A Rumor ‘Bout Procurement

While probably not worthy of a ZZ Top song, a rumor has been spreadin’ a- ‘round that in a Texas town ‘bout . . . how a municipality can avoid the procurement requirements of Section 252.021, Chapter 252, of the Local Government Code when purchasing and contracting for, more often, services paid from revenues owed to the municipality from previous years. (That took quite the turn, Dear Reader, did it not?)

The justification provided for avoiding procurement requirements seems to center on the very specific caveat that the contract would be paid from revenues owed to the municipality from previous years (e.g. emergency services previously provided, sales taxes owed, outstanding parking fees), so as such, no specific expenditure from the current fiscal year’s revenue would trigger competitive purchasing requirements.

Section 252.022 of the Local Government Code contains sixteen “exemptions,” or exceptions, to the competitive purchasing requirements contained in Chapter 252 of the Local Government Code. Bypassing those competitive purchasing requirements can land a municipality in hot water because, plainly and simply, among other reasons, an exemption for contracts paid from revenues owed to the municipality from previous years does not exist.

Let’s break it down.

Section 252.021 of the Local Government Code contains – essentially – rules of engagement whenever a municipality desires to enter a contract of more than $50,000 from one or more municipal funds. Subchapter C of the Local Government Code contains the instructions by which municipalities must notice, request bids or proposals, and award contracts. Failure to follow these instructions comes with criminal penalties.

While the Local Government Code does not exempt contacts to be paid from revenues owed to the municipality from previous years from competitive purchasing requirements, the rumor seems to be caught in a net related to governmental entity contracting principles regarding the imposition of debt.

A debt – or, as otherwise defined by the Texas Supreme Court, a pecuniary obligation imposed by contract – must be satisfied out of the current revenues for the year or out of some fund then within the immediate control of the governmental entity. As such, “[a] contract which runs for more than one year is a commitment only of current revenues, and so is not a ‘debt’ if it reserves to the governing body the right to terminate at the end of each budget period.”

The idea that a debt – or contractual obligation – must run concurrently with current revenues seems to support the spreading rumor that contacts to be paid from revenues owed to the municipality from previous years do not need to be competitively bid, as such contracts are not being paid from current revenues.

While this would cause an exceptional loophole, these common law principles do not exempt a municipality from the statutory requirements of Local Government Code Chapter 252, which – again – states that, whenever a municipality desires to enter a contract of more than $50,000 from one or more municipal funds, that – with few exceptions – the municipality must follow the requirements of Chapter 252 of the Local Government Code.

To go a bit further, other considerations of purchasing and contracting for services paid from revenues owed to the municipality from previous years include, for example, (1) an unknown contract value, if based on a percentage of collection or commissions; (2) the possibility of triggering separate purchases, if the value of the contract is based upon individual transactions; or (3) considerations of implied contractual values. All considerations which could potentially trigger the bidding threshold requiring competitive purchasing procedures.

In short, trying to avoid the competitive purchasing requirements of the Local Government Code leads to messy procurement practices. If you find yourself unsure as to whether the Local Government Code requirements apply, these simple guidelines may help:

1. If you are unsure whether to follow the competitive purchasing requirements of Chapter 252 of the Local Government Code, follow them. Your intuition is telling you something, and when the District Attorney’s Office comes knocking, you will want to be able to produce a complete and accurate procurement file, when failure to follow the competitive purchasing requirements set out in the Local Government Code can land you a charge.
2. Google! Simply Google whatever services or goods your organization is looking to purchase. When Googling “debt collection RFP Texas,” a number of past and active solicitations, published by governmental entities, appeared in the search results. If other governmental entities are using competitive purchasing procedures for the procurement of specific goods and services, it would be a good practice for you to, too.
3. Call the Statewide Procurement Division’s Outreach Team at the Texas Comptroller of Public Accounts. The Statewide Procurement Division’s Outreach Team will provide guidance on general procurement questions and can be reached at (512) 463-3034, Option 1, or at spd.outreach@cpa.texas.gov.

Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our commercial and business litigation practice can be found here.