April 27, 1979
Mr. Gordon K. Milbrandt
Auditor General
State Capitol
Pierre, South Dakota 57501
Official Opinion No. 79-12
Extending Contracts on State Purchased Equipment
Dear Mr. Milbrandt:
You have requested an official opinion from this office based on the following factual situation:
FACTS:
1. During fiscal year 1977, the State of South Dakota purchased equipment (e.g., collator, computer equipment, geological survey equipment, audio equipment, food service equipment, etc.), each with a unit cost in excess of $1,500.00. For each type of equipment listed above, formal bids were solicited from known vendors, but were not advertised.
2. Existing annual contracts for equipment purchases have been extended for a period of one additional year. In some cases, the contract extension included price increases approved by the state.
Based on the above factual situation, you ask the following questions:
QUESTIONS:
1a. Must all equipment the State purchases costing more than $1,500.00 be grouped and classified pursuant to SDCL 5-23-3?
1b. If equipment with a purchase cost in excess of $1,500.00 is to be purchased but was not included in the original group classifications or did not relate to any other group classification (unique items), must these items be classified under SDCL 5-23-3?
1c. If the above equipment must be classified, must purchases of these items be advertised for bids pursuant to SDCL 5-23-10?
2. May the State extend an existing annual contract for one year without readvertising for bids if:
(a) The terms of the contract stay the same?
(b) The State authorizes a change in the contract?
IN RE QUESTION NO. 1a:
I would refer you to the provisions of SDCL 5-23-3, 5-23-8, and 5-23-9 which state:
5-23-3. The bureau of administration shall classify all furniture and fixtures, equipment, supplies, printing and stationery, fuel, clothing, foodstuffs, utilities, and all other commodities purchased for the use of each and every department of the state government, state institutions, and state agencies, and shall group into each of the several commodity classifications such items as are of the same class, to the end that contracts for like commodities or classes of commodities may be grouped. The bureau shall prepare and furnish to each and every department of the state government, state institutions, and state agencies, and to any interested person, firm, or corporation, copies of such commodity classifications and a schedule of dates on which bids on each class of commodities will be opened. The bureau shall fix the dates on which bids for commodities in each respective class will be opened and the dates on which estimates of the quantities needed shall be submitted by the several departments of the state government, state institutions, and state agencies; provided that when the purchase in each respective class is equal to or less than fifteen hundred dollars the bureau shall not be required to let bids if it will first file a written justification with the requisition, setting forth the reasons why it would be in the best interest of the state not to request bids.
5-23-8. The bureau of administration shall prescribe uniform rules covering specifications for the purchase or lease of supplies, equipment and other commodities provided for by this chapter, the advertisement for proposals, the opening of bids, and the making of awards; and each and all of the various officers, boards, commissions, departments of the state, state institutions, and state agencies, are expressly prohibited from contracting for, leasing or purchasing any of such supplies, equipment, or commodities; provided however, that the bureau shall prescribe rules for the purchasing of current requirements of foodstuffs or other supplies by the departments and institutions and the purchases of such supplies which cannot economically be purchased through the letting of bids at stated intervals; but no claim for any such purchases shall be paid unless authorization to purchase has been issued by the bureau in accordance with such rules.
5-23-9. The bureau of administration shall prepare blank schedules on which all bids shall be made, enumerating the number, kind, form, style, size, and quantity of the items to be furnished, and when requested so to do, shall furnish any proposed bidder a copy of such blank schedules. Every bid shall be in accordance with the schedules and specifications. All bids shall be submitted in sealed envelopes and shall be publicly opened at such time and place as the bureau of administration may specify in the schedule.
In the case of Fonder, et al. v. City of South Sioux Falls, et al., 76 S.D. 31, 71 N.W.2d 618 (1955), the South Dakota Supreme Court discussed in some detail the proper interpretation of competitive bid statutes. The court there said in part:
The first and fundamental rule is that the court should ascertain and give effect to the intention of those who enacted the law. To do this, the court should bear in mind the object sought to be accomplished by the law; and to ascertain this object, it should consider the occasion and necessity of its enactment, the defects or evils in the former law, and the remedy provided by the new one. The statute should then be given that construction which is best calculated to advance its object by suppressing the mischief and securing the benefits intended. . . .
(1) The object the Legislature sought to accomplish through the requirement of competitive bidding in making contracts for public corporations is to guard against favoritism, improvidence, extravagance, fraud and corruption.
In 43 Am. Jur. Public Works and Contracts § 26 it is written: “Since they are based upon public economy and are of great importance to the taxpayer, laws requiring competitive bidding as a condition precedent to the letting of public contracts ought not to be frittered away by exceptions, but, on the contrary, should receive a construction always which would fully, fairly, and reasonably effectuate and advance their true intent and purpose, and which will avoid the likelihood of their being circumvented, evaded, or defeated.”
In view of the above citation from the South Dakota Supreme Court in the case of Fonder, et al. v. City of South Sioux Falls, et al., it is my view that SDCL 5-23-3 must be interpreted in such a way that items be bid competitively, if it is at all possible to do so. I do not believe the thrust of the competitive bid laws is to avoid bidding through a very narrow classification process and I do not believe that the statute is properly interpreted to authorize that practice. By making this statement, I do not intend to imply in any manner that the Bureau of Administration has not properly classified or properly sought to classify items for competitive bid in the past. I simply do not have any facts available to me in that regard. I do believe, however, that if SDCL 5-23-3 were interpreted in such a manner, the intent behind the competitive bid laws is seriously undercut. I cannot construe the laws of competitive bidding in Chapter 5-23 to allow for that result.
IN RE QUESTION NO. 1b:
I believe the discussion relative to question 1a essentially answers the question. I believe the statute law of South Dakota contemplates that if at all possible such equipment be classified and handled through the competitive bid process. As noted above, if there is an emergency situation, if the item is exempt, or if the equipment is purchased under SDCL 5-23-15, it would appear that then competitive bidding standards might be inapplicable. Once again, I would reiterate that the courts in South Dakota do place emphasis upon the competitive bidding process as being in the public interest and that exceptions to this competitive bidding process will not be easily supported with very specific legislative direction.
IN RE QUESTION NO. 1c:
It is my feeling that any equipment so classified, and bid competitively, must be handled through a competitive bid process which involves notices such as those required in § 5-23-10.
IN RE QUESTION NO. 2:
It is my view that the State does have authority under Chapter 5-23 to provide for an extension of an existing competitive bid contract, without readvertising for bids, so long as that contract does not specifically commit the State to the purchasing of any number of items at a time when there are no funds appropriated to pay for such items. This authority, however, in my view is limited to the situation in which the contract terms are not changed. If the price is raised, then in my view, the contract would need to be competitively rebid unless the provisions of § 5-23-19.1 might allow a price adjustment.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
MVM:DOC:mam
