Does a Texas school district have to take competitive bids to hire a construction management consultant?

Texas AG Opinion JM-940: Bidding for a School Construction Manager

Plain-English summary

A rapidly growing Texas school district wanted to bring in a construction management consultant, a professional who rides herd on time and cost across a bunch of building projects, advising the district from the design phase all the way through completion. A twist made the question sharper: the consultant was also a general contractor that had already done, or was doing, construction work for the district. The Hamilton County District Attorney asked whether the district had to competitively bid the consulting contract, or whether it fell into the Education Code's exemption for "professional services."

The Attorney General said the consulting contract is exempt. School districts normally have to take competitive bids for construction, maintenance, repair, or renovation contracts worth $5,000 or more. That rule protects the public from favoritism and overspending. But the same statute carves out "fees received for professional services." Professional services are the kind of work that is mostly mental or intellectual rather than physical, work that takes special knowledge and a high level of learning, skill, and judgment. The reason bidding is dropped for them is practical: you can measure bricks and lumber against objective specs and take the lowest responsible bid, but you cannot reduce expert judgment to a spec sheet, and forcing a district to pick the cheapest bidder for expert work would defeat the point of getting a competent one.

Looking at the long list of duties the district described, budgeting the project, prequalifying and interviewing design firms, setting the schedule, advising on materials and methods, managing the bidding and negotiation, coordinating and supervising the contractors, the Attorney General had no difficulty calling that professional services. The office had reached a similar conclusion years earlier under a different statute, treating construction management as exempt "personal services."

So the consulting contract can be signed without bidding. But the opinion added two important limits that keep the exemption from swallowing the bidding rule.

First, the exemption is only for the consultant. The actual construction contracts on the projects the consultant oversees still have to go through competitive bidding.

Second, and this is where the contractor-consultant twist mattered, the consultant cannot then turn around and bid on that construction work. The Attorney General leaned on an earlier opinion and on Texas Supreme Court law about what competitive bidding means. Bidding only works if every bidder stands on the same plane of equality. A contractor who helped design the project, estimate its costs, or write the specifications is not on that plane. It has an inside advantage, and letting it bid would invite favoritism and create a conflict of interest. Here the consultant would prepare or coordinate the very bid specifications, and it would run the bidding process, so it would know what its competitors bid and could simply undercut them. For those reasons, the Attorney General concluded the construction management consultant would be disqualified from bidding on the construction of any project for which it served as the district's consultant.

Currency note

This opinion was issued in 1988. 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 competitive bidding rules for Texas school districts have been recodified and amended since 1988; much of former section 21.901 of the Education Code now lives in the current Education Code's purchasing provisions, and the Professional Services Procurement Act has been recodified into the Government Code. The professional-services exemption and the conflict-of-interest disqualification remain familiar features of Texas procurement law, but the section numbers, dollar thresholds, and procedures have changed. Anyone handling a school construction procurement today should rely on the current statutes rather than the 1988 provisions cited here.

Who this opinion affected (as of 1988)

School districts: The opinion let them hire a construction management consultant without competitive bidding, treating it as professional services, while reminding them that the underlying construction still must be bid.

Construction managers and general contractors: The opinion warned that a firm serving as a district's construction management consultant cannot bid on the construction of the projects it manages, a real limit for a firm that is both consultant and contractor.

Taxpayers and competing bidders: The opinion protected the integrity of the bidding process by disqualifying a consultant-insider from bidding against firms that lack its inside knowledge.

Common questions

Does a school district have to bid out a construction management consultant contract?
No. The Attorney General concluded the consultant's services are "professional services" under section 21.901(c) of the Education Code and are exempt from the competitive bidding otherwise required for school construction contracts.

What makes something "professional services" that can skip bidding?
Work that is predominantly mental or intellectual rather than physical, requiring special knowledge and a high order of learning, skill, and judgment. Such work cannot be measured by objective specifications the way construction materials can, so the lowest-bid rule does not fit it.

Do the construction projects themselves still have to be bid?
Yes. The exemption covers only the consulting contract. Contracts for the construction of the projects subject to the consulting contract still must be submitted to competitive bidding under section 21.901.

Can the construction management consultant also bid to build the project?
No. The opinion concluded a consultant who prepares or coordinates the bid specifications, estimates costs, or runs the bidding is disqualified from bidding on the resulting construction contract, because it would have an unfair advantage and a conflict of interest.

Background and statutory framework

Section 21.901(b) of the Education Code required competitive bidding for contracts by a Texas public school board for the construction, maintenance, repair, or renovation of a building, or for materials, valued at $5,000 or more, with an emergency exception in subsection (e); subsection (c) provided that nothing in the section applies to fees for professional services, including architect's fees, attorney's fees, and fees for fiscal agents. Subchapter B of chapter 271 of the Local Government Code provided competitive bidding procedures for school district construction, repair, or renovation requiring an expenditure of more than $10,000, but exempted contracts awarded under the Professional Services Procurement Act, V.T.C.S. article 664-4, which requires contracts for the professional services of licensed physicians, optometrists, surgeons, architects, certified public accountants, or registered engineers to be awarded primarily on demonstrated competence and qualifications.

Section 21.901 does not define "professional services." The courts have not adopted a universal definition, but several cases describe it as labor and skill that is predominantly mental or intellectual rather than physical or manual (Maryland Casualty Co. v. Crazy Water Co., 160 S.W.2d 102 (Tex. Civ. App. - Eastland 1942, no writ)), no longer limited to lawyers, physicians, or theologians, but also members of disciplines requiring special knowledge and a high order of learning, skill, and intelligence (Attorney General Opinion MW-344 (1981)). The professional-services exception is a narrow one to the strong public policy favoring competitive bidding; its purpose is to let a district obtain the most competent professionals, which would be thwarted if the district had to award such contracts to the lowest and possibly least qualified bidder, and professional services, unlike construction work and materials, can seldom be measured by objective criteria (Attorney General Opinions MW-342 (1981); JM-881 (1988); JM-712 (1988)).

The described duties of the construction management consultant (controlling time and cost for the district by establishing a budget, prequalifying and interviewing architectural and engineering firms, organizing the design phase, setting a schedule, advising on materials and methods, managing the bidding and negotiation process, handling contract awards, coordinating specialty contractors, supervising the work, and establishing the project accounting system) require a high level of knowledge, experience, and skill and qualify as professional services under section 21.901(c). Other states have similarly treated construction management as personal or professional services exempt from competitive bidding (State v. Brown, 422 N.E.2d 1254 (Ind. Ct. App. 1981)). The office had earlier concluded that a construction manager's services fell within the "personal services" exception to the competitive bidding requirement of former article 2368a, V.T.C.S. (now chapter 252 of the Local Government Code), quoting Hunter v. Whiteaker & Washington, 230 S.W. 1096 (Tex. Civ. App. - San Antonio 1921, writ ref'd) on the reasons for exempting such contracts (Attorney General Opinion MW-530 (1982)); the same passage was quoted in Attorney General Opinion MW-342 (1981) as the rationale behind the professional-services exception to section 21.901.

Two limits apply. The construction contracts for the projects subject to the consulting contract still must be competitively bid under section 21.901. And a contractor who acts as a consultant in the design of a facility, the estimation of its costs, or the preparation of its specifications is disqualified from bidding on the resulting construction contract, because competitive bidding requires that all bidders be placed on the same plane of equality and is meant to prevent favoritism (Attorney General Opinion JM-282 (1984), quoting Texas Highway Commission v. Texas Association of Steel Importers, Inc., 372 S.W.2d 525 (Tex. 1963), which adopted the explanation of Texas competitive bidding statutes in Sterrett v. Bell, 240 S.W.2d 516 (Tex. Civ. App. - Dallas 1951, no writ)). JM-282 also observed that such dual activity implicates the conflict-of-interest policy of article 6252-9b, V.T.C.S. Because the construction management consultant here would prepare or coordinate the information needed to formulate bid specifications, project costs, and design requirements, and would manage the bidding and negotiation process (and thus know competitors' bids), it would enjoy an overwhelming advantage over other bidders and is disqualified from bidding on the construction of any project for which it serves as the district's consultant.

Citations

Statutory authority:

• Section 21.901, Education Code (competitive bidding for school construction; professional-services exception)
• Section 51.907, Education Code (competitive bidding for construction at institutions of higher education)
• Chapter 271, Local Government Code (competitive bidding procedures for local governments)
• Article 664-4, V.T.C.S. (Professional Services Procurement Act)
• Chapter 252, Local Government Code (former article 2368a; personal or professional services exception)
• Article 6252-9b, V.T.C.S. (conflict-of-interest policy for state officers and employees)

Cases:

• Maryland Casualty Co. v. Crazy Water Co., 160 S.W.2d 102 (Tex. Civ. App. - Eastland 1942, no writ) (Texas appellate court; professional services are predominantly mental or intellectual)
• State v. Brown, 422 N.E.2d 1254 (Ind. Ct. App. 1981) (Indiana appellate court; construction management as exempt services)
• Hunter v. Whiteaker & Washington, 230 S.W. 1096 (Tex. Civ. App. - San Antonio 1921, writ ref'd) (Texas appellate court; rationale for exempting certain contracts from bidding)
• Texas Highway Commission v. Texas Association of Steel Importers, Inc., 372 S.W.2d 525 (Tex. 1963) (Texas Supreme Court; purpose of competitive bidding statutes)
• Sterrett v. Bell, 240 S.W.2d 516 (Tex. Civ. App. - Dallas 1951, no writ) (Texas appellate court; bidders must be on the same plane of equality)

Prior Attorney General materials referenced: MW-344 (1981); MW-342 (1981); JM-881 (1988); JM-712 (1988); MW-530 (1982); JM-282 (1984); JM-932 (1988).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-940
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0940.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; the linked PDF is authoritative. Two out-of-state citations in the opinion (a Minnesota case reported at 279 N.W.2d 426 and an Oregon case reported at 546 P.2d 1110) are reproduced as printed; their party names were not legible enough in the scan to verify.

August 17, 1988

Honorable Andy J. McMullen
District Attorney
Hamilton County
P. O. Box 706
Hamilton, Texas 76531

Opinion No. JM-940

Re: Whether a contract for services of a construction management consultant is excepted from competitive bidding requirements of section 21.901 of the Texas Education Code (RQ-1335)

Dear Mr. McMullen:

You inform us that a school district undergoing rapid growth seeks to employ a construction management consultant to advise the district on numerous construction projects. You add that the consultant is also a general contractor that has performed or is performing work for the district in its capacity as general contractor. You ask whether a contract for the services of a construction management consultant is excepted from the competitive bidding requirements of section 21.901 of the Texas Education Code as a contract for "professional services." We conclude that it is exempted from the competitive bidding requirement.

Section 21.901 of the Education Code provides the following in pertinent part:

(b) Except as provided in Subsection (e) of this section, all contracts proposed to be made by any Texas public school board for the construction, maintenance, repair or renovation of any building or for materials used in said construction, maintenance, repair or renovation, shall be submitted to competitive bidding when said contracts are valued at $5,000 or more.

(c) Nothing in this section shall apply to fees received for professional services rendered, including but not limited to architect's fees, attorney's fees, and fees for fiscal agents.

. . . .

(e) If a school building or school equipment is destroyed or severely damaged, and the school board determines that the time delay posed by the competitive bidding process would prevent or substantially impair the conduct of classes or other essential school activities, then contracts for the replacement or repair of such building or equipment may be made without resort to competitive bidding as otherwise required by this section.

Subchapter B of chapter 271 of the Local Government Code provides competitive bidding procedures for contracts awarded by common or independent school districts for the construction, repair, or renovation of structures requiring an expenditure of more than $10,000 from the funds of the district. Local Gov't Code section 271.024. Contracts that must be awarded under the terms of the Professional Services Procurement Act, V.T.C.S. article 664-4, are exempted from these procedures. Id. section 271.022. Article 664-4 requires contracts for the professional services of licensed physicians, optometrists, surgeons, architects, certified public accountants, or registered engineers to be awarded primarily on the basis of demonstrated competence and qualifications.

You describe the duties of the construction management consultant as follows:

The overall function of a construction management consultant is to control time and cost on behalf of the owner/school district during the construction process. In this regard his duties include without limitation: (1) establishing a project budget; (2) prequalifying and interviewing architectural and engineering firms and advising the owner/school district on the final architect/engineer selection; (3) organizing the design phase of the project; (4) establishing a project schedule from design through to completion of the construction; (5) advising and consulting with the owner/school district on materials, construction methods, and the arrangement of the construction contract package; (6) managing the bidding and negotiation process; (7) handling contract awards; (8) providing coordination among the various specialty contractors; (9) supervising the work; and (10) establishing the project's accounting system. In essence the construction management consultant accepts managing responsibility of the entire construction process from design through to the completion of construction.

You do not indicate whether it is intended that the construction management consultant will serve as the prime contractor or subcontractor on any project covered by the consulting contract.

Section 21.901 does not define the phrase "professional services." The courts have not adopted a universal definition of the term; however, several cases suggest that it comprehends labor and skill that is "predominantly mental or intellectual, rather than physical or manual." Maryland Casualty Co. v. Crazy Water Co., 160 S.W.2d 102 (Tex. Civ. App. - Eastland 1942, no writ). It no longer includes only the services of lawyers, physicians, or theologians, but also those members of disciplines requiring special knowledge or attainment and a high order of learning, skill, and intelligence. See Attorney General Opinion MW-344 (1981); Black's Law Dictionary 1089-90 (5th ed. 1979) (definition of "profession").

Section 21.901(c) is a narrow exception to the strong public policy favoring competitive bidding on contracts involving the expenditure of public funds. Its purpose is to permit a school district to obtain the professional services of the most competent and experienced individuals available. See Attorney General Opinion MW-342 (1981) and cases cited therein. This purpose would be thwarted if the district was required to award contracts for professional services to the lowest, and possibly least qualified, bidders. Id. Another reason for dispensing with competitive bidding is that professional services, unlike construction work and materials, can seldom be measured with objective criteria. Since construction work and materials must conform to specifications of the school district's choosing, it is reasonable to award contracts for such work or materials on the basis of the lowest responsible bid. However, with work involving specialized, technical, or aesthetic judgment, considerations of cost yield to considerations of quality and competence. The legislature has determined that these concerns warrant a departure from the strict rule of free competition for public contracts. Attorney General Opinions JM-881 (1988); JM-712 (1988) (providing that the legislature may vary the policy of strict competition by providing exceptions to a competitive bidding statute).

We believe that the duties of a construction management consultant as described in your letter qualify as "professional services" for the purposes of section 21.901(c). These duties require a high level of knowledge, experience, and skill consistent with the standards of professionalism described above. See J. Canterbury, Texas Construction Law Manual section 6.10 (1981); [party name not legible] v. Metropolitan Council, 279 N.W.2d 426, 441-44 (Minn. 1979) (characterizing construction management services as professional services). See generally G. Hardie, Construction Contracts and Specifications 34-35 (1981); R. Meyers, The New Contractual Arrangements in Construction Contracts in the 80's 113-118 (1980). We also note the trend in many states to except contracts for the services of construction managers from competitive bidding requirements as either personal or professional services. See State v. Brown, 422 N.E.2d 1254 (Ind. Ct. App. 1981); [party name not legible] v. Doerner, 546 P.2d 1110 (Or. Ct. App. 1976); Ohio Rev. Code Ann. section 307.86 (Baldwin 1985).

In Attorney General Opinion MW-530 (1982) this office concluded that a contract for the services of a construction manager was within the "personal services" exception to the competitive bidding requirement of article 2368a, V.T.C.S. That statute, now chapter 252 of the Local Government Code, excepted contracts for "personal or professional services" from competitive bidding requirements imposed by the statute. The duties of the construction manager were to include representing, advising, and consulting with the county procuring his services, coordinating and overseeing the work of contractors, and making recommendations concerning the payment of contractors. The attorney general determined that because these services involved the personal, intellectual or manual labor of an individual, they constituted "personal services" within the meaning of the statute. It was therefore unnecessary to consider whether such services also constituted "professional services" for the purposes of the exception to competitive bidding. However, the opinion quoted a passage from Hunter v. Whiteaker & Washington, 230 S.W. 1096 (Tex. Civ. App. - San Antonio 1921, writ ref'd) stating reasons for exempting certain contracts from the competitive bidding process. The same passage was quoted in Attorney General Opinion MW-342 (1981) as the rationale behind the "professional services" exception to section 21.901. Thus, it appears that through identical reasoning construction management services may be characterized either as "personal services" under chapter 252 of the Local Government Code or "professional services" under section 21.901 of the Education Code. See also 64 Am. Jur. 2d Public Works and Contracts section 43 (equating professional services with personal services).

Earlier in this opinion, we observed that your description of the duties of a construction management consultant did not indicate whether the consultant would also serve as the prime contractor or subcontractor on any construction project covered by the consulting contract. We will now discuss the significance of that issue.

Attorney General Opinion JM-282 (1984) concerned the use of construction management contracts by state universities. The facts provided to us stipulated that general contracting firms were invited to submit bids for the construction of a project based on only a general description of the project and were asked to include hourly rates for consulting services in their bids. The consulting services consisted of preliminary work with the designers of the construction project, the preparation of cost estimates for the project, the designation of work to be performed by subcontractors, and the invitation and acceptance of subcontract bids. The construction manager/contractor was allowed to designate the work it would perform, or the university could require it to perform preliminary construction work. At the close of the design phase and preliminary construction phase of the project, the contractor would submit a guaranteed maximum price for the remainder of the project. The university could reject the guaranteed maximum price and pay the contractor only for the consulting services, or it could accept the price and authorize the contractor to proceed with construction.

Section 51.907 of the Education Code provides that contracts for the construction or erection of permanent improvements at institutions of higher education are void unless they are made pursuant to the competitive bidding procedures authorized therein. After drawing a distinction between contracts for construction and contracts for the planning or design of a construction project, we concluded that work done prior to the time a decision is made about who will perform actual construction consists of professional or consultant services not governed by section 51.907. Contracts for such pre-construction services are governed by either article 664-4, V.T.C.S., or article 6252-11c, V.T.C.S., which concerns the employment of private consultants by state agencies. Neither statute authorizes competitive bidding; the latter, however, requires an agency to publicly invite offers for consulting services if the consulting contract may be valued in excess of $10,000.

The opinion went on to address the issue of authorizing the construction manager to perform construction work on the same project for which it provided pre-construction services without resort to competitive bidding. We answered in the negative, taking note that section 51.907 voids contracts for construction work not let in response to sealed competitive bids. We also sounded the following caution:

Beyond that, in our opinion, a contractor who has acted as a consultant for a university in the design of a facility, the estimation of its costs, or the preparation of the specifications therefor, is disqualified from bidding on the resulting construction contract. The Texas Supreme Court, in Texas Highway Commission v. Texas Association of Steel Importers, Inc. [372 S.W.2d 525 (Tex. 1963)], adopted the explanation of Texas competitive bidding statutes given in Sterrett v. Bell [240 S.W.2d 516 (Tex. Civ. App. - Dallas 1951, no writ)], saying the purpose and intent of such statutes were well stated there. In part, the Sterrett court said competitive bidding "requires that all bidders be placed upon the same plane of equality." 240 S.W.2d at 520. It also said the purpose of such a statute, among other things, was to "prevent favoritism," and "[t]hat there can be no competitive bidding in a legal sense where the terms of the letting of the contract prevent or restrict competition, [or] favor a contractor or materialman . . . ."

A potential bidder is undoubtedly put in a favored position over other potential bidders if he drafts the specifications of the job to be let or participates in the design and cost-estimating decisions of the owner. All bidders are not placed on the same plane of equality. In our opinion, such dual activities create a conflict of interests as well.

Attorney General Opinion JM-282 (1984) at 8. We closed the opinion by observing that a construction management consultant was at least within the spirit, if not the letter, of article 6252-9b, V.T.C.S., which announces a policy forbidding state officers or employees to hold any interest, financial or otherwise, direct or indirect, that is in substantial conflict with the proper discharge of their duties.

We believe similar words of caution are warranted here. Because the construction management consultant will be responsible for the preparation or coordination of information necessary to formulate bid specifications, i.e., project costs and design requirements, it will enjoy an overwhelming advantage over all other potential bidders for the general contract. Furthermore, since the consultant will manage the bidding and negotiation process, it will know what its competitors' bids are, thereby permitting it to submit a lower bid. We therefore conclude that the construction management consultant described in your letter would be disqualified from bidding on any contract for the construction of a project for which it serves as consultant to the school district.

SUMMARY

A contract for the services of a construction management consultant is excepted from competitive bidding by section 21.901(c) of the Texas Education Code as a contract for "professional services." Contracts for the construction of projects subject to the consulting contract must be submitted to competitive bidding in accordance with section 21.901. A contractor is disqualified from bidding on a contract for the construction of a project for which it serves as construction management consultant to a school district.

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

RICK GILPIN
Chairman, Opinion Committee

Prepared by Steve Aragon
Assistant Attorney General