1959 ruling is used to justify no-bid contracts
Posted: Friday, January 02, 2009
RAPID CITY, S.D. (AP) -- The state grants hundreds of no-bid contracts worth millions of dollars each year for professional services that have a hazy base in South Dakota law.
State statute addresses in detail those contracts for "construction of public improvements or contracts for the purchase, lease or rental of materials, supplies or equipment." But the status of special-services contracts is much less clear in statute.
"The one thing you won't find is specific language. It simply doesn't contemplate services," state Attorney General Larry Long said. "You'll find an occasional reference to services, but you don't find them in the basic statutes that require stuff to be bid."
Long said that might have been an oversight by state lawmakers who first introduced the current framework of contract laws in 1939. "Or they purposely left it out," he said.
Either way, service contracts exist in sort of a gray area of the law. And whether they can be granted without bids is hinged on a determination that they are unique services requiring special training and education that is difficult to fit into a low-bid requirement.
State-government contracts for construction work or the procurement of materials, supplies or equipment are clearly detailed in statute, and most are subject to competitive bids beyond a certain cost.
But specialized services, such as legal and engineering work and advertising and promotion, are handled differently, often without bid. That system is presumed legal by state officials who rely largely on a 1959 South Dakota Supreme Court ruling and subsequent state attorney generals' opinions.
The state Supreme Court ruled the city of Sioux Falls did not need to go through a competitive bid process to hire an architect for a new civic auditorium. The court ruled that the architect's skills and education were unique enough to be exempt from the bid requirements.
The "unique skills" argument has for many years been used to justify no-bid contracts in other professional areas, for thousands and in a few cases even millions of dollars. But that could change after this legislative session if Senate Democratic Leader Scott Heidepriem has his way.
The Sioux Falls lawyer plans to introduce legislation that would clarify in statute the legal status of professional services contracts, require more competition in how they are awarded and more transparency in how they are kept by the state. Heidepriem said that although it would be inappropriate to require all professional services contracts to be awarded to the low bidder, there isn't any reason they shouldn't at least be subject to multiple proposals.
"I'm not saying it should automatically go to the low bidder, but for goodness' sakes, we ought to have those goal posts established," Heidepriem said. "This whole idea of saying you can't award these contracts to the low bidder becomes a smoke screen for awarding contracts to whomever they please."
Long isn't sure the process would change very much if Heidepriem's idea were approved. Bids are already required of some professional services contracts, at the discretion of agency directors. And Long said no-bid legal-services contracts that he is familiar with generally involve examinations of multiple providers or proposals and negotiations for the best price and service.
"I don't think this would change the landscape very much," Long said of Heidepriem's proposal. "Truth be known, there are a lot of agencies in state government that do that as a practical matter, for a variety of special services they contract."
A quick reading of South Dakota law could leave the impression, to laymen at least, that the state's practice of allowing no-bid contracts for services could be illegal. The law seems quite simple as stated in SDCL 5-18-2, which reads, in part, that state contracts must be "let to the lowest possible bidder."
There are a few exceptions to the bid process, generally related to relatively inexpensive purchases, those that are difficult to find, of a unique and changeable nature or available only through a sole provider. And there is no stated exception for services. That exception goes back to the 1959 case, in which the state Supreme Court relied on service-related cases in other states. That isn't unusual on an issue when a given state statute isn't clear, Long said.
"It's the first time that the South Dakota Supreme Court had a chance to address the issue," Long said of the 1959 case. "And they went to the courts of other jurisdictions to get direction."
One court decision cited made a specific reference to architects and how they should not come under the low-bid requirements of another state: "An architect is an artist. His work requires taste, skill, and technical learning, ability of a high and rare kind."
Requiring a low bid for architectural services could mean hiring the "least capable and most inexperienced," provider, the court said.
State statute addresses in detail those contracts for "construction of public improvements or contracts for the purchase, lease or rental of materials, supplies or equipment." But the status of special-services contracts is much less clear in statute.
"The one thing you won't find is specific language. It simply doesn't contemplate services," state Attorney General Larry Long said. "You'll find an occasional reference to services, but you don't find them in the basic statutes that require stuff to be bid."
Long said that might have been an oversight by state lawmakers who first introduced the current framework of contract laws in 1939. "Or they purposely left it out," he said.
Either way, service contracts exist in sort of a gray area of the law. And whether they can be granted without bids is hinged on a determination that they are unique services requiring special training and education that is difficult to fit into a low-bid requirement.
State-government contracts for construction work or the procurement of materials, supplies or equipment are clearly detailed in statute, and most are subject to competitive bids beyond a certain cost.
But specialized services, such as legal and engineering work and advertising and promotion, are handled differently, often without bid. That system is presumed legal by state officials who rely largely on a 1959 South Dakota Supreme Court ruling and subsequent state attorney generals' opinions.
The state Supreme Court ruled the city of Sioux Falls did not need to go through a competitive bid process to hire an architect for a new civic auditorium. The court ruled that the architect's skills and education were unique enough to be exempt from the bid requirements.
The "unique skills" argument has for many years been used to justify no-bid contracts in other professional areas, for thousands and in a few cases even millions of dollars. But that could change after this legislative session if Senate Democratic Leader Scott Heidepriem has his way.
The Sioux Falls lawyer plans to introduce legislation that would clarify in statute the legal status of professional services contracts, require more competition in how they are awarded and more transparency in how they are kept by the state. Heidepriem said that although it would be inappropriate to require all professional services contracts to be awarded to the low bidder, there isn't any reason they shouldn't at least be subject to multiple proposals.
"I'm not saying it should automatically go to the low bidder, but for goodness' sakes, we ought to have those goal posts established," Heidepriem said. "This whole idea of saying you can't award these contracts to the low bidder becomes a smoke screen for awarding contracts to whomever they please."
Long isn't sure the process would change very much if Heidepriem's idea were approved. Bids are already required of some professional services contracts, at the discretion of agency directors. And Long said no-bid legal-services contracts that he is familiar with generally involve examinations of multiple providers or proposals and negotiations for the best price and service.
"I don't think this would change the landscape very much," Long said of Heidepriem's proposal. "Truth be known, there are a lot of agencies in state government that do that as a practical matter, for a variety of special services they contract."
A quick reading of South Dakota law could leave the impression, to laymen at least, that the state's practice of allowing no-bid contracts for services could be illegal. The law seems quite simple as stated in SDCL 5-18-2, which reads, in part, that state contracts must be "let to the lowest possible bidder."
There are a few exceptions to the bid process, generally related to relatively inexpensive purchases, those that are difficult to find, of a unique and changeable nature or available only through a sole provider. And there is no stated exception for services. That exception goes back to the 1959 case, in which the state Supreme Court relied on service-related cases in other states. That isn't unusual on an issue when a given state statute isn't clear, Long said.
"It's the first time that the South Dakota Supreme Court had a chance to address the issue," Long said of the 1959 case. "And they went to the courts of other jurisdictions to get direction."
One court decision cited made a specific reference to architects and how they should not come under the low-bid requirements of another state: "An architect is an artist. His work requires taste, skill, and technical learning, ability of a high and rare kind."
Requiring a low bid for architectural services could mean hiring the "least capable and most inexperienced," provider, the court said.
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