The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6734

October 12, 1992

SCHOOLS AND SCHOOL DISTRICTS:

Authority to use a construction manager to contract with trade contractors

A board of education of a local school district under MCL 380.1267; MSA 15.41267, may employ a construction manager to contract directly with trade contractors for construction of school facilities only where the board retains and exercises its statutory authority to set bid specifications, advertise for bids, accept or reject any bids and require and receive the statutorily mandated security amount.

Honorable Frank M. Fitzgerald

State Representative

The Capitol

Lansing, Michigan

You have asked a question which may be stated as follows:

May a board of education of a local school district, under MCL 380.1267, MSA 15.41267, employ a construction manager to contract directly with trade contractors for construction of school facilities, if the construction manager complies with the statutory bonding and competitive bidding requirements?

A construction manager is an individual or company, usually an experienced contractor, hired by an entity undertaking a major building construction project to supervise construction and render advice on construction projects including design, costs, time schedules and the awarding of bids. It has become common practice for public entities, such as the State of Michigan and local school districts, to employ construction managers on their projects in lieu of a general contractor.

In your request, you note that the Department of Management and Budget utilizes a construction management contract on certain state projects. The construction manager, in addition to providing expertise, also contracts directly with trade contractors. Under this arrangement, the construction manager is responsible for contract administration and for payments to the trade contractors. There is no privity of contract between the trade contractors and the state. Pursuant to the construction management agreement, the Department reimburses the construction manager for all costs incurred under the trade contracts.

The Management and Budget Act, section 241, MCL 18.1241; MSA 3.516(241), provides in pertinent part that:

(1) Except for the contracts permitted in section 240, a contract shall not be awarded for the construction, repair, remodeling, or demolition of a facility unless the contract is let pursuant to a bidding procedure which is approved by the board. The department shall issue directives prescribing procedures to be used to implement this section. The procedures shall require a public advertisement of intention to award any contract for construction, repair, remodeling, or demolition of a facility.

The "board" referred to in the foregoing provision is the State Administrative Board. Its approved competitive bidding procedures require that except for emergencies, each construction project must be publicly advertised and competitively bid. This bidding procedure establishes a process under which the Department of Management and Budget: (a) reviews all bidding documents; (b) advertises the project for bid; (c) receives the bids and opens them at an announced time and place; (d) recommends to its Director or the State Administrative Board which contractors will be awarded contracts; and (e) awards the contracts upon approval of the recommendations. These procedures are implemented by directives issued by the Department of Management and Budget. Upon approval of the State Administrative Board, the Department may award or approve the award of a construction contract. Pursuant to these directives, the Department of Management and Budget retains the right to reject any and all bids; furthermore, each bidder must file security in an amount not less than 1/20 of the final base bid to be forfeited upon failure of a successful bidder to enter into a contract.

The Management and Budget Act, section 238(3), MCL 18.1238(3); MSA 3.516(238)(3), also gives the Director of the Department the express discretion to "employ construction managers." When this procedure is employed, the competitive bidding requirement is detailed in a contractual provision in the contract between the Department of Management and Budget and the construction manager. Under the contractual provision, the bidding procedure is modified as follows: (a) the construction manager prepares the bidding documents which are reviewed by the Department of Management and Budget; (b) the Department advertises the project for bid; (c) the construction manager receives the bids and handles the bid opening at an announced time and place (this may be at Department of Management and Budget offices for convenience); (d) the construction manager determines which contractors will be awarded contracts; and (e) the construction manager awards the contracts pursuant to the contractual provisions governing competitive bidding.

The construction manager, pursuant to the contract with the state, retains the right to reject any and all bids. It should be noted that the Management and Budget Act contains no express language requiring that construction contract bids must be accepted or rejected by either the Department of Management and Budget or the State Administrative Board.

In the case of contracts for school construction, the School Code of 1976, MCL 380.1267; MSA 15.41267, sets requirements for all construction projects costing more then a minimum amount determined by a statutory formula (currently $13,150.00), except for repair work normally performed by school district employees:

(1) Before commencing construction of a new school building, or addition to or repair or renovation of an existing school building, except repair in emergency situations, the board of a school district other than a first class school district shall obtain competitive bids on all the material and labor required for the complete construction of a proposed new building or addition to or repair or renovation of an existing school building.

(2) The board shall advertise for the bids required under subsection (1) once each week for 2 successive weeks in a newspaper of general circulation in the area where the building or addition is to be constructed or where the repair or renovation of an existing building is to take place.

(3) The board shall require each bidder for a contract under this section to file with the board security in an amount not less than 1/20 of the amount of the bid conditioned to secure the school district from loss or damage by reason of the withdrawal of the bid or by the failure of the bidder to enter a contract for performance, if the bid is accepted by the board.

(4) All bids required under this section shall be opened and read aloud in a public bid meeting at the time and place advertised for the receipt of the bids. The board may reject any or all bids, and if all bids are rejected, shall readvertise in the manner required by this section. [ Emphasis stated.]

School districts have only such powers as the Legislature confers upon them expressly or by reasonably necessary implication. Senghas v L'Anse Creuse Public Schools, 368 Mich 557, 560; 118 NW2d 975 (1962). The foregoing statute, unlike that applicable to the Department of Management and Budget, expressly requires that the board of education itself must accept or reject bids. The statute does not require the board of education to employ a particular type of contractor or manager. The statute does, however, prohibit the delegation of ultimate authority over the bid process.

Under MCL 380.1267; MSA 15.41267, a board of education may contract with a construction manager who will, in turn, contract with a number of contractors for the required materials and labor. The construction manager may prepare the bid specifications, which are utilized by the board, and may make recommendations as to which bids the board should accept or reject. However, based on the express language of MCL 380.1267; MSA 15.41267, the board must retain and exercise its statutory authority to set bid specifications, advertise for bids, accept or reject any bids and require and receive the statutorily mandated security amount.

It is my opinion, therefore, that a board of education of a local school district, under MCL 380.1267; MSA 15.41267, may employ a construction manager to contract directly with trade contractors for construction of school facilities, only where the board retains and exercises its statutory authority to set bid specifications, advertise for bids, accept or reject any bids and require and receive the statutorily mandated security amount.

Frank J. Kelley

Attorney General