935). Where the legislature has specially
defined a word in a statute, it will be presumed that the word will be used in the
same sense in a subsequent enactment, though this is not necessarily so when the
two enactments deal with different subject matter. See Bmo&shk v. Houron Z&&p.
SchoolDist, 508 S.W.2d 675 (Tea. Civ. App.-Houston [14th Dist.] 1974, no writ).

        “Improvement” is defined different@ in at least three codes. See Tax Code
0 1.04(3) (Property Tax Code definition; “improvement” means, tier &z, “a
building, structure, fixture, or fence erected on or affixed to land”); Property Code
0 53.001(2) (defining term for purposes of mechanic’s, wntractor’s, and
materialman’s liens to include abutting sidewalks and streets and utilities, wells.
cisterns, tanks, reservoirs, pumps, siphons, windmills, and “other machinery or
apparatus used for raising water for stock, domestic use, or irrigation”); Water Code
Q53.001(3) (“improvement” means a facility for wnservin& transporting or
dismhtingfresbwater).

        Furthermore, the analogy to railroads, while ilbmdnating, does not answer
the issue with certitude, for a monorail might also draw wmparkons to other forms
of transport. See A. Lerchen & Sons Rope Co. v. Moser, 159 S.W. 1018 (Tex. Civ.
App.-San Antonio 1913, no writ) (an aerial tramway was an improvement to real
property for purposes of enforcing a materialman’s lien). These examples demon-
strate the difficulty of conforming the word “improvement” in section 14(a) to cases
and statutes reflecting altogether different wntextual considerations and policies.
We think it is more productive to analyze the term in relation to the general body of
law of which it is a part and by reference to its legislative history. On examination
of these factors, we think it was not unreasonable for the METRO board to
conclude that parts of the rail project could be accomplished by use of the
competitive negotiation technique. Whether its decision with respect to particular
components of the project was justified is, again, a question of fact that cannot be
resolved here.

       Prior to 1985, section 14(a) required competitive bidding on all MTA
purchases above S5000 and permitted a waiver of the sealed bidding requirement
only in cases of emergency. In that year the legislature amended the provision to its
current form. S.B. 440, Acts 198569th Leg., ch. 620, at 2306. As originally Sled,
Senate Bill 440 would have permitted the board of an MTA to waive competitive
bidding if it found that




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Honorable John B. Holmes - Page 9                 (DM-43)




          wnditions are not appropriate for formal advertisin& the
          needed materials are available from only one source, or after
          soiicitatio~ competition is inadequate.

Bill File to S.B. 44469th Leg. (1985).

       The publicly stated purpose of the 1985 amendment was to wnfonn MTA
procurement requirements to parallel federal guidelines, since most MTA capital
projects are funded with a combination of state, local, and federal funds. Hearings
on S.B. 440 Before the Senate Comm. on Intergovernmental Relations, 69th Leg.
(March 5, 198S).J The most obvious effect of the 1985 amendment was to free
MTAs from the rigid structural and discretionary wnstraints imposed by sealed
competitive bidding. See Znnovaffonr in Fedeml Gwhucdon Contmcdng, supm, at
324-33 (1977) (comparing competitive bidding to competitive negotiation, at the
federal level).

        The most relevant item of legislative history is a statement by the sponsor of
the bill indicating that the original language of the amendment to section 14(a) was
changed in subcommittee to address, among other things, the concerns of a segment
of the wnstruction industry - specifically, general wntractors. Hearings on S.B. 440
Before the Senate Comm. on Intergovernmental Relations, 69th Leg. (March 5.
1985) (testimony of Senator John Traeger). This most likely explains the addition to
section 14(a) of tbe phrase “except for the wnstruction of improvements on real
property.” We think the modification of the original language of Senate Bill 440 to
its ultimate form indicates that the legislature was interested in preserving the status
quo with respect to the award of mA wntracts for conventional construction
projects. Viewed from this perspective, the legislature may have used the term
“improvement” to denote, as you suggest, public improvements or public works.

       The phrases “public improvements” and “public works” are often used
interchangeably. Compare Navam~ Auto-Park, Znc v. Ci@ of Son Antonio, 574
S.W.2d 582,584 (Ten. Civ. App.-San Antonio 1978, writ refd n.r.e.) (characterizing
municipal public parking facility as a “public work”); with Zachty v. City of Son
Antonio, 296 S.WL?d299,304 (Tex. Civ. App.-San Antonio 1956). t#‘d, 305 S.W.2d
558 (Ten. 1957) (numicipal public parking facility is a “public improvement”).


        %rdbily,   interprcdons of the paraUel federal guideha would be approphtc sources of
meaoing d section 14(a). See St& v. wicss. 171 S.WZd 848 (T~L l!X3). q Eourd of W&r Eng’n v.
AkKnf$u, 229 S.W. 301 (Tex 1921). I-hwer, WCbavc been unable to locate any federal standard
emplojhg laquage comparable to the ‘design’waiver.



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courts have generally applied these phrases to permanent structures or facilities,
additionsofafixednaturetostructures,andtoroads.             SeeC&ofCopusChistiv.
Haywad, 111 F.2d 637, 639 (5th Cir.), cert. denied, 311 U.S. 670 (1940) (dam and
reservoir); i&auf& v. C* of CR-M P&&s, 86 S.W.2d 204, 206 (Ten 1935) (water
reservoir and pipelines); Enzpw          Gawalty Ca v. Stewatt, 17 S.W.2d 781 (Tex.
Comm’n App. 1929, judgm’t aff’d) (wntracts for building or road wnstntction
included, but not wntracts for map and plat book preparation or purchase of road
grader); Overslreet v. Houston County, 365 S.W2d 409,412 (Ten. Civ. App.-Houston
[lst Dist.] 1963, writ rePd n.r.e.) (central air wnditioning system and window tits).
We think the context and legislative history of section 14(a) support a comparable
application.

        With these points in mind, it may be possible to draw initial conclusions
regarding the propriety of the METRO board’s actions. These matters, however,
are entrusted in the first instance to the discretion of the METRO board.
Moreover, since this inquiry requires the examination and resolution of issues
regarding facts which are not before us and are beyond our authority to investigate
in the opinion process, we are unable to further advise you in this regard.

       To summa&e, we conclude that the procurement of a monorail transit
system by the Metropolitan Transit Authority of Harris County is subject to
competitive bidding, but the board of METRO may grant a waiver of this
requirement for portions of the project and award wntracts for those portions
pursuant to competitive negotiation upon a finding of the conditions described in
section 14(a) of article 1118x. The board is not required to award a single contract
for the entire project,




               The procurement of a transit system employing monorail
          technology by the Metropolitan Transit Authority of Harris
          County is subject to the competitive bidding requirement of
          article 1118x, V.T.C.S. The board of the authority is not
          required to award a single contract for tbe acquisition and
          wnstruction of the transit system, but in its discretion may
          divide the project into wmponents and award separate contracts




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Honorable John B. Holmes - Page 11            (DM-43)




         for those wmponents.     The board may grant a waiver of
         competitive bidding in favor of competitive negotiation
         procedures upon a finding of the conditions specified in section
         14(a) of article 1118x.




                                                DAN      MORALES
                                                Attorney General of Texas


WILL PRYOR
First Assistant Attorney General

MARYKELLER
Executive Assistant Attorney General

JUDGE ZOIUE STEAKLEY (Ret.)
Special Assistant Attorney General

RENEAHIcKs
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Steve Aragon
Assistant Attorney General




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