                       The Attorney               General of Texas
                                        October    10, 1980
MARK WHITE
Attorney General
                   Honorable Hilmar G. Moore .                Opinion No. M+354
                   Chairman
                   Board of the Texas Department              Re: Whether the Texas Board of
                     of Human Resources                       Human Resources entered into a
                   706 Banister Lane                          contract    with  Bradford National
                   Austin, Texas 78769                        Corporation    for administration of
                                                              part of the Texas Medicaid Program

                   Dear Mr. Moore:

                         You inform us that on July 15, 1980, the Texas Board of Human
                   Resources reviewed proposals submitted by National Heritage Insurance
                   Company and Bradford National Corporation in response to the department’s
                                    posal for Administration of a Portion of the Texas Medicaid
                                     This document, which consists of the bid specifications and
                   information  an bidding procedure, contemplates        that the award of the
                   contract to a bidder will create a binding obligation. -See RFP 8.L13.0.0.0.

                         On July 16, 1980, the board heard reports on the activities of the Bid
                   Evaluation Committee, which analyzed the technical and pricing proposals
                   of both bidders, and on the review of those activities by the Executive
                   Review Panel.      The chairman of the Executive Review Panel and a
                   consulting actuary stated that Bradford afforded the more favorable price.
                   After additional discussion and remarks by the representatives      of each
                   bidder, board members stated as follows:
                              Mr. Bray:      Mr. Chairman, I would like to make a
                              motion if I may. [discud$n abput evaluations made
                              of both       bidders           Hnth remarks      about
                              Bradford1 . . . on those bid elements Bradford comes
                              out significantly to the good for the State of Texas.

                                 Thus, I wish to make a motion that this contract
                              be awarded to Bradford s&ject to successful consum-
                              mation of a contract that would include maximum use
                              of the Texas Banking system with respect to the
                              funding and which would include consideration mt
                              necessarily in the mntract but consideration &ring
                              the contract deliberations of trying to specify some
                              methodology for premium setting in future years.




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Honorable Hilmar G. Moore - Page Two          (~254)




            Mr. Jimenez: There would be a clause that the money would be
            in the State of Texas.

            Mr. Bray: To the maximum extent feasible.
            Mr. Jimenez:     In that   case, I will second the motion,    Mr.
            Chairman.

            Mr. Moore:    the chair concurs-unanimous   choice. One other
            thlrg that we have not mentioned is we are still in business with
            NHIC for at least 15 more months. I just want to echo what
            Terry a~ eloquently said that our relationships       heve been
            wonderful. We expect them to continue wonderful and we hope
            when the contract comes up for bid again that we see you again.

       You first ask whether the action of the board at its July 15,198O meeting created
a legally binding contractual obligation. In answering this question, we must apply the
law to the facts which the department and the two bidders have provided us. Our
opinion is necessarily limited to the facts which we discuss. You have not asked, and
we d3 not decide, which was the lowest and best bidder. See V.T.C.S., art.60lb,
S3.11(e). This &termination   involves the resolution of fact questions and the exercise
of discretion by the board. See generally Attorney General Opinions M-890 (1971); M-
392 (1969); C-788 (1966); V-1565, V-1536 (1952), Letter Advisory No. 75 (1973).

      Section 3.01 of article 601b, V.T.C.S., authorizes the Purchasing and General
Services Commission to contract for services needed by a state agency. See also
S3.02. However, this purchasing function has been delegated back to the department
under section 3.06 of article 601b, V.T.C.S. The department also hss authority to enter
into contracts under section 22.002(f) of the Human Resources Code.

       No question has been raised as to whether applicable federal          statutes   and
regulations have been complied with and we do not address this issue.

       Our opinion is based solely cn the written documentation        and transcript
presented to us. In our opinion, the action taken by the board at the July 15, 1980
meeting constituted   an award of the contract, subject to the performance of
conditions subsequent and they did not have to sign a formal agreement in order to be
bound.

       Although the courts of some states have held that a public entity could rescind
its award of a bid prior to signing a formal contract, this result is generally based on a
statute expressly requiring a signed written contract. See Schull Construction Co. v.
Board of Regents of Education, 113 N.W. 2d 663 (S.D. lm;        Annot., 3 A.L.R. 3d 864
868 (1965). Another line of mses sqports the view that a binding contract is created
when the award is made and communicated to the successful bidder even though a
statute requires a signed contract. See United States v. Purcell Envelope Co., 249 U.S.
313 (1919). -See Annot., SII~PB,at 871.-




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        Honorable Hilmar G. Moore - Page Three          (A%%-254)




               In Superior Incinerator Co. v. Tompkins, 59 S.W. 2d 102 (Tex. Comm’n App. 1933)
        the court adopted the latter view. The Board of Commissioners of the City of Dallas
        accepted one of the bids for a public works contract and directed the execution of the
        contract.   Before the city auditor could sign the contract, an act required by the city
        charter to form a binding contract, a newly elected Board of Commissioners voted to
        rescind the contract. The court held as follows:

                       After the contract in question bed been awarded, the city
                   could not lawfully rescind the same without the consent of the
                   contractor.   A contract is just as binding upon a municipal
                   corporation as upon an indivitial.   To determine that such a
                   corporation may annul the obligation of its contract made with
                   an individual would be to allow it a greater power than is
                   possessed by the state which created it. (Emphasis added).

        59 S.W. 2d at 103.

               A prior opinion of this office dealt with the power of a state agency to rescind
        its acceptance of a bid       Attorney General Opinion WW-434 (1958) concerned the
        acceptance of bids for lease of school lands by the School Land Board. The statute
        required the minutes to show the fact of acceptance or rejection of a bid and stated
        that the approval of the minutes would constitute         the approval of the act of
        acceptance or rejection. Following the acceptance of bids but prior to approval of the
        minutes, a controversy arose about the award of a particular lease. The School Land
        Board wished to know whether it could reconsider a bid acceptance, prior to approval
        of the minutes. The opinion stated as follows:

                   . . .it seems apparent that if the Legislature intended to give
                   the Board the right to accept an offer and the right to cancel
                   the action when the minutes are up for approval two or three
                   weeks later, this would be an unusual arrangement and generally
                   at variance with the customary method of entering into
                   contractual   agreements, but the Legislature could do this if
                   that seemed to it to the best interest of the School Fund.

        It also noted the customary business usage of awarding contracts in one action only.
        Construing the statute in light of these considerations, the opinion concluded that the
        board tid a ministerial duty to approve the minutes which accurately reflected the
        acceptance of the bid See also Attorney General Opinion V-1536 (1952) (board for
        state hospitals may not delegate power to award contract but may delegate ministerial
        duty of signing contract).

               We believe the views expressed in Superior Incinerator Co. v. Tompkins and
        Attorney General Opinion WW-434 on the finality of the bid acceptance are relevant to
        your question. We do not believe the department may revoke its acceptance of a bid
        by later refusing to sign the contract. Whether all conditions subsequent have been or
        will be met is a fact question which we cannot resolve in an Attorney General Opinion.




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Honorable Hiimar G. Moore - Page Four        (Ml+254)




      YOU state   that   the RFP provides   that   the contract   contain   the following
language:

           The contract may be terminated if DHR deems that such
           termination would be in the best interest of the State. Under
           this condition, those termination costs shall be paid by DHR to
           the Contractor which are stipulated in the contract.

You ask whether the contract can be terminated prior to execution pursuant to this
provision. Whether or not this contract is in the best interest of the state is a fact
question. In deciding to exercise your privilege under this clause, the department must
make a reasonable. eood faith iudement that termination is in the best interest of the
state.   See Golden State Mutual Life Insurance Co. v. Kel&, 380 S.W. 2d 139 (Tex.
Civ. ApF Houston 1964, writ rePd nr.e.l
340 (Tex. Civ. App. - Waco 1958, no wri
Construction Co., 529 S.W. 2d 190 (Tex. Ci
provision does not authorize unilateral termination without cause.
                                    SUMMARY

               The action of the Board of Human Resources at its July 15,
           1980 meeting created a legally binding contractual obligation
           with the Bradford Company.        Whether the department may
           terminate the contract as not being in the best interest of the
           state is a fact question, which the department must determine
           in the exercise of reasonable, good faith judgment.
                                                                   R




                                             MARK      WHITE
                                             Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY III
Executive Assistant Attorney General

Prepared by Susan Garrison & David Young
Assist~ent Attorneys General

APPROVED:
OPINION COMMlTTEE

Susan Garrison, Acting Chairman
Jon Bible
Paul Gavia
David Young



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