Can a Texas city require its outside security guard contractors to provide health insurance to their employees as a condition of winning the contract?

Texas AG Opinion JM-1213: Can a City Require Security Guard Contractors to Provide Employee Health Insurance?

Plain-English summary

A state senator asked whether the City of Houston could require, through its bid specifications, that independent contractors providing security guard services give their employees basic health insurance benefits. Houston had stopped employing its own security guards and instead contracted the work out; the city's own attorney had already concluded such a requirement would violate the competitive bidding law, and the requester wanted the Attorney General's view.

The Attorney General agreed with the city attorney. Chapter 252 of the Local Government Code requires cities with 50,000 or more residents to award contracts over $10,000 through competitive bidding, a system designed to get the public the best work and materials at the lowest practicable price. The opinion explained that this goal is achieved by disallowing specifications unrelated to the quality or quantity of what's being purchased, and that requiring contractors to provide health insurance to their own employees, while it might reduce reliance on public health care, has no direct bearing on the quality of the security guard services the city is buying. Because the legislature had not created an exception to the competitive bidding statute for this kind of requirement, the opinion concluded the city could not impose it, whether through ordinance or bid specifications.

Currency note

This opinion was issued in 1990. 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 mentioned here.

Who this opinion affected (as of 1990)

The City of Houston and similarly sized Texas cities: The opinion concluded a city could not require, through ordinance or bid specifications, that its contractors provide employees with basic health insurance benefits when purchasing services like security guard contracts subject to competitive bidding under Local Government Code chapter 252.

Companies bidding on municipal service contracts: The opinion meant bidders for contracts like security guard services could not be excluded or disadvantaged in the bidding process based on whether they offered employee health insurance, since that criterion fell outside what the competitive bidding statute allows cities to require.

Common questions

Can a Texas city require its contractors to provide health insurance to their workers as a condition of the contract?
No, according to the opinion, at least where the contract is subject to Local Government Code chapter 252's competitive bidding requirement and the health insurance mandate isn't tied to the quality or quantity of the services being purchased. The Attorney General found no statutory exception allowing this kind of requirement for security guard contracts.

Why does requiring health insurance for contractor employees violate a competitive bidding law?
The opinion explained that competitive bidding statutes exist to secure the best work and materials at the lowest practicable price by disallowing specifications unrelated to the quality or quantity of the goods or services purchased. Since providing employee health insurance has no direct relationship to how well a security guard performs the job, imposing it as a bid requirement improperly restricts competition rather than protecting service quality.

Could the city argue it has special authority to impose this requirement because it's a public health agency?
No. The opinion noted this argument had been raised but rejected it, explaining that only the state legislature can create an exception to the state competitive bidding statute; a city cannot create its own exception based on its general public health powers.

Background and statutory framework

Chapter 252 of the Local Government Code governs municipal purchasing and, with limited exceptions not relevant here, requires cities with 50,000 or more inhabitants to award contracts over $10,000 through competitive bidding. The opinion applied the established rule that competitive bidding statutes are designed to secure for the public "the best work and materials at the lowest practicable price," achieved by disallowing specifications unrelated to the quality or quantity of the goods or services, or that otherwise restrict competition, citing Sterrett v. Bell and Texas Highway Commission v. Texas Ass'n of Steel Importers, Inc., a case in which the Texas Supreme Court struck down a highway commission requirement that construction materials be domestically manufactured, explaining that quality should be fixed by quality specifications, not restrictions based on where goods are made.

The opinion acknowledged that the legislature may create statutory exceptions to competitive bidding, pointing to a prior AG opinion recognizing a statutory exception for out-of-state bidders and to Local Government Code section 262.025(d), which lets certain political subdivisions require that 25 percent of contracted work be performed by the bidder's own employees. But because no comparable statutory exception existed for a health-insurance-benefits requirement, and because the opinion found no basis to treat a city's general public-health authority as a substitute for a legislatively created exception, it concluded Houston could not impose the requirement.

Citations

Statutes:

• Tex. Local Gov't Code § 252.021(a) (competitive bidding requirement for larger-city contracts over $10,000)
• Tex. Local Gov't Code § 262.025(d) (statutory exception allowing certain political subdivisions to require 25% of work performed by bidder's employees)

Cases:

• Sterrett v. Bell, 240 S.W.2d 516, 520 (Tex. Civ. App. - Dallas 1951, no writ)
• Texas Highway Comm'n v. Texas Ass'n of Steel Importers, Inc., 372 S.W.2d 525, 527 (Tex. 1963)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1213
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1213.pdf

Original opinion text

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

August 30, 1990

Honorable Hugh Parmer
Chairman
Intergovernmental Relations Committee
Texas State Senate
P. O. Box 12068
Austin, Texas 78711

Opinion No. JM-1213

Re: Authority of a municipality to require health benefit provisions to be included in specifications for contract security guards (RQ-1991)

Dear Senator Parmer:

You ask whether the City of Houston can authorize specifications requiring that the city's independent contractors provide their employees with basic health insurance benefits. We understand that the question relates specifically to independent contractors providing security guard services under contracts with the city. We also understand that the city formerly employed its own security guards and has ceased the practice. The city attorney's office has rendered its opinion on the matter and concluded that such a requirement would contravene competitive bidding requirements. We agree.

Chapter 252 of the Local Government Code is the law that governs city purchases. With certain exceptions that do not appear to be relevant here, that chapter requires that cities with 50,000 or more inhabitants let contracts for amounts over $10,000 by means of competitive bidding. Local Gov't Code § 252.021(a). We are advised that the Houston city charter contains a complementary provision.

Competitive bidding laws are designed to ensure that the public receives "the best work and materials at the lowest practicable price." Sterrett v. Bell, 240 S.W.2d 516, 520 (Tex. Civ. App. - Dallas 1951, no writ); see also, Texas Highway Comm'n v. Texas Ass'n of Steel Importers, Inc., 372 S.W.2d 525, 527 (Tex. 1963). This end is achieved by disallowance of specifications that are unrelated to the quality or quantity of the goods or services or that otherwise restrict competition. In Texas Highway Commission, supra, the court determined that a highway commission minute order requiring that construction material used by the commission be domestically manufactured violated the competitive bidding statute. The court said "Matters of quality should be fixed by quality specifications and not by proscriptions as to localities of manufacture or fabrication." Id. at 529.

By the same token, we believe that matters of quality in the provision of security guard services should not be fixed by requiring that contractors provide their employees with health insurance benefits. Such a requirement may result in a work force that is less dependent on publicly supported health care, but it has no direct relation to the quality of security guard services.

This office has noted that the legislature may alter the general competitive bidding rules by adopting exceptions or authorization that would otherwise contravene the mandate that goods and services be purchased through unrestricted competition. Attorney General Opinion JM-712 (1987) (statutory exception for out-of-state bidders found in article 601g, V.T.C.S.); see also Local Gov't Code § 262.025(d) (authority for certain political subdivisions to require that 25% of work be performed by bidder); Attorney General Opinion JM-881 (1988) (requirement that 25% of work be performed by bidder's employees violates statute). We have found no similar exception for a requirement of health insurance benefits.

It has been suggested that the city is a public health agency, and in that capacity, it has the authority to enact such an exception to the competitive bidding statute. As this office noted in Attorney General Opinion JM-712 (1987), the state law may only be overcome by an exception defined by the state legislature.

SUMMARY

The City of Houston may not require, either through an ordinance or through job specifications, that its contractors provide their security guards with basic health insurance benefits.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Karen C. Gladney
Assistant Attorney General