B-155602, MAY 4, 1965, 44 COMP. GEN. 675

B-155602, MAY 4, 1965, 44 COMP. GEN. 675

BIDDERS - QUALIFICATIONS - RESTRICTIVE. BIDDERS - QUALIFICATIONS - RESTRICTIVE. CONTRACTS - AWARDS - TO OTHER THAN LOWEST BIDDER - PROPRIETY THE INCLUSION IN AN INVITATION ISSUED BY A LOCAL HOUSING AUTHORITY FOR FIRE INSURANCE COVERAGE ON A LOW RENT HOUSING PROJECT FOR THE ELDERLY OF A REQUIREMENT THAT THE SUCCESSFUL BIDDER HAVE A SPECIFIED MINIMUM FINANCIAL RATING BY A PRIVATE INSURANCE RATING FIRM WHEN SUCH A RATING ALONE WOULD NOT QUALIFY THE BIDDER UNDER THE STATE INSURANCE LAWS FOR THE PROJECT AND ANY SUCH RATED BIDDER WOULD REQUIRE CONSIDERATION OF REINSURANCE ARRANGEMENTS IN DETERMINING BIDDER RESPONSIBILITY THE SAME AS OTHER BIDDERS WHOSE FINANCIAL RESOURCES WERE NOT SUFFICIENT FOR THE PROJECT IS A PROVISION THAT IS NOT REALISTICALLY ADAPTED TO THE MEASUREMENT OF RESPONSIBILITY AND, THEREFORE, SUCH A FINANCIAL RATING PROVISION MUST BE REGARDED AS UNDULY RESTRICTIVE AND NOT ESSENTIAL TO THE MINIMUM NEEDS OF THE HOUSING AUTHORITY. THE INCLUSION IN AN INVITATION FOR INSURANCE COVERAGE ON A LOW RENT HOUSING PROJECT RESERVING TO THE LOCAL HOUSING AUTHORITY THE RIGHT TO SELECT THE SERVICING AGENT FOR THE SUCCESSFUL BIDDER WHICH PROVISION WAS NOT EXPLAINED IN THE INVITATION BUT WAS INTENDED TO BE INVOKED ONLY IN THE EVENT THE LOW BID WAS SUBMITTED BY AN AGENT OF A PARTICULAR INSURANCE AGENTS' ASSOCIATION IS A PROVISION WHICH BECAUSE IT WAS NOT GENERALLY KNOWN BY BIDDERS WHO WERE NOT AGENT MEMBERS OF THE ASSOCIATION MAY HAVE TENDED TO INFLUENCE THE NUMBER OF BIDDERS, AND, THEREFORE, SUCH A PROVISION IN AN INVITATION WITHOUT EXPLANATION OF ITS APPLICATION IS NOT PROPER. AN AWARD OF A FIRE INSURANCE COVERAGE CONTRACT ON A LOW-RENT HOUSING PROJECT FOR THE ELDERLY TO A BIDDER WHOSE BID IS MORE THAN $20,000 MORE THAN THAT OF THE LOW BIDDER WHO HAS THE REQUIRED REINSURANCE FACILITIES AVAILABLE AND WHO HAS NOT BEEN DETERMINED TO LACK RESPONSIBILITY, FINANCIALLY OR OTHERWISE, IS NOT ONLY IN VIOLATION OF PROJECT CONTRACTS PROVISIONS REQUIRING AWARD TO THE LOW BIDDER BUT ALSO CONTRAVENES THE STATUTORY REQUIREMENT IN 42 U.S.C. 1401, THAT LOCAL HOUSING AUTHORITIES IN THE EXERCISE OF THEIR RESPONSIBILITY EFFECT ECONOMIES IN ADMINISTRATION OF THE PROJECTS.

TO THE ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY, MAY 4, 1965:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 17, 1964, REQUESTING OUR DECISION CONCERNING THE PROPRIETY OF PROCEDURES EMPLOYED BY THE HOUSING AUTHORITY OF THE CITY OF DALLAS, TEXAS (THE AUTHORITY), IN THE PROCUREMENT OF INSURANCE EFFECTIVE JULY 1, 1964, ON LOW-RENT HOUSING PROJECTS ADMINISTERED BY THE PUBLIC HOUSING ADMINISTRATION (PHA) UNDER THE UNITED STATES HOUSING ACT OF 1937, AS AMENDED, 42 U.S.C. 1401 ET SEQ.

YOU STATE THAT THE PROJECTS INVOLVED ARE COVERED BY THREE ANNUAL CONTRIBUTIONS CONTRACTS AND BY ONE ADMINISTRATION CONTRACT. WHILE THE CONTRACTS ARE IN DIFFERENT FORMS, THE PROVISIONS RELATING TO INSURANCE AND PHA REMEDIES FOR BREACH OF CONTRACT ARE REPORTEDLY IDENTICAL. IN ADDITION TO A REQUIREMENT THAT THE AUTHORITY OBTAIN INSURANCE FROM "FINANCIALLY SOUND AND RESPONSIBLE MPANIES," THE CONTRACTS PROVIDE, IN PART, AS FOLLOWS:

"SEC. 305. INSURANCE AND FIDELITY BOND COVERAGE

"/E) IN CONNECTION WITH EACH POLICY, INCLUDING RENEWALS, FOR FIRE AND EXTENDED COVERAGE INSURANCE AND FOR OWNERS-, LANDLORDS' AND TENANTS' PUBLIC LIABILITY INSURANCE THE LOCAL AUTHORITY SHALL GIVE FULL OPPORTUNITY FOR OPEN AND COMPETITIVE BIDDING. THE LOCAL AUTHORITY SHALL GIVE SUCH PUBLICITY TO ADVERTISEMENTS FOR BIDS AS WILL ASSURE ADEQUATE COMPETITION AND SHALL AFFORD AN OPPORTUNITY TO BID TO ALL INSURERS WHO HAVE INDICATED IN WRITING TO THE LOCAL AUTHORITY THEIR DESIRE TO SUBMIT A BID AND WHO ARE LICENSED TO DO BUSINESS IN THE STATE. SUCH INSURANCE SHALL BE AWARDED TO THE LOWEST BIDDER. THE LOWEST BID SHALL BE DETERMINED UPON THE BASIS OF NET COST TO THE LOCAL AUTHORITY. NET COST, FOR THE PURPOSES OF THIS SUBSECTION (E), SHALL MEAN THE GROSS DEPOSIT PREMIUM, PLUS THE COST OF INSURANCE AGAINST THE HAZARDS, IF ANY, OF ASSESSMENTS, LESS ANY ANTICIPATED DIVIDEND BASED ON THE DIVIDEND PAYMENT AND ASSESSMENT RECORD OF THE INSURER FOR THE PREVIOUS TEN YEARS.

NOTHING IN THIS SUBSECTION (E) SHALL HAVE THE EFFECT OF REQUIRING THE LOCAL AUTHORITY TO PURCHASE INSURANCE FROM ANY INSURER NOT LICENSED TO DO BUSINESS IN THE STATE OR TO PURCHASE INSURANCE WHICH INVOLVES ANY HAZARD OF ASSESSMENT UNLESS INSURANCE AGAINST SUCH HAZARD IS AVAILABLE.'

BY INVITATION ISSUED IN 1964 (DATE NOT OF RECORD), THE AUTHORITY ADVERTISED FOR BIDS, TO BE SUBMITTED NO LATER THAN 11:00 A.M., APRIL 15, 1964, TO FURNISH THE NECESSARY PROJECT INSURANCE COVERAGE. THE INVITATION STIPULATED THAT PROPOSALS WOULD BE ACCEPTED ONLY FROM COMPANIES CURRENTLY RATED AS "A:AAAA" OR BETTER BY ALFRED M. BEST AND COMPANY, A PRIVATE TEXAS INSURANCE RATING FIRM. IN ADDITION, THE AUTHORITY RESERVED TO ITSELF THE RIGHT TO DESIGNATE THE SERVICING ORGANIZATION OF THE SUCCESSFUL BIDDER.

BY LETTER DATED APRIL 8, 1964, PHA ADVISED THE AUTHORITY THAT SUCH PROVISIONS IN THE INVITATION WERE CONSIDERED UNDULY RESTRICTIVE AND THAT AN ADDENDUM SHOULD BE ISSUED MODIFYING THE INVITATION AS FOLLOWS:

"1. WE RECOMMEND THAT YOU DELETE THE REQUIREMENT THAT PROPOSALS WILL ONLY BE ACCEPTED FROM A BIDDING COMPANY THAT IS CURRENTLY RATED BY ALFRED M. BEST AND COMPANY AS "A:AAAA" OR BETTER. WE BELIEVE THAT ANY COMPANY LICENSED TO DO BUSINESS BY THE STATE INSURANCE COMMISSIONER MUST BE PRESUMED TO BE A RESPONSIBLE BIDDER WITHIN THE MEANING OF SECTION 305 (D) OF YOUR ANNUAL CONTRIBUTIONS CONTRACT WITH PHA. IN SUBSTANCE, YOU ARE PROPOSING TO SUBSTITUTE THE RATING OF A PRIVATE INSURANCE AUTHORITY FOR THAT OF THE STATE AGENCY ESTABLISHED BY LAW FOR THE SUPERVISION AND RATING OF INSURANCE COMPANIES. WE DO NOT CONSIDER THIS ADVISABLE OR PROPER.

"2. WE RECOMMEND THAT YOU DELETE PARAGRAPH B.-8; WHEREIN YOUR AUTHORITY RESERVES THE RIGHT TO DESIGNATE THE SERVICING ORGANIZATION OR AGENT OF THE INSURANCE COMPANY. WE CONSIDER ITS HIGHLY IRREGULAR TO INSIST THAT THE BIDDING INSURANCE COMPANY GIVE UP THE RIGHT OF DESIGNATING ITS OWN AGENT, SINCE IT IS FUNDAMENTAL NOT ONLY IN THE INSURANCE BUSINESS, BUT IN ALL OTHER BUSINESSES THAT THE PRINCIPAL RETAIN CONTROL AND APPOINTING POWER OVER ITS OWN AGENTS.'

BY LETTER OF APRIL 10, 1964, THE AUTHORITY'S ATTORNEYS, SCURRY, SCURRY AND HODGES, DECLINED TO COMPLY WITH PHA'S REQUEST STATING THAT IN THEIR OPINION "IT IS THE PREROGATIVE OF THE LOCAL HOUSING AUTHORITY TO DETERMINE THE SPECIFICATIONS AND CONDITIONS FOR BIDDING ON INSURANCE.' ACCORDINGLY, NO ADDENDUM TO THE INVITATION WAS ISSUED.

BY LETTER DATED MAY 6, 1964, THE AUTHORITY ADVISED PHA OF THE RESULTS OF THE BID OPENING. OF THE 12 BIDS RECEIVED, THE BID OF FORT WORTH LLOYDS INSURANCE (RATED "A:AA" BY BEST), QUOTING AN INITIAL PREMIUM OF $339,222.15, WAS LOW. HOWEVER, THE AUTHORITY MADE AWARD TO SECURITY NATIONAL INSURANCE COMPANY, WHICH BID AN INITIAL PREMIUM OF $416,869.00, OR $77,646.85 HIGHER THAN THE FORT WORTH LLOYDS BID. THE BASIS FOR THE AUTHORITY'S ACTION IS SET FORTH IN ITS MAY 6 LETTER AS FOLLOWS:

"AT A MEETING OF THE BOARD OF COMMISSIONERS OF THIS AUTHORITY ON MAY 5, 1964, THE BOARD AWARDED THE FIRE AND EXTENDED COVERAGE INSURANCE TO THE SECURITY NATIONAL INSURANCE COMPANY ON THE BASIS OF THEIR BIDDING A 20 PERCENT DEVIATION AND A 15 PERCENT DIVIDEND.

"THE BOARD OF COMMISSIONERS DISQUALIFIED THE LOW BID RECEIVED FROM FT. WORTH LLOYDS BECAUSE THE FT. WORTH LLOYDS COMPANY WAS NOT OF SUFFICIENT FINANCIAL STRUCTURE TO COMPLY WITH THE REQUIREMENTS OF THE BIDDING SPECIFICATIONS.

"THE BOARD ALSO DISQUALIFIED THE BID RECEIVED FROM THE TEXAS PACIFIC INDEMNITY COMPANY FOR THE REASON THAT THIS COMPANY DID NOT SUBMIT THEIR BID IN ACCORDANCE WITH THE SPECIFICATIONS. THE TEXAS PACIFIC INDEMNITY COMPANY REFUSED TO DIVULGE THE BASIS ON WHICH THEIR BID WAS SUBMITTED EXCEPT FOR THE STATEMENT THAT THEY WERE BIDDING A MODIFICATION PERCENTAGE OF 32.9 PERCENT. INQUIRY WAS MADE OF THE TEXAS INSURANCE CHECKING OFFICE AS TO WHETHER THE TEXAS PACIFIC INDEMNITY COMPANY HAD RECEIVED APPROVAL FOR ANY FILING WHICH WOULD PERMIT THEM TO DELIVERY A POLICY FOR THE QUOTED PREMIUM, AND THE TEXAS INSURANCE CHECKING OFFICE REPLIED TO THE EFFECT THAT THE TEXAS PACIFIC INDEMNITY COMPANY ONLY HAS A 20 PERCENT DEVIATION APPROVED BY THE STATE INSURANCE COMMISSION. COPIES OF THIS CORRESPONDENCE (SIC) IS ATTACHED FOR YOUR INFORMATION.

"AS DISCUSSED IN OUR RECENT TELEPHONE CONVERSATION, WE DO NOT PLAN TO HAVE THE FIRE AND EXTENDED COVERAGE POLICY ISSUED UNTIL AFTER THE NEW RATES, WHICH WILL BE EFFECTIVE JULY 1, 1964, ARE ISSUED BY THE STATE INSURANCE COMMISSION. WE UNDERSTAND THESE NEW RATES WILL BE PUBLISHED AROUND JUNE 1, 1964 AND THAT WE SHOULD BE ABLE TO FURNISH YOU A CERTIFIED COPY OF THE POLICY WITHIN A WEEK OR TEN DAYS AFTER THAT DATE.'

BY LETTER DATED MAY 11, 1964, PHA NOTIFIED THE AUTHORITY OF ITS DISAPPROVAL OF THE AWARD TO SECURITY NATIONAL AND REQUESTED THAT AWARD BE MADE TO FORT WORTH LLOYDS. THE LETTER INCLUDED THE FOLLOWING STATEMENTS:

"FOR REASONS OUTLINED IN OUR LETTER TO YOU DATED APRIL 8, 1964, WE DO NOT CONCUR IN THE DISQUALIFICATION OF THE FORT WORTH LLOYDS COMPANY SINCE THE COMPANY HAS COMPLIED WITH ALL REQUIREMENTS OF THE TEXAS INSURANCE COMMISSION FOR APPROPRIATE REINSURANCE TO SAFELY CARRY THE INSURANCE RISK OF YOUR AUTHORITY. ACCORDING TO THE BEST AND COMPANY INSURANCE GUIDE, THE ASSETS OF THE SECURITY NATIONAL INSURANCE COMPANY ARE LESS THAN 1/10TH OF THE VALUE OF YOUR PROJECTS AND THIS COMPANY ALSO WILL REQUIRE EXTENSIVE REINSURANCE TO CARRY YOUR RISK. SINCE BEST AND COMPANY GIVES BOTH INSURANCE COMPANIES "A PLUS" MANAGEMENT RATING, WE CAN SEE NO LEGITIMATE REASON FOR DISCRIMINATING AGAINST THE QUALIFICATIONS OF EITHER COMPANY.'

HOWEVER, THE AUTHORITY FAILED TO COMPLY WITH PHA'S INSTRUCTIONS AND REQUESTED BY LETTER DATED JUNE 26, 1964, THAT PHA SUBMIT THE MATTER TO OUR OFFICE FOR DECISION. IN THE MEANTIME, FORT WORTH LLOYDS PROTESTED TO PHA BY LETTER OF MAY 13, 1964, AGAINST AWARD TO ANY OTHER BIDDER.

THE POSITION OF PHA, AS SET FORTH IN YOUR NOVEMBER 17 LETTER, IS SUMMARIZED AS FOLLOWS:

(1) BIDDING WAS DETERRED BY INVITATION PROVISIONS IN QUESTION, PARTICULARLY THE HIGH FINANCIAL RATING REQUIREMENT.

(2) THE AUTHORITY'S INSURANCE REQUIREMENT AMOUNTS TO $37,000,000, WHEREAS THE BEST A:AAAA RATING INDICATES A FINANCIAL SIZE OF $15,000,000 TO $20,000,000. SINCE IT WOULD BE NECESSARY FOR A BIDDER WITH SUCH RATING TO REINSURE THE RISK TO COMPLY WITH THE TEXAS INSURANCE STATUTES, FAILURE TO CONSIDER THE FINANCIAL CAPACITY OF THE REINSURERS IS TOTALLY UNREALISTIC AND ARBITRARY. IN THIS CONNECTION, IT IS NOTED THE NET WORTH OF FORT WORTH LLOYDS AND ITS REINSURERS, WHICH AMOUNTS TO MORE THAN $300,000,000, IS MORE THAN THREE TIMES THAT OF SECURITY NATIONAL AND ITS REINSURERS.

(3) THE CREDIT OF AN ANTICIPATED 15 PERCENT DIVIDEND TO SECURITY NATIONAL, WHICH HAS NO DIVIDEND PAYMENT RECORD ON TEXAS INSURANCE, VIOLATES THE CONTRACT PROVISION REQUIRING A 10-YEAR DIVIDEND PAYMENT RECORD FOR ALLOWANCE OF SUCH CREDIT IN DETERMINING THE NET BID.

(4) THE AWARD TO SECURITY NATIONAL RESULTS IN AN EXCESS COST OF MORE THAN $80,000 FOR THE FIVE-YEAR PERIOD INVOLVED, A LOSS WHICH MUST BE BORNE BY THE FEDERAL GOVERNMENT.

(5) THE AUTHORITY HAS NOT MADE A DETERMINATION THAT FORT WORTH LLOYDS IS NOT FINANCIALLY SOUND AND RESPONSIBLE.

BY LETTER DATED DECEMBER 30, 1964, THE AUTHORITY'S ATTORNEYS MADE VARIOUS COMMENTS ON YOUR LETTER OF NOVEMBER 17, 1964, THE SUBSTANCE OF WHICH IS:

(1) THE "A:AAAA" RATING IS CONSIDERED NECESSARY TO COMPLY WITH THE PHA CONTRACT REQUIREMENT THAT THE INSURANCE BE PLACED WITH FINANCIALLY SOUND AND RESPONSIBLE INSURANCE COMPANIES. NONE OF THE MORE THAN 175 TEXAS- LICENSED INSURANCE COMPANIES PLACED IN RECEIVERSHIP DURING THE PAST 25 YEARS WAS RATED "A:AAAA" OR BETTER. FURTHERMORE, PHA DID NOT QUESTION AN "A:AA" RATING LIMITATION FOR BIDDERS QUOTING ON INSURANCE FOR THE SAN ANTONIO HOUSING AUTHORITY IN 1956.

(2) IN 1953, THE THEN PHA COMMISSIONER HELD THAT THE LOCAL AUTHORITIES MAY PROPERLY DETERMINE THE RESPONSIBILITY OF INSURANCE CARRIERS.

(3) IN FEDERAL PUBLIC HOUSING AUTHORITY V. MOBILE HOUSING BOARD, 164 FED. 2D 146, THE UNITED STATES CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT SAID:

"THE MOBILE HOUSING BOARD IS A PUBLIC BODY ORGANIZED UNDER THE LAW OF ALABAMA, HAVING A BOARD OF DIRECTORS CLOTHED WITH THE POWER TO EXERCISE ITS DISCRETION IN THE MANAGEMENT OF THE BUSINESS OF THE HOUSING UNIT, AND AS SUCH IT DID NOT CONTRACT AWAY TO THE FEDERAL PUBLIC HOUSING AUTHORITY ITS DISCRETION TO SETTLE THE ECONOMIC QUESTION PRESENTED IN THIS CASE. THE ABSENCE OF AN ABUSE OF THAT DISCRETION THE FEDERAL COURTS CANNOT, AND SHOULD NOT, INTERFERE . . . . THE AMOUNT, TYPE, AND SPREAD OF THE RISKS OF INSURANCE COMPANIES, MUTUAL OR OTHERWISE, AS WELL AS THE REPUTATION AND CHARACTER OF SERVICE RENDERED BY THE COMPANIES, THEIR AGENTS, ENGINEERS, ADJUSTERS, ETC., ARE ECONOMIC FACTORS THAT ADDRESS THEMSELVES TO SOUND BUSINESS DISCRETION. * * *"

(4) THE AGENCY RESERVATION WAS INTENDED TO APPLY TO A SITUATION IN WHICH AN AGENT, WHO WAS A MEMBER OF THE DALLAS ASSOCIATION OF INSURANCE AGENTS, MIGHT BE THE LOW BIDDER FOR ONE OF HIS COMPANIES, AND THE AUTHORITY INTENDED, IN SUCH CIRCUMSTANCES, TO NAME THE INSURANCE PLACEMENT BOARD OF DALLAS AS THE SERVICING ORGANIZATION OR AGENT. THE PROVISION WOULD NOT APPLY TO BIDDERS, SUCH AS THE LOW BIDDER, WHO WERE NOT REPRESENTED BY THE DALLAS ASSOCIATION OF INSURANCE AGENTS.

(5) SINCE FORT WORTH LLOYDS' ASSETS, BASED ON THE BEST RATING OF "A:AA," AMOUNT TO APPROXIMATELY $700,000 AND ITS GUARANTY BOND DEPOSITED BY ITS UNDERWRITERS IS $70,000, THE AUTHORITY HAS NOT ABUSED ITS DISCRETION IN REJECTING THE FORT WORTH LLOYDS BID.

(6) NO STOCK COMPANY IN TEXAS HAS A TEN-YEAR DIVIDEND RECORD, THE 15 PERCENT DIVIDEND OFFERED BY SECURITY NATIONAL BEING THE FIRST EVER OFFERED BY A STOCK INSURANCE COMPANY IN TEXAS.

(7) ALTHOUGH THE AUTHORITY HAS NOT MADE A FINDING THAT FORT WORTH LLOYDS OR ANY OTHER COMPANY IS FINANCIALLY UNSOUND OR IRRESPONSIBLE, NEVERTHELESS THE AUTHORITY HAS DETERMINED THAT A COMPANY WHICH DOES NOT MEET THE SPECIFICATIONS AND WHICH DOES NOT HAVE A MINIMUM BEST RATING OF "A:AAAA" IS NOT THE TYPE OF COMPANY WITH WHICH THE AUTHORITY DESIRES TO PLACE THE $37,000,000 OF INSURANCE. MOREOVER, THE COST OF OBTAINING THE INSURANCE FROM SECURITY NATIONAL WOULD BE ONLY $22,247.30 IN EXCESS OF THE $297,035.99 BID OF FORT WORTH LLOYDS.

(8) FINALLY, THE AUTHORITY CONTENDS THAT THE WITHHOLDING BY PHA OF ANNUAL CONTRIBUTIONS TO HOUSING FOR THE ELDERLY TO OFFSET THE DIFFERENCE BETWEEN THE FORT WORTH LLOYDS AND SECURITY NATIONAL BIDS IS ECONOMIC COERCION.

IN A SUPPLEMENTAL LETTER OF MARCH 24, 1965, YOU REPORT THAT:

(1) NOTWITHSTANDING THE 1956 INVITATION PROVISIONS REQUIRING BIDDERS TO HAVE A MINIMUM FINANCIAL RATING OF "A:AA," THE SAN ANTONIO HOUSING AUTHORITY AWARDED THE 1956 INSURANCE CONTRACT TO INTERNATIONAL SERVICE INSURANCE COMPANY, AN UNDERWRITER FOR FORT WORTH LLOYDS, WHO WAS RATED AS "A PLUS:BBBB" BY BEST; ALSO, SINCE 1953, THE SAN ANTONIO AUTHORITY HAS AWARDED ITS INSURANCE TO EITHER FORT WORTH LLOYDS OR THE INTERNATIONAL COMPANY. (2) REGARDING THE 1953 OPINION OF THE FORMER PHA COMMISSIONER, THE LOCAL HOUSING AUTHORITIES IN TEXAS AT THAT TIME HAD PERMISSION TO NEGOTIATE FOR INSURANCE, AND, THEREFORE, AWARD TO OTHER THAN A LOW BIDDER WAS WITHIN THE PURVIEW OF THE EXISTING PHA POLICY. HOWEVER, THE NEGOTIATION AUTHORITY HAS SINCE BEEN WITHDRAWN FROM LOCAL HOUSING AUTHORITIES IN TEXAS, AND, THEREFORE, SUCH OPINION IS NOT APPLICABLE TO THE PRESENT CIRCUMSTANCES.

(3) AS TO THE MOBILE DECISION, THE MOBILE PHA CONTRACT REQUIRED PURCHASE OF THE INSURANCE AT THE LOWEST RATE RATHER THAN AT THE LOWEST NET COST AS REQUIRED BY THE DALLAS PHA CONTRACT, AND THE ISSUE IN THE MOBILE CASE WAS WHETHER PHACOULD IMPOSE ON MOBILE A BROAD INTERPRETATION OF THE TERM "RATE.' THE COURT RULED AGAINST PHA, HOLDING THAT THE EVALUATION OF ANTICIPATED DIVIDENDS AND THE POSSIBILITY OF ASSESSMENT WAS A MATTER WITHIN THE DISCRETION OF THE HOUSING AUTHORITY. SINCE THE ACTUAL RATE AT WHICH THE DALLAS AUTHORITY PROPOSES TO BUY THE INSURANCE IS HIGHER THAN THE RATE QUOTED BY FORT WORTH LLOYDS AND SINCE THE LATTER RATE IS FIRM, THE MOBILE DECISION DOES NOT APPLY, THE DALLAS AUTHORITY BEING OBLIGATED BY CONTRACT TO PURCHASE THE INSURANCE FROM THE LOWEST RESPONSIBLE BIDDER, FORT WORTH LLOYDS, ON THE BASIS OF "LOWEST NET COST.'

(4) REGARDING THE AUTHORITY'S ASSERTION THAT NO TEXAS STOCK INSURANCE COMPANY HAS A 10-YEAR DIVIDEND RECORD, THE TEXAS STATE BOARD OF INSURANCE REPORTED IN 1961 THAT THE INTERNATIONAL SERVICE INSURANCE COMPANY (A REINSURER OF FORT WORTH LLOYDS) HAD PAID FROM 1949 TO MARCH 15, 1960, A 20 PERCENT DISCOUNT AND A 13 PERCENT ANTICIPATED DIVIDEND. THE DIVIDEND PROPOSED BY SECURITY NATIONAL, THEREFORE, A REMAINS A FIRST-TIME PROMISE THAT IS NOT LEGALLY BINDING AND HAS NO ESTABLISHED PRECEDENT AS REQUIRED BY THE PHA CONTRACTS.

(5) BASED ON A DEFERRED PAYMENT PLAN, THE FORT WORTH LLOYDS BID IS RECOMPUTED AS $293,832.14. THEREFORE, THE EXCESS COST OF PROCUREMENT OF THE INSURANCE FROM SECURITY NATIONAL WOULD BE $96,050.80 WITHOUT CREDIT FOR AN ANTICIPATED DIVIDEND AND $32,773.75 SHOULD THIS DIVIDEND BE PAID.

(6) REGARDING REINSURANCE ARRANGEMENTS, WHILE TEXAS STATUTES REQUIRE THAT REINSURERS BE SOLVENT, REINSURERS NEED NOT BE LICENSED IN THE STATE. ALSO, WHILE REINSURANCE AGREEMENTS MAY BE TERMINATED BY MUTUAL CONSENT, ANY REINSURANCE ALREADY IN FORCE CONTINUES TO APPLY FOR THE FULL TERM OF THE REINSURANCE AGREEMENT.

(7) THE SUBSIDY FOR THE ELDERLY IS PAYABLE UNDER THE UNITED STATES HOUSING ACT OF 1937 ONLY TO THE EXTENT NEEDED TO ENABLE THE AUTHORITY TO RENT TO ELDERLY FAMILIES AND STILL MAINTAIN THE SOLVENCY OF ITS PROJECT, AND WAS NOT INTENDED TO COMPENSATE FOR OPERATING DEFICITS RESULTING FROM VIOLATION OF THE AUTHORITY'S CONTRACTUAL OBLIGATION TO OPERATE THE PROJECTS IN A MANNER PROMOTING EFFICIENCY AND ECONOMY. ACCORDINGLY, PHA CONSIDERS THE WITHHOLDING OF THE SUBSIDY WARRANTED TO OFFSET THE EXCESSIVE INSURANCE EXPENDITURES.

(8) FORT WORTH LLOYDS IS THE ONLY BIDDER WHO HAS SUBMITTED A REVISED BID REFLECTING THE NEW INSURANCE RATE APPROVED BY THE TEXAS INSURANCE CHOCKING OFFICE EFFECTIVE JULY 1, 1964.

IT IS WELL ESTABLISHED THAT LEGITIMATE RESTRICTIONS ON COMPETITION IN ADVERTISED PROCUREMENTS ARE VALID WHEN THERE IS NO REASONABLE ASSURANCE THAT THE NEEDS OF THE AGENCY WILL BE MET IN THE ABSENCE OF SUCH RESTRICTIONS. SEE 42 COMP. GEN. 102 AND CASES CITED THEREIN. THE BASIC QUESTION FOR DETERMINATION IN THE PRESENT CASE, THEREFORE, IS WHETHER THE REQUIREMENTS THAT BIDDERS HAVE THE SPECIFIED MINIMUM FINANCIAL RATING OF "A:AAAA" BY BEST, AND THAT THE AUTHORITY BE PERMITTED TO DESIGNATE THE SUCCESSFUL BIDDER'S SERVICING AGENT ARE NECESSARY.

FROM THE FACTS STATED, IT IS APPARENT THAT A BIDDER HAVING THE SPECIFIED BEST RATING OF AAAA," WHICH DENOTES A FINANCIAL CAPACITY RANGING FROM $15,000,000 TO $20,000,000, WOULD NOT QUALIFY ON THE BASIS OF THE RATING ALONE UNDER THE TEXAS INSURANCE STATUTES TO PROVIDE THE REQUIRED PROJECT INSURANCE COVERAGE OF $37,000,000. THEREFORE, SUCH BIDDER WOULD REQUIRE REINSURANCE AS WOULD ANY OTHER BIDDER WHOSE FINANCIAL RESOURCES WERE NOT SUFFICIENT TO CARRY THE RISK UNDER THE APPLICABLE STATE LAWS, AND THE FINANCIAL RESOURCES OF THE REINSURERS WOULD NECESSARILY BE FOR CONSIDERATION IN DETERMINING THE "RESPONSIBILITY" OF ANY BIDDER TO FURNISH ADEQUATE PROTECTION AGAINST THE RISKS INSURED. ACCORDINGLY, IN OUR VIEW, THE FINANCIAL RATING REQUIREMENT WAS UNDULY RESTRICTIVE AND NOT ESSENTIAL TO OBTAINING THE MINIMUM NEEDS OF THE AUTHORITY, IN THAT IT WAS NOT REALISTICALLY ADAPTED TO THE MEASUREMENT OF RESPONSIBILITY.

CONCERNING THE INVITATION PROVISION BY WHICH THE AUTHORITY RESERVED TO ITSELF THE RIGHT TO SELECT THE SERVICING AGENT FOR THE SUCCESSFUL BIDDER, WE ARE UNABLE TO DETERMINE FROM THE INFORMATION FURNISHED BY THE AUTHORITY THE EXACT NATURE OF THE BENEFIT WHICH WAS TO BE GAINED, OR THE EVIL WHICH WAS TO BE AVOIDED, BY INVOKING THIS PROVISION. WE ARE THEREFORE UNABLE TO DETERMINE WHETHER THE REQUIREMENT SHOULD, OR SHOULD NOT, BE CONSIDERED UNDULY RESTRICTIVE OF COMPETITION. ASIDE FROM THAT, HOWEVER, WE NOTE THAT THE AUTHORITY EXPLAINS IN ITS LETTER OF DECEMBER 30 THAT THE REQUIREMENT WOULD HAVE BEEN INVOKED ONLY IN THE EVENT THE LOW BID HAD BEEN SUBMITTED BY AN AGENT MEMBER OF THE DALLAS ASSOCIATION OF INSURANCE AGENTS, IN WHICH CASE THE AUTHORITY WOULD HAVE DESIGNATED THE INSURANCE PLACEMENT BOARD OF DALLAS, A COMMITTEE COMPRISED OF MEMBERS OF THE DALLAS ASSOCIATION, OF INSURANCE AGENTS, AS THE SERVICING AGENT. THE AUTHORITY ALSO ADVISED, THAT WHILE INFORMATION TO THAT EFFECT WAS SUPPLIED TO BIDDERS WHO QUESTIONED THE PROVISION, IT WAS NOT MADE KNOWN TO BIDDERS GENERALLY. SINCE IT WOULD APPEAR THAT BIDDERS WHO WERE NOT AGENT MEMBERS OF THE ASSOCIATION AND WHO DID NOT REQUEST AND RECEIVE THE FOREGOING EXPLANATION FROM THE AUTHORITY, MAY HAVE BEEN INFLUENCED BY A CONTRARY UNDERSTANDING OF THE APPLICATION OF THIS PROVISION, ITS INCLUSION IN THE INVITATION WITHOUT ALSO INCLUDING AN EXPLANATION OF ITS APPLICATION MUST BE CONSIDERED IMPROPER.

AS TO THE ANTICIPATED DIVIDEND CREDIT ALLOWED TO SECURITY NATIONAL, WE CONCUR WITH YOUR CONCLUSION THAT IN THE ABSENCE OF THE 10-YEAR PAYMENT RECORD REQUIRED BY SECTION 305 (E) OF THE PROJECT CONTRACTS AND WHICH AT LEAST ONE COMPANY HAS MAINTAINED, THE CREDIT OF THE DIVIDEND IN COMPUTING SECURITY NATIONAL'S NET BID WOULD NOT BE PROPER, EVEN IF THE BID WOULD THEREBY BE MADE LOW.

CONCERNING THE EXCESS COSTS INCIDENT TO AWARD TO SECURITY NATIONAL, IT IS CLEAR THAT WITH OR WITHOUT THE ANTICIPATED DIVIDEND CREDIT, THE BID OF SECURITY NATIONAL EXCEEDS THE LOW BID OF FORT WORTH LLOYDS BY MORE THAN $20,000. THEREFORE, THERE BEING NO EVIDENCE THAT THE INTERESTS OF THE AUTHORITY WOULD BE BEST SERVED BY AWARD TO SECURITY NATIONAL, INCURRENCE OF THE EXCESS COSTS IS NOT CONSISTENT WITH THE STATUTORY INTENT TO ADMINISTER THE PROJECTS IN AN ECONOMICAL MANNER.

CONCERNING THE APPLICABILITY OF THE 1953 DECISION OF THE FORMER PHA COMMISSIONER AND THE MOBILE COURT DECISION, WE CONCUR WITH YOUR VIEWS, AND WITH THE REASONS STATED BY YOU, THAT SUCH DECISIONS DO NOT APPLY IN THE PRESENT CIRCUMSTANCES.

REGARDING THE AUTHORITY'S COMMENTS ON THE GUARANTY BOND FURNISHED BY FORTH WORTH LLOYDS, WE FIND NO EVIDENCE THAT SUCH BOND DOES NOT COMPLY WITH THE TEXAS INSURANCE STATUTES. ACCORDINGLY, WE FAIL TO SEE ANY LEGAL BASIS TO QUESTION THE BOND.

WHILE WE ARE MINDFUL THAT IN THE HOUSING ACT OF 1959, 42 U.S.C. 1401, THE CONGRESS DECLARED ITS POLICY THAT THE LOCAL HOUSING AUTHORITIES SHOULD BE GIVEN THE MAXIMUM AMOUNT OF RESPONSIBILITY IN THE ADMINISTRATION OF THE LOW-RENT HOUSING PROGRAM, WE REGARD THE FURTHER PROVISIONS IN 42 U.S.C. 1401, REQUIRING THAT SUCH LOCAL RESPONSIBILITY BE EXERCISED WITH DUE CONSIDERATION TO ACCOMPLISHING THE OBJECTIVES OF THE ACT WHILE EFFECTING ECONOMICS AS CONTROLLING IN THESE CIRCUMSTANCES, PARTICULARLY IN VIEW OF THE FACT THAT THE ECONOMIC BURDEN OF LOSSES IN OPERATING THE HOUSING PROJECTS MUST EVENTUALLY BE BORNE BY THE UNITED STATES. ACCORDINGLY, IT IS OUR VIEW IN THE LIGHT OF THE WHOLE RECORD AND OF THE FACT THAT THE AUTHORITY HAS NOT MADE A FINDING THAT FORT WORTH LLOYDS, WHO APPEARS TO HAVE ADEQUATE REINSURANCE AVAILABLE, IS NOT RESPONSIBLE, FINANCIALLY OR OTHERWISE, THAT THE AWARD TO SECURITY NATIONAL AT A BID PRICE HIGHER THAN FORT WORTH LLOYDS LOW BID IS IN VIOLATION OF THE PROJECT CONTRACTS PROVISIONS REQUIRING AWARD TO THE LOW BIDDER AND ALSO CONTRAVENES THE STATUTORY REQUIREMENT FOR EFFECTING ECONOMIES IN THE ADMINISTRATION OF THE PROJECTS. HOWEVER, IN VIEW OF OUR FINDING THAT THE INVITATION PROVISIONS WERE RESTRICTIVE, AND OF THE FACT THAT NEW INSURANCE RATES HAVE BEEN APPROVED BY THE TEXAS STATE INSURANCE AUTHORITIES EFFECTIVE JULY 1, 1964, PHA MAY DESIRE TO CONSIDER THE ADVISABILITY OF READVERTISING THE PROCUREMENT UNDER A NONRESTRICTIVE INVITATION.

AS TO THE WITHHOLDING BY PHA OF THE SUBSIDY FOR THE ELDERLY, WE CONCUR WITH YOUR CONCLUSION THAT THE PAYMENT OF THE SUBSIDY WITH KNOWLEDGE THAT THE AUTHORITY IS UNNECESSARILY INCURRING EXCESS OPERATING COSTS IS NOT COMPATIBLE WITH THE PURPOSE FOR WHICH THE SUBSIDY WAS AUTHORIZED BY CONGRESS, THAT IS, TO ENABLE THE AUTHORITY TO RENT TO ELDERLY FAMILIES WHILE MAINTAINING THE SOLVENCY OF THE LOW RENT PROJECTS.