February 6, 1979

Mr. Charles Schroyer 
Hughes County State's Attorney 
124 South Euclid 
Pierre, South Dakota 57501

Official Opinion No. 79-2

Bonding For Purchases Under Chapter 5-18

Dear Mr. Schroyer:

You have requested an official opinion from this office based on the following facts:

FACTS: 

Under the provisions of Chapter 5-18 relating to public contracts to be awarded upon competitive bids (which includes counties in the definition of public corporations covered by the law) the law requires that a deposit or bond is required for “public improvements.”  This bond is one of the costs which is payable from taxes or funds under the control of a public corporation.   SDCL 5-18-6.  When dealing with the construction of county buildings under the provisions of Chapter 7-25 the law requires certified checks to be posted by bidders on construction projects.  SDCL 7-25-9.  It is my understanding that many counties including Hughes County have not interpreted those provisions to require the filing of a bid bond or deposit for general purchases of materials, supplies or equipment since these items do not fall within the definitions of those expenditures included under the provisions of SDCl 5-18-6 and SDCL 7-25-9.  Apparently a number of counties have taken the position of requiring certified or cashier's checks in amounts ranging from five to ten percent to be deposited at the time of the submission of a bid for one-time and annual contracts involving the purchase of materials, supplies and equipment.  Many of the suppliers have complained about this procedure, particularly in those counties that require a certified check, as banks apparently do not wish to continue issuing such checks due to the bookkeeping problems they encounter.  Counties which require such bid bonds or deposits necessarily increase the costs of materials supplied by the various suppliers because of the fact that the costs of tying up the money in certified and cashier's checks or the purchase of bid bonds must necessarily be passed on to the customers.  Consequently, counties such as Hughes County that have not generally required such bid requirements end up paying a higher price for materials and supplies occasioned by other counties' requirements of such bid deposits or bonds.

Based upon the above factual situation, you have asked the following questions:

QUESTIONS: 

1.  Do counties have the authority to require the deposit of cashier's or certified checks or bid bonds for contracts let for the purchase of materials, supplies and equipment? 

2.  If you answer the question above affirmatively, in what amount may counties require such deposits or bonds to be submitted? 

3.  If question number one is answered affirmatively, in what form may counties require such bid guarantees?  Bonds, cashier's checks or certified checks?

IN RE QUESTION NO. 1:

Although present statute law in South Dakota does not appear to require counties to provide bid bonds or performance bonds for the purchase of materials, supplies and equipment not used for public improvements, I do believe that counties have the implied authority, if they so choose, to require such bidding or performance security. Incidental or implied powers are recognized in South Dakota, Custer City v. Robinson, 79 S.D. 91, 108 N.W.2d 211 (1961), and exist in spite of general statements from the courts apparently limiting the powers of municipalities and counties to those expressly granted. 2 McQuillin Municipal Corporations, 10.12.

IN RE QUESTION NO. 2:

If counties determine that such deposits or bonds are necessary and must be submitted, it would appear that generally, counties would be best advised to follow the limits and procedures used in other areas of purchasing. There may, however, be differences that are apparent which would make it appropriate that a greater or lesser amount of deposit or bonding be required.

IN RE QUESTION NO. 3:

If a county determines that such bid guarantees are required, it is my view that either bonds, cashier's checks or certified checks, or some combination thereof, would be appropriate forms of security.  Once again, I believe the proceedures used by the county in other areas of public improvement bonding would generally be an appropriate precedent and guideline to follow in these additional bonding areas.

Respectfully submitted,

Mark V. Meierhenry
Attorney General

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