Request By:
Rep. Ryan Quarles
Rep. Steve Riggs
Opinion
Opinion By: JACK CONWAY, ATTORNEY GENERAL; Matt James, Assistant Attorney General
Opinion of the Attorney General
Rep. Ryan Quarles has requested an opinion of this office on whether a local public agency may contract with an insurance broker to receive bids on insurance. Rep. Steve Riggs has requested an opinion of this office on whether a school district may select an insurance agent to receive bids on insurance without competitive bidding consistent with the Model Procurement Code. Since the underlying issue is the same in both requests, they are consolidated in this opinion. At the request of this office, the Finance and Administration Cabinet, Department of Education, and Department of Insurance have provided their analysis. We advise that a local public agency that has not adopted the Model Procurement Code may contract with a broker to procure insurance bids without competitive bidding. A local public agency that has adopted the Model Procurement Code must follow all applicable provisions in seeking contracts with insurance brokers.
The Kentucky Model Procurement Code ("MPC"), KRS chapter 45A, provides a comprehensive scheme for public procurement contracts and what procedures must be followed for contracts, depending upon the goods or services contracted for and the total cost of the contract. KRS 45A.020(1) provides that the MPC applies to all state contracts unless otherwise specified. KRS 45A.343(1) provides that "any local public agency may adopt the provisions of KRS 45A.345 to 45A.460," which comprise the MPC for local public agencies. Local public agencies thus have the option whether or not to adopt the MPC. Board of Educ. of Woodford County v. D.W. Wilburn, Inc. , Nos. 2008-CA-2422, 2009- CA-50, 2010 WL 2010760 at *8 (Ky. Ct. App. May 21, 2010); OAG 80-279.
If a local public agency has in fact adopted the MPC, "we believe competitive bidding for general liability insurance on buildings and vehicles, etc., is required absent a legitimate, written determination by the local public agency to the contrary." OAG 82-170. KRS 45A.365(1) provides that "all contracts or purchases shall be awarded by competitive sealed bidding, which may include the use of a reverse auction, except as otherwise provided by KRS 45A.370 to 45A.385." KRS 45A.370 provides for competitive negotiation in some circumstances, and KRS 45A.385 allows for the use of small purchase procedures for contracts under twenty-thousand dollars ($ 20,000). KRS 45A.380 provides for noncompetitive negotiation in specific circumstances:
A local public agency may contract or purchase through noncompetitive negotiation only when a written determination is made that competition is not feasible and it is further determined in writing by a designee of the local public agency that . . .
(10) The contract is for group life insurance, group health and accident insurance, group professional liability insurance, worker's compensation insurance, and unemployment insurance;
KRS 45A.380 thus specifies that certain insurance contracts may be purchased through noncompetitive negotiation, but only after "a written determination is made that competition is not feasible. " We have also previously advised that the exemptions enumerated in KRS 45A.380(10) are limited to those forms of insurance expressly enumerated, and do not extend to insurance generally. OAG 82-170. While KRS 45A.380 does countenance purchasing certain kinds of insurance without competitive negotiation, it does not countenance hiring an insurance broker without competitive negotiation; the contracts at issue are contracts with insurance brokers, and not contracts for insurance. If a local public agency that has adopted the MPC wishes to contract with an insurance broker, it must comply with the sealed bidding requirements in KRS 45A.365, unless the competitive negotiation requirements of KRS 45A.370, the noncompetitive negotiation requirements of KRS 45A.380, or the small purchase requirements of KRS 45A.385 apply, in which case it must comply with those. 1
If a local public agency has not adopted the MPC, then the governing provision is KRS 424.260. KRS 424.260(1) provides in relevant part:
. . . no city, county, or district, or board or commission of a city or county, or sheriff or county clerk, may make a contract, lease, or other agreement for materials, supplies except perishable meat, fish, and vegetables, equipment, or for contractual services other than professional, involving an expenditure of more than twenty thousand dollars ($ 20,000) without first making newspaper advertisement for bids.
KRS 424.260(1) provides that a local public agency may not contract for materials, supplies, or contractual services other than professional in excess of $ 20,000 without advertising for bids. In
McCloud v. City of Cadiz, 548 S.W.2d 158 (Ky. Ct. App. 1977), the Court of Appeals summarized the distinctions in KRS 424.260 as being essentially between contracts "involving personal service of a manual or mechanical nature," which must be advertised, and those involving professional services, which do not have to be advertised. Id. at 162. Following McCloud , we advised that "a school district following KRS 424.260 is not required to obtain bids for 'professional' services." OAG 92-144. McCloud held that insurance was a professional service for the purposes of KRS 424.260. Id. at 162. Since insurance is a professional service under KRS 424.260, a local public agency is not required to competitively bid for it.
Given that a local public agency under KRS 424.260 is not required to competitively bid for insurance, the remaining question is whether a local public agency may contract with a broker to solicit and receive bids for insurance. Whether a local public agency may contract to do so may vary depending on the statute authorizing the local public agency to contract. School district boards are explicitly given the power to "make contracts" and "expend funds necessary for liability insurance premiums" in KRS 160.160(1), so they may contract with an insurance broker to solicit and receive insurance bids. However, even though local public agencies operating under KRS 424.260 are not required to use competitive bidding for insurance, we caution that the MPC and other statutes demonstrate a clear preference for competitive bidding where feasible, and competitive bidding should remain a preferred method for obtaining insurance contracts where feasible.
In summary, a local public agency that has not adopted the Model Procurement Code is not required to follow competitive bidding procedures for insurance, and may contract with an insurance broker to solicit and receive bids for insurance, although competitive bidding remains preferred. A local public agency that has adopted the Model Procurement Code must follow all applicable provisions in seeking contracts with insurance brokers.
Footnotes
Footnotes
1 Mr. Riggs further asks whether an agency that has adopted the MPC may arbitrarily designate an agent or broker as its sole representative for a specific company or companies to the exclusion of other qualified bidders through a process known in the industry as an "agent of record" or "broker of record" letter. An arbitrary designation of a broker as the local public agency's sole representative is inconsistent with the MPC. A local public agency that has adopted the MPC may hire an agent or broker as its sole representative only in accordance with the applicable MPC provisions.