OPSC Reiterates Prohibition on Piggyback Contracting for Modular Building Projects: Atkinson, Andelson, Loya, Ruud & Romo

2022-06-15 11:39:42 By : Ms. Manner Ng

School districts are generally required to award a contract to the lowest responsible bidder through a competitive process for all public projects involving an expenditure of $15,000 or more.  (Public Contract Code (“PCC”) § 20111.)  As an exception to this general rule, the PCC authorizes school districts to procure “personal property” in an alternative manner that does not require a competitive bidding process, which is commonly known as “piggyback contracts”.  (PCC § 20118.)  Specifically, Section 20118 provides:

“[T]he governing board of any school district, without advertising for bids, if the board has determined it to be in the best interests of the district, may authorize by contract, lease, requisition, or purchase order, any public corporation or agency, including any county, city, town, or district, to lease data-processing equipment, purchase materials, supplies, equipment, automotive vehicles, tractors, and other personal property for the district in the manner in which the public corporation or agency is authorized by law to make the leases or purchases from a vendor. Upon receipt of the personal property, if the property complies with the specifications set forth in the contract, lease, requisition, or purchase order, the school district may draw a warrant in favor of the public corporation or agency for the amount of the approved invoice, including the reasonable costs to the public corporation or agency for furnishing the services incidental to the lease or purchase of the personal property, or the school district may make payment directly to the vendor. Alternatively, if there is an existing contract between a public corporation or agency and a vendor for the lease or purchase of the personal property, a school district may authorize the lease or purchase of personal property directly from the vendor by contract, lease, requisition, or purchase order and make payment to the vendor under the same terms that are available to the public corporation or agency under the contract.”

Thus, school districts are authorized to “piggyback” off another public agency’s (e.g., another school district’s) bid and contract, without advertising for bids, for the lease or purchase of “personal property” under the same terms and conditions available to the other public agency.  Section 20118 also authorizes school districts to include the reasonable costs for “services incidental to the lease or purchase of the personal property.”   Section 20118 is commonly used by school districts for the acquisition of all types of personal property.  Section 20118 has also been used for the acquisition of “portable classrooms” on the ground that they are a type of personal property. 

In 2006, the Attorney General (“AG”) issued Opinion No. 05-405 (“Opinion”), which concluded that school districts “may not, without advertising for bids, contract with another public agency to acquire factory-built modular building components for installation on a permanent foundation.”  The Opinion distinguishes the typical “portable” or “relocatable” single-classroom buildings from “modular components.”  The AG opined that “modular components” that would be assembled together to construct a building structure that would be permanently affixed to land do not have the same characteristics of the other categories of personal property that are identified in Section 20118 (i.e., data-processing equipment, materials, supplies, equipment, cars, tractors).  Modular components, that are constructed together to create a modular building and then affixed to land, are considered “real property” and not “personal property”.  Since the modular components would be permanently affixed to land and therefore constitute real property, Section 20118 does not authorize a school district to procure a modular building through a “piggyback” contract. 

In July 2021, the Office of Public School Construction (“OPSC”) issued an email blast to school districts throughout the State of California (“State”) regarding the prohibited use of “piggyback contracting” for the procurement of modular building components.  OPSC reminded school districts of an opinion from the AG’s office regarding the prohibited use of “piggyback contracting” (as discussed below) and indicated that State funding may be jeopardized if such procurement methods were used for modular building projects.  The July 2021 OPSC email created waves of confusion among school district administrators, as modular building projects have become more popular due to their cost and construction efficiencies.  When the July 2021 OPSC email was distributed, school districts that had already acquired modular components were concerned about their ability to secure State funding.  Since the release of the July 2021 OPSC email, significant effort was undertaken to seek clarification from OPSC.

During its February 23, 2022 meeting, the State Allocation Board (“SAB”) agendized an informational item regarding the use of piggyback contracting for modular building projects.  During the meeting, the SAB reiterated its position that modular building components could not be procured through the piggyback process and insisted on following the guidance in the AG Opinion.  Though the SAB indicated that it may revisit this issue at a future meeting, the SAB did not formally schedule this item to be brought back during a specific meeting.

We encourage school districts to contact legal counsel when considering the various procurement methods for modular buildings and modular projects.  School districts should be aware of the potential State funding ramifications if they fail to comply with the competitive bidding requirements set forth in California law. 

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