June 22, 1976
Mr. Gerald Andrews, Commissioner
Bureau of Administration
State Capitol Building
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 76-64
Legality of contract providing for lease of a computer where annual rental is to be paid one year in advance
Dear Mr. Andrews:
You have requested an opinion from this office as to the legality of a contract providing for lease of a computer for Central Data Processing, which lease provides in part that the payment for the annual rental for the computer is to be paid in advance for one year. The question you ask is:
Can a state contract for the lease of equipment, such as a computer for Central Data Processing, lawfully provide that the rental payments are to be paid annually and in advance?
In reviewing the question, you also ask if SDCL 4-3-1, and 1937-38 AGR 556, are major causes of concern regarding the legality of the "payment in advance" provision of the computer lease contract.
SDCL 4-3-1 provides:
Every public officer may in all cases require the person for whom any service is to be rendered to pay the fees in advance of the rendition of such service, or give security for the same, to be approved by the officer.
As interpreted by 1937-38 AGR 556, SDCL 4-3-1 requires that fees due a public officer for services, be paid before rendition of the service. In-other words, the term "may" in SDCL 4-3-1, was construed to mean "must."
Nowhere in SDCL 4-3-1 is there any language applying to purchase contracts such as the one involving the computer lease for the State of South Dakota (Central Data Processing). SDCL 4-3-1, is, after all, in the "Revenues and Receipts" section in our code and is not part of the section on "Expenditures." In simple terms, the restrictions of SDCL 4-3-1, and 1937-38 AGR 556, do not apply to the computer lease "prepayment" of a year's rental in advance. SDCL 4-3-1 deals with payments due a public officer for services performed by that officer. The contract for the computer lease for Central Data Processing is clearly not within that factual scope so as to be limited by SDCL 4-3-1.
Another question which you ask pertains to lost income to the State due to the funds being "prepaid" and therefore the State would be losing investment interest on the money. In consulting with the State Investment Officer and in reading the statutes relating to the Centra Data Processing working capital fund (SDCL 1-14-12.3), it is clear that the monies in that fund are not invested and earning interest. Therefore, the State is not losing investment interest by "prepaying" a year's rental in advance on this contract.
In discussing the computer lease contract for Central Data Processing with the parties involved, the fact that the rental was payable in advance for one year, was a substantial consideration in the calculation of a lower lease rate for the state. In other words, the leasing company can offer a lower lease rate when they receive a prepayment of the annual rental. This business reality is one which appears to me to be obvious.
In summary, it is my opinion that SDCL 4-3-1 does not prohibit prepayment of an annual lease rental for a computer leased for Central Data Processing. Further, I am not aware of any other provision of law which would prohibit such a prepayment. Presuming that there are adequate funds avaiable to pay the annual prepayment of rentals, I see no legal reason why the State Auditor should not issue the warrant for the rental.
Respectfully submitted,
WILLIAM J. JANKLOW
ATTORNEY GENERAL
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