Attorney General: Honorable Louis S. Goldberg, Department of Administrative Services, 1995-022 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

July 20, 1995

Honorable Louis S. Goldberg
Commissioner
Department of Administrative Services
165 Capitol Avenue
Hartford, CT 06106-1658

Dear Commissioner Goldberg:

You have asked for our opinion on whether the provisions of Special Act 95-12 preclude you from entering into a contract with Corporate Express, a private corporation, for a statewide direct delivery service for office supplies. Approximately twenty-five percent of the goods covered by the proposed contract are currently supplied by the State Central Warehouse ("the Warehouse") which provides food and paper goods to state agencies. According to you, the proposed contract, together with a proposed contract for a direct food distribution system, will save the State $22 million in the first year of its operation and, thereafter, $12 million on an annual basis.

It is our opinion that a contract with Corporate Express will not violate Special Act 95-12. However, the contract must be drafted in a manner which protects the state in the event the projected savings are not realized and must follow the proper statutory procedures which grant the Department of Administrative Services its purchasing authority.

Special Act 95-12, Section 35 provides:

The commissioner of administrative services shall continue to operate the Central State Warehouse during the fiscal year ending June 30, 1996, and shall not award, during said fiscal year, any contract for the operation of the Central State Warehouse. The commissioner shall conduct a cost-benefit analysis of the feasibility of closing the warehouse. Such analysis shall address the provision of opportunities for Connecticut firms employing not more than fifty persons to participate in the privatization of central state purchasing. The commissioner shall submit such analysis to the joint standing committee on appropriations not later than January 1, 1996.

Special Act 95-12, Section 35 provides, therefore, three primary directives to the Commissioner of DAS: the commissioner shall continue to operate the Central State Warehouse until June 30, 1996; the commissioner shall not award any contract for the operation of the Warehouse during the fiscal year ending June 30, 1996 and the commissioner shall conduct a cost-benefit analysis of the feasibility of closing the Warehouse.

As to the first statutory directive, that you shall continue "to operate" the Warehouse, you have stated in your July 18, 1995 letter to this office that you will not "close" the facility during the 1995-1996 fiscal year. However, according to the proposed contract, a significant reduction in Warehouse activity will occur. The information you have provided us indicates that a significant number of the items currently supplied by the Warehouse to state agencies would be supplied under the proposed contract by Corporate Express and significant reductions in current staffing levels are contemplated.

Reductions in activity and staffing levels at the Warehouse would not, per se, violate the provisions of Special Act 95-12, Section 35. The Special Act only requires that you "continue to operate the Central State Warehouse" and does not mandate a particular level of business activity at that facility. Nor does the legislative history of the Special Act provide any mandate as to the level of activity which must be maintained at the Warehouse during fiscal year 1995-1996. Representative Stillman remarked that the Warehouse was to "stay open" and not "close" during that fiscal year. Comments of Rep. Stillman, House Proceedings, May 27, 1995, pp. 003770 (1995 Session).

Conn. Gen. Stat. 4a-51 provides that the Commissioner of Administrative Services shall "establish and operate or have supervisory control over ... central supply services in such locations as may best serve the requirements of the state agencies." In addition, Conn. Gen. Stat. 4-8 requires you to organize your department "with a view to promoting economy and efficiency" and for the "efficient conduct of the business of the department." Since Special Act 95-12, Section 35 does not mandate a particular level of operational activity at the Warehouse during fiscal year 1995-1996, the actual manner in which the Warehouse is operated is committed by statute, within certain limitations implicit in Special Act 95-12, to the judgment of the Commissioner of Administrative Services.1

Special Act 95-12, Section 35 also prohibits the Commissioner from awarding "any contract for the operation of the Central State Warehouse" during fiscal year 1995-1996. While the proposed contract would allow Corporate Express to supply State agencies with goods currently provided by the Warehouse, there is no provision which would authorize Corporate Express to operate the Warehouse. Moreover, only twenty-five percent of the goods covered by the proposed contract are currently provided to state agencies by the central Warehouse; seventy-five percent of the goods which will be supplied by Corporate Express are already directly provided to the State by private vendors. Since the proposed contract does not authorize Corporate Express to operate the Warehouse, its performance under the proposed contract would not violate Special Act 95-12.

Finally, Special Act 95-12 requires the Commissioner to conduct a cost-benefit analysis of the feasibility of closing the Warehouse, which analysis shall be submitted to the joint standing committee on appropriations not later than January 1, 1996. While you have estimated that the proposed contract with Corporate Express, and the consequent reduction in operational activity at the Central Warehouse, will result in significant savings to the State, you have not yet prepared the cost-benefit analysis nor have you presented the required analysis to the joint standing committee on appropriations for its review. Until the required cost-benefit analysis is conducted and reviewed by the joint standing committee on appropriations, care must be taken to ensure that a contract with Corporate Express does not bind the state to a long term program which may not, upon completion of the required cost-benefit analysis, prove to be in the best interests of the State.

Furthermore, while the operational level which will be maintained at the Warehouse is within your informed judgment, care must also be taken to ensure that the Warehouse can be economically returned to its present level of operation should the results of the cost-benefit analysis favor the continued operation of that State facility. Since every word or phrase in a statute is presumed to have meaning, Charlton Press, Inc. v. Sullivan, 153 Conn. 103, 109 (1965), the action which you may take concerning the Central Warehouse must preserve its operational integrity. Otherwise, the legislative direction that a cost-benefit analysis be conducted prior to closure of the facility will be meaningless and could result in an economic loss to the State if, upon completion of the cost-benefit analysis and after review of the analysis by the joint standing committee on appropriations, it is found that the continued operation of the facility in its current form is in the best interest of the State.

As you are aware, there are two statutory methods for purchasing commodities and services: the competitive bid procedure established by Conn. Gen. Stat. 4a-57(a) and the competitive negotiation process set forth in Conn. Gen. Stat. 4a-57(c) and 4a-59(c). "Competitive bidding" is defined in Conn. Gen. Stat. 4a-50 as "the submission of prices by persons, firms or corporations competing for a contract to provide supplies, materials, equipment or contractual services, under a procedure in which the contracting authority does not negotiate prices." This section also defines a "bidder" as "a person, firm or corporation submitting a competitive bid in response to a solicitation." Id.

Although 4a-57(a) provides that all purchases must be "based, when possible, on competitive bids[,]" the purchasing statutes recognize that there may be occasions on which the "competitive negotiation" contracting process would be in the best interest of the State. For example, Conn. Gen. Stat. 4a-57(c) provides that "[t]he commissioner may use competitive negotiation to purchase or contract for data processing equipment, programs or services...after making a written determination, including the reasons therefore, that such action is in the best interest of the state." Conn. Gen. Stat. 4a-50 defines "competitive negotiation" as "a procedure for contracting for supplies, materials, equipment or contractual services, in which (1) proposals are solicited from qualified suppliers by a request for proposals and (2) changes may be negotiated in proposals and prices after being submitted." "Proposer" is defined as "a person, firm or corporation submitting a proposal in response to a request for proposals."

In this particular case, your department utilized the competitive negotiation procedure and issued a request for proposals ("RFP") for a direct delivery system to supply state agencies with specified commodities. Your department reviewed the proposals which were received, and issued a contract award on Form SP-8 to Corporate Express with virtually no substantive terms setting forth the respective responsibilities and expectations of Corporate Express or the State. Specific, substantive contractual terms are necessary to insure that the State and its residents receive the services they expect and the savings which they anticipate. As I stated in my letter to you dated July 14, 1995, "[t]his form does not create a valid contract between the State of Connecticut and Corporate Express because it does not yet contain necessary terms and conditions, and because my office has not reviewed the contract for form and legal sufficiency as required by law."

The competitive negotiation process contemplates negotiation of the terms of a contract with Corporate Express. The SP-8 is a contract award form utilized in competitive bidding where negotiation is not authorized. While the current award does not constitute a valid contract, my office will be pleased to assist you in drafting a contract with Corporate Express which complies with the provisions of 4a-50 and 4a-59(c) and Special Act 95-12, Section 35.

Very truly yours,

Richard Blumenthal
Attorney General

RB/lmr


1 It must be noted that Conn. Gen. Stat. 4a-5a provides state agencies with the option of using the State Central Warehouse or a private vendor if the private vendor can beat the price of the Warehouse by more than three percent. This statutory provision, however, applies only to those items supplied by the Warehouse, which is within your discretion.


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