STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5696

April 21, 1980

TRANSPORTATION, STATE DEPARTMENT OF:

Audit of books and records of contractor

Bidding specifications for purchase of tug and barges

Lien bond requirement for purchase of tug and barges

TRANSPORTATION COMMISSION:

Audit of books and records of contractor

Bidding specifications for purchase of tug and barges

Lien bond requirement for purchase of tug and barges

WORDS AND PHRASES:

'Public work'

There is no statutory rule or regulation requiring the State Transportation Commission to advertise for bids from minority bidders or others before it may contract for the acquisition of a tug and barges.

There is no statutory requirement for posting of a lien bond by a contractor as a condition for the State Transportation Commission to enter into a contract for the acquisition of a tug and barges.

A contract for the acquisition of a tug and barges is not a contract for the construction of a 'public work'.

The State Transportation Commission may audit on a regular basis all books and records of the contractor necessary to ascertain that timely payments are being made to its sub-contractors and suppliers of materials and labor for the tug and barge project. The Commission may withhold from any payments due the contractor any sums due to subcontractors and suppliers that are unpaid until the Commission is satisfied that the subcontractors and suppliers are paid.

Honorable Edgar A. Geerlings

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion on the following questions concerning a contract entered into on July 3, 1979 by the State Transportation Commission (Commision) for the purchase of one tug and four barges from the Upper Peninsula Shipbuilding Company (UPSCO), a Michigan profit corporation:

The Commission entered into the contract with UPSCO pursuant to authority vested in it by the State Transportation Preservation Act of 1976, 1976 PA 295; MCLA 474.51 et seq; MSA 22.180(21) et seq. The Michigan Supreme Court upheld the constitutionality of 1976 PA 295, supra, Sec. 14, inter alia, which authorized the acquisition of rail, bus and ferry equipment and facilities as serving a valid public purpose without offending Const 1963, art 3, Sec. 6, in Advisory Opinion on Constitutionality of 1976 PA 295, 1976 PA 297, 401 Mich 686; 259 NW2d 129 (1977).

In 1976 PA 295, supra, Sec. 1(2), the Legislature has defined the public purpose to be served by the act as follows:

Express authority to acquire the equipment in question was conferred upon the Commission by the Legislature in 1976 PA 295, supra, Sec. 14, which provides:

1976 PA 295, supra, imposes no duty upon the Commission to advertise for competitive bids. Nor is there any requirement in 1976 PA 295, supra, that minority bidding be observed. There are no rules or regulations of the Commission governing minority bidding for the purchase of equipment.

In 1 OAG, 1957, No 2952, p 238-239 (May 8, 1957), the question of the requirement for competitive bidding by the State Highway Department was considered. The opinion held:

It is abundantly clear that the Legislature has empowered the Commission pursuant to 1976 PA 295, Sec. 14, supra, to acquire the equipment in question. The statute vests the Commission with a wide latitude of discretion in determining the terms and conditions under which the equipment will be acquired and does not require that the Commission advertise for and obtain competitive bids from minority bidders or others when purchasing or acquiring equipment.

While there are no state statutes or rules requiring competitive bidding on transportation projects, where federal funds are involved, federal regulation may require the use of competitive bidding. The Commission's contract to purchase the equipment in question, however, does not entail the use of any federal funds. In addition, the Director of the Michigan Department of Transportation has confirmed in writing that no federal funding is involved in the purchase contract with UPSCO.

The use of state funds for the purchase of equipment is subject to legislative approval. In this regard, 1951 PA 51, Sec. 10h; MCLA 247.660h; MSA 9.1097(10i), in pertinent part, provides:

Pursuant to 1951 PA 51, Sec. 10h, supra, the Commission submitted its 1979-80 Transportation Program and subsequently a Revised 1979-80 Program which contained the tug-barge project. By House Concurrent Resolution No. 272, the Legislature approved the revised 1979-80 Program, including the acquisition of the equipment in question. 1979 House Journal 81, p 1626.

The contract for the acquisition of equipment requires UPSCO to comply with both federal and state statutory requirements as they relate to discrimination in employment. Article XXX of the contract states:

It is, therefore, my opinion that there is no statutory rule or regulation requring the State Transportation Commission to advertise for bids from minority bidders or others before it may contract for the acquisition of a tug and four barges.

Turning to your second question, a study of 1976 PA 295, supra, discloses no statutory requirement that the Commission must secure a bond as a condition to entering into a contract for the acquisition of a tug and four barges.

In 1905 PA 187, Sec. 1; MCLA 570.101; MSA 26.321, the Legislature has provided:

The Legislature has supplanted 1905 PA 187, supra, by 1963 PA 213; MCLA 129.201 et seq; MSA 5.2321(1) et seq. The title to this act states that it is an act 'to provide a procedure for bonding contractors for public buildings and public works of governmental units; and to repeal certain acts and parts of acts.' As originally enacted, 1963 PA 213, supra, Sec. 1 provided that before any contract exceeding a specific sum for the construction, alteration or repair of any public building or public work or improvement of the state, except the State Highway Department, is awarded, the contractor is required to furnish to the governmental unit a performance bond and a payment bond.

In 1963 PA 213, supra, Sec. 11, the Legislature provided that the 'provisions of Act No. 187 of the Public Acts of 1905, as amended, being sections 570.101 to 570.105 of the Compiled Laws of 1948, shall not apply to contracts for public buildings or other public works except construction and maintenance contracts of the state highway commissioner.'

The Legislature amended 1963 PA 213, Sec. 1, supra, by 1972 PA 351 to delete the phrase 'except the state highway department' from the statute. It should also be observed that by 1965 PA 380, Sec. 353; MCLA 16.453; MSA 3.29(353), all powers, duties and functions vested by law in the State Highway Commissioner were transferred by a Type I transfer to the Department of State Highways.

Research reveals no decision of the Michigan Supreme Court defining the term 'public works' as it appears in 1905 PA 187, Sec. 1, supra, or in 1963 PA 213, Sec. 1, supra. However, it is significant that some five (5) years before the Legislature enacted 1905 PA 187, Sec. 1, supra, the Michigan Supreme Court in Ellis v Common Council of Grand Rapids, 123 Mich 567, 569; 82 NW 244 (1900), defined the term 'public works', as employed by the Legislature in a state statute relating to employment preference for veterans of the armed forces, as follows:

This definition of the term 'public works' adopted by the Michigan Supreme Court in Ellis, supra, has been quoted with approval and adopted by several state appellate courts: State v A. H. Read Co, 33 Wy 387; 240 P 208, 211 (1925), holding that the paving of streets was a public work; Demeter Land Co v Florida Public Service Co, 99 Fla 954, 963; 128 S 402 (1930), holding that the construction of electrical power lines was a public work; and Wallace Stevens, Inc v Lafourche Parish Hospital District No. 3, 323 S2d 794, 796 (1975), holding that the acquisition of telephone service was not a public work. The definition in Ellis, supra, was also cited with approval in Penn Iron Co, Limited v William R. Trigg Co, 106 Va 557, 560; 56 SE 329 (1907), and Southern Surety Co v Standard Slagg Co, 117 Ohio 512; 159 NE 559, 560 (1927). It must be emphasized that in Penn Iron Co, Limited, supra, the Virginia Supreme Court, relying upon Ellis, supra, held that the purchase of a seagoing vessel was not a contract for a 'public work'.

The following state appellate court decisions are also in accord with the decision in Ellis, supra: Overstreet v Houston County, 365 SW2d 409 (Tex Civ App, 1963); Mercer County v Wolff, 237 Ill 74; 86 NE 708 (1908); Lee v City of Lynn, 223 Mass 109; 111 NE 700 (1916); and Winters v City of Duluth, 82 Minn 127; 84 NW 788 (1901). Research discloses the only contra state appellate decision is United States v Henningsen, 40 Wash 87; 82 P 171 (1905), where the Washington Supreme Court declined to limit the statutory term 'public work' to a fixed work in a suit brought upon a bond which, by its plain terms, applied to furniture for a public building, holding that the surety was estopped from setting up the defense that the statute was limited to fixed works.

I am not unmindful of the decision of the United States Supreme Court in Title Guaranty and Trust Co of Scranton, Pennsylvania, v Crane Co, 219 US 24; 31 S Ct 140; 55 L Ed 72 (1910) where the Court defined the term 'public works' appearing in the Heard Act, 28 Stat 278, as amended by 33 Stat 811, to be broader than fixed public facilities. Although in the briefs filed with the high court, Ellis, supra, was brought to the Court's attention, the Court did not deal with it. The decision in Title Guaranty and Trust Co of Scranton, Pennsylvania, supra, does not govern the matter at hand in light of the well-established rule that the Legislature is presumed to have used particular words which have been subjected to judicial interpretation in the sense in which they have been judicially interpreted. People v Powell, 280 Mich 699; 274 NW 372 (1937); In re Chamberlain's Estate, 298 Mich 278; 299 NW 82 (1941); Groth v Stillson, 20 Mich App 704; 174 NW 2d 596 (1969).

The weight of the authority in this country supports the conclusion that 'public works' are fixed works. It must follow that a contract for the purchase or acquisition of a tug and four barges is not a contract for a public work requiring the contractor to furnish a bond pursuant to 1963 PA 213, supra, or 1905 PA 187, supra.

Nor is a different conclusion compelled by OAG, 1971-1972, No 4173, p 3 (January 3, 1971), which construed Const 1963, art 5, Sec. 28, as ratified by the people, to permit the then existing State Highway Commission to engage in mass transportation programs if authorized by the Legislature as another public work. The people amended Const 1963, art 5, Sec. 28 in 1978 to establish a State Transportation Commission with policy authority over transportation programs.

It should be noted that Article XIX of the contract with UPSCO provides as follows:

In Article XVIII of the contract, UPSCO is obligated to notify the Commission in writing of all liens, if any, upon the tug and barges and the Commission is expressly authorized to withhold from any payments that may be due the contractor a sum equal to the amount required to secure the release or discharge of any such lien.

While UPSCO has chosen not to provide a bond, under the contract, the Commission has the express right to monitor payments to subcontractors and suppliers of materials and labor for the project to acquire the tug and four barges. The Commission should exercise that right by auditing, on a regular basis, all the books and records of UPSCO necessary to be fully satisfied and assured that all of UPSCO's financial obligations to subcontractors and suppliers of materials and labor for the project are being met by UPSCO. To assist it in making its determination that subcontractors or suppliers of materials and labor are paid by UPSCO, the Commission should require UPSCO to furnish, in a periodic basis, sworn statements listing names and addresses of all such subcontractors or suppliers on such project, to furnish all notices of lien, if any, supplied by such subcontractors or suppliers to UPSCO, and to furnish waiver of liens from such subcontractors and suppliers on such project. Thus, full protection may be afforded contractors, subcontractors and suppliers for the project by the Commission withholding periodic payments which may be due UPSCO until all outstanding payments to subcontractors and suppliers are made.

It is, therefore, my opinion, in response to your second question, that there is no statutory requirement for UPSCO to post a bond as a condition for the Commission to enter into a contract with UPSCO for the acquisition of a tug and four barges.

In response to your last question, 1976 PA 295, Sec. 14, supra, confers express authority upon the Commission to acquire equipment and facilities for ferry operations under terms and conditions determined by the Commission. This statute contains no requirement that persons seeking to sell such equipment or facilities meet certain financial requirements.

While 1933 PA 170, Sec. 1; MCLA 123.501; MSA 5.2311, empowers the state to require any person proposing to bid on the construction, maintenance and/or repair of public works to submit a sworn statement setting forth his qualifications to satisfactorily carry out the work, this statutory provision has been held to be permissive, not mandatory. Malan Construction Co v Board of County Commissioners, 187 F Supp 937 (ED Mich, 1960). Further, this statute is not applicable because the acquisition of a tug and four barges is not the construction, maintenance or repair of a public work.

Whether the State Transportation Commission should have entered into a contract with UPSCO for acquisition of a tug and four (4) barges rests in the sound discretion of the Commission and does not present a legal question.

It is, therefore, my opinion that the State Transportation Commission may acquire a tug and four barges in accordance with the provisions of 1976 PA 295, supra.

Frank J. Kelley