Does a Minnesota hospital district created under Minn. Stat. § 447.31 have to follow the Uniform Municipal Contracting Law and put construction work out for sealed bids?

Plain-English summary

The Paynesville Area Hospital District was in the middle of a hospital addition and nursing-home remodel. The original plan included a nursing-home addition that would convert two-person shared rooms to private rooms, but a "freeze" on nursing-home rooms had stopped that piece. Patients had already been moved once to accommodate the rest of the remodel. The state then lifted the freeze and authorized the District to go ahead with the previously deferred addition. The District wanted to give the addition work to the contractors already on site to avoid moving elderly patients a second time.

Counsel pointed to a 1962 AG opinion (Op. Atty. Gen. 1001K, April 18, 1962) that had concluded hospital districts created under Minn. Stat. §§ 447.31 et seq. did not have to advertise for bids on construction contracts. If that opinion still held, the District could just expand the existing contractors' scope of work.

The 2002 AG opinion said the 1962 opinion no longer applied. The legislature had enacted the Uniform Municipal Contracting Law (Minn. Stat. § 471.345) in 1969, seven years after the 1962 opinion. That statute requires a "municipality" to publicly solicit sealed bids on construction contracts over the statutory threshold ($50,000 generally, $35,000 for municipalities under 2,500 population in 2002). "Municipality" was defined to include "other municipal corporation or political subdivision of the state authorized by law to enter into contracts." And Minn. Stat. § 447.31, subd. 6 expressly states that a hospital district created under §§ 447.31 to 447.37 "is a municipal corporation and a political subdivision of the state." So hospital districts had been subject to § 471.345 since 1969. The 1962 opinion was a correct read of 1962 law, but irrelevant under § 471.345.

The AG added a practical observation about change-orders. Some alteration of work under an existing contract is permissible without re-bidding, but it is "not generally permissible to make changes that substantially change the nature of the project without soliciting bids for a new contract." Whether the Paynesville addition (a nursing-home wing previously paused by a state freeze) constituted a change of sufficient magnitude to require a new bid was a fact issue beyond the scope of an AG opinion. The District would have to make that judgment with counsel, knowing that adding a brand-new wing might well be enough of a change to require a new contract.

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The threshold amounts in § 471.345 have been raised since 2002, and the small-municipality threshold has also been adjusted. The basic conclusion (hospital districts under § 447.31 are subject to § 471.345's bidding requirements) appears to still hold, but specific procedural details and dollar thresholds should be confirmed against the current statute.

Historical context: what the AG concluded

The opinion is short and structurally clean. Four points carry the answer.

First, the operative statute. Minn. Stat. § 471.345 (2000) (the Uniform Municipal Contracting Law) requires that a contract for over $50,000 entered into by a "municipality" for "construction, alteration, repair or maintenance of real property" be let upon public solicitation of sealed bids. For municipalities under 2,500 in population, the threshold amount was $35,000.

Second, the definition of "municipality." Under § 471.345, "municipality" means "a county, town, city, school district or other municipal corporation or political subdivision of the state authorized by law to enter into contracts." Hospital districts fit the "other municipal corporation or political subdivision" tail of the definition.

Third, the categorical statement in the hospital-district statute. Minn. Stat. § 447.31, subd. 6 says a hospital district "created or reorganized under sections 447.31 to 447.37 is a municipal corporation and a political subdivision of the state." So under both halves of § 471.345's definition (municipal corporation, political subdivision), a § 447.31 hospital district qualifies as a municipality.

Fourth, the 1962 opinion. Op. Atty. Gen. 1001K, April 18, 1962, had reached the opposite conclusion: hospital districts were not statutorily required to advertise for bids. But § 471.345 was enacted in 1969 (Act of June 4, 1969, ch. 934, § 1, 1969 Minn. Laws 1803). In 1962, no general statutory bidding requirement applied to hospital districts, so the 1962 opinion was correct on the law as it then stood. After the 1969 enactment of § 471.345, the law changed, and the 1962 opinion no longer reflects the operative rule.

The AG closed with the practical point about change-orders. Some changes to an existing construction contract can be made without rebidding. But changes that "substantially change the nature of the project" need a new contract and a new bid (citing Griswold v. Ramsey County (1954); Hanna v. Board of Education of Wicomico Co. (Md. 1952); and four prior AG opinions: 161a-8 (Jan. 5, 1965; May 9, 1956; March 7, 1950); 629a (May 9, 1975)). Whether a particular change is "of sufficient magnitude to necessitate letting a new contract" is "for the most part, a fact issue beyond the scope of opinions of the Attorney General." That left Paynesville with the practical question: was adding back the formerly-deferred nursing-home wing close enough to the original scope to be handled as a change-order, or was it really a new project requiring a new bid? The 2002 opinion declined to answer.

Common questions

Q: I'm on the board of a hospital district. We're planning a $400,000 construction project. Do we have to put it out for bid?
A: Under the 2002 opinion, yes. Hospital districts under §§ 447.31 et seq. are municipalities under § 471.345 and have to publicly solicit sealed bids on construction contracts over the statutory threshold. The threshold amounts have been raised since 2002, but a $400,000 project will be well above any threshold. Pull the current text of § 471.345 to confirm threshold amounts and procedural details.

Q: Can we just add the new work as a change-order to the existing construction contract instead of running a new bid?
A: The 2002 opinion leaves this as a fact question. Change-orders are permissible for some alterations, but not for changes that substantially change the nature of the project. A pure increase in scope (adding a new wing) is more likely to require a new bid than a quality upgrade within the same scope (better materials, extra fixtures). Consult counsel. Document the rationale for change-order treatment if you go that route, because losing bidders may challenge.

Q: We're a hospital district under 2,500 population. Does the same rule apply?
A: Yes. The "municipality" definition in § 471.345 covers districts of all sizes. The 2002 opinion noted the lower threshold for municipalities under 2,500 ($35,000 in 2002). Confirm the current threshold for small-population municipalities under the current statute.

Q: What happens if the hospital district doesn't follow § 471.345?
A: The 2002 opinion does not directly address remedies. Generally, contracts let in violation of competitive-bidding statutes can be challenged by unsuccessful bidders or other interested parties; in some cases the contract may be void or voidable. The remedy depends on the facts and on subsequent case law in Minnesota.

Q: Does this opinion mean every prior AG opinion that exempted hospital districts is wrong?
A: The 2002 opinion only superseded Op. Atty. Gen. 1001K, April 18, 1962. The reason: § 471.345 (1969) changed the law that the 1962 opinion had applied. Other prior opinions on hospital districts that addressed different statutes or different issues are not necessarily superseded; check each one against current law.

Q: My hospital district was created under a different statute (not §§ 447.31 to 447.37). Does this opinion still apply?
A: The 2002 opinion specifically addresses § 447.31 hospital districts. Hospital districts created under other authority (private acts, county hospital provisions, etc.) may have different governing rules. Check the enabling statute for your specific district and consult counsel.

Background and statutory framework

Minnesota's Uniform Municipal Contracting Law, Minn. Stat. § 471.345, was enacted in 1969 to provide a uniform framework for competitive bidding on local-government contracts. The statute covers all "municipalities" (broadly defined) and applies to contracts for construction, alteration, repair, or maintenance of real property, as well as purchases of supplies and materials. The competitive-bidding requirement protects against favoritism, fraud, and waste of public funds.

Hospital districts under Minn. Stat. §§ 447.31 to 447.37 are a specific form of municipal corporation authorized by Minnesota law. They are typically organized to operate a community hospital serving multiple cities or townships, with their own elected or appointed boards and taxing or fee-charging authority. Their "municipal corporation and political subdivision" status is established in § 447.31, subd. 6.

The case law on change-orders under construction contracts (Griswold v. Ramsey County, Hanna v. Wicomico Co.) and the line of AG opinions cited (161a-8, 629a) develop the general rule: minor changes within the scope of an existing contract are permissible without rebidding, but substantial changes effectively create a new contract that must itself be put out for bid.

Mike Hatch was AG in 2002. Kenneth E. Raschke, Jr. was the Assistant AG of record. The 1962 opinion (Op. Atty. Gen. 1001K, April 18, 1962) was authored under AG Walter Mondale; it was correct at the time but rendered obsolete by the 1969 enactment of § 471.345.

Citations and references

Statutes:
- Minn. Stat. §§ 447.31 to 447.37 (hospital district enabling provisions)
- Minn. Stat. § 447.31, subd. 6 (hospital district as municipal corporation and political subdivision)
- Minn. Stat. § 471.345 (2000) (Uniform Municipal Contracting Law)

Cases:
- Griswold v. Ramsey County, 242 Minn. 529 (1954) (limits on change-orders to existing construction contracts)
- Hanna v. Board of Education of Wicomico Co., 200 Md. 49, 87 A.2d 846 (1952) (Maryland authority on change-orders requiring new bid)

Session laws:
- Act of June 4, 1969, ch. 934, § 1, 1969 Minn. Laws 1803 (enactment of § 471.345)

Prior AG opinions:
- Op. Atty. Gen. 1001K, April 18, 1962 (hospital districts not required to bid; superseded by this 2002 opinion as to law after 1969 enactment of § 471.345)
- Op. Atty. Gen. 161a-8, January 5, 1965; May 9, 1956; March 7, 1950 (change-order limits)
- Op. Atty. Gen. 629a, May 9, 1975 (magnitude-of-change determination is a fact question)

Source

• Landing page: https://www.ag.state.mn.us/Office/Opinions/
• Original PDF: https://www.ag.state.mn.us/Office/Opinions/1001k-20020508.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

HOSPITAL DISTRICTS: CONTRACTS: Hospital Districts created under Minn. Stat. §§ 447.31, et. seq., are subject to the bidding requirements of Minn. Stat. § 471.345 (2000). Op. Atty. Gen. 1001K, April 18, 1962 superceded.

1001 K
May 8, 2002

Ronald R. Frauenshuh, Sr.
FRAUENSHUH & SPOONER, P.A.
113 Washburne Avenue
Paynesville, MN 56362

Dear Mr. Frauenshuh:

Thank you for your letter of April 1, 2002. In that letter, you present substantially the following facts.

FACTS

The Paynesville Area Hospital District ("the District") has undertaken a project involving an addition to its hospital and remodeling of the associated nursing home. Due to a "freeze" in nursing home rooms, an earlier plan to also construct an addition to the nursing home was not implemented. The original plan would have replaced two-person shared rooms with private rooms. Recently the State has authorized the District to go ahead with the planned additions. The District would like to have the added work done by the contractors now on site in order to minimize disruption of the elderly patients who have already been displaced once to accommodate the remodeling. You note that in Op. Atty. Gen. 1001K, April 18, 1962, the Attorney General concluded that hospital districts such as the Paynesville District, created pursuant to Minn. Stat. §§ 447.31, et seq., were not statutorily required to advertise for bids on construction contracts.

QUESTION

Is the Paynesville Area Hospital District subject to the bidding requirements contained in Minn. Stat. §§ 471.345, et seq. in contracting for construction work?

OPINION

As qualified below, we answer your question in the affirmative.

First Minn. Stat. § 471.345 (2000) (the Uniform Municipal Contracting Law) requires a contract for over $50,000 entered into by a "municipality" for "construction, alteration, repair or maintenance of real property to be let upon public solicitation of sealed bids."

Second, a "municipality" for purposes of this requirement is defined as.

"a county, town, city, school district or other municipal corporation or political subdivision of the state authorized by law to enter into contracts."

(Emphasis added). According to Minn. Stat. § 447.31, subd. 6, a hospital district "created or reorganized under sections 447.31 to 447.37 is a municipal corporation and a political subdivision of the state. . ." Therefore, a hospital district such as the Paynesville Area District is plainly subject to the requirements of section 471.345.

Third, section 471.345 was first enacted in 1969. See Act of June 4, 1969, Ch. 934, § 1, 1969 Minn. Laws 1803. Therefore, it was not in existence when Op. Atty. Gen. 1001K, April 18, 1962 was issued. Nor does there appear to have been any other statutory bidding requirement applicable to hospital districts at that time. Thus, while the 1962 opinion appears to be a correct application of 1962 law, it is no longer applicable in light of Minn. Stat. § 471.345.

Finally, while some alteration of work to be performed under an existing government construction contract may be made without advertising for bids, it is not generally permissible to make changes that substantially change the nature of the project without soliciting bids for a new contract. See, e.g., Griswold v. Ramsey County, 242 Minn. 529 (1954), Hanna v. Board of Education of Wicomico Co. 200 Md. 49, 87 A.2d 846, Ops. Atty. Gen. 161a-8 January 5, 1965, May 9, 1956 and March 7, 1950. Whether a particular proposal would constitute a change of sufficient magnitude to necessitate letting a new contract is, for the most part, a fact issue beyond the scope of opinions of the Attorney General. See, e.g., Op. Atty. Gen. 629a, May 9, 1975.

Very truly yours,

MIKE HATCH
Attorney General

KENNETH E. RASCHKE, JR.
Assistant Attorney General

[Footnote 1: For municipalities under 2,500 in population, the threshhold amount is $35,000.]