Can a Mississippi airport authority pay a site location consultant a percentage-based fee tied to lease payments from tenants the consultant brings in?

Plain-English summary

The Gulfport-Biloxi Regional Airport Authority wanted to hire a site location/development firm to find aviation-related industries or commercial tenants for airport land. The Authority planned to pay the firm a fee equal to a fixed percentage of the lease payments it received from any tenant the firm placed, over a defined period. The Authority's attorney asked whether that percentage-based fee structure was lawful, and if not, whether a tiered fixed fee tied to lease value would work instead.

The AG said the percentage structure was fine. Section 61-3-15 gives airport authorities broad power to enter contracts that are necessary or convenient for their purposes. Personal and professional services contracts (which a site location consulting agreement is) are not subject to public purchasing statutes, so the Authority can use any procurement method it chooses. Prior AG opinions had upheld percentage-based fees in other public-entity contexts: a municipality paying a contingency fee on insurance-claim savings (Brown 2016), a state department paying a contingency fee for golf course management (Polles 1994), and a school district paying a placement agency a percentage of the hired employee's salary (Hemphill 2014).

The fee must be reasonable and appropriate for the services provided, and the Authority should determine that the arrangement is in the Authority's best interest. With those guardrails, the percentage-of-lease-payments fee was permissible. The second question (about a tiered fixed fee) was moot once the first question was answered yes.

What this means for you

For airport authority boards and economic development authorities

Under the opinion, the Authority may pay a site location/development firm a fee based on a fixed percentage of the lease payments the Authority receives from a tenant the firm places, "if the airport authority determines that such an arrangement is in that authority's best interest." The AG also noted, citing its Stokes opinion, that while the Authority is not required to seek competitive bids for service contracts, "soliciting bids/proposals ensures that they are receiving the best value and eliminating favoritism of specific contractors."

For airport authority attorneys

The opinion answers the first question (a percentage-of-lease-payments fee) yes, and treats the second question (a tiered fixed fee tied to lease value) as moot rather than prohibited. The AG grounds the authority to contract in § 61-3-15(d) ("to execute such contracts and other instruments and take such other action as may be necessary or convenient to carry out the purposes of this chapter") and in the rule that personal and professional services are exempt from public purchasing statutes. It does not prescribe specific fee caps, floors, or durations.

For site location and economic development consulting firms

The opinion confirms that a Mississippi airport authority may pay a percentage-based fee for this kind of placement work, subject to the authority's determination that the arrangement is in its best interest and that the fee is reasonable and appropriate for the benefit received. It does not set required contract terms beyond that.

For attorneys advising other Mississippi public bodies

The opinion places the percentage fee in a line of prior opinions: a municipality paying a percentage of insurance-claim savings (Brown, 2016), the Department of Wildlife, Fisheries, and Parks using a contingency fee for golf-course management (Polles, 1994), and a school district paying a placement agency a percentage of a hired employee's salary (Hemphill, 2014). The recurring elements are that the service is a personal or professional service exempt from competitive bidding, that the fee is reasonable and appropriate for the benefit received, and that the public body determines the arrangement is in its best interest.

Common questions

Q: Does the Authority have to put the contract out to bid?
A: No. The AG says personal and professional services are "exempt from public purchasing statutes and the governing authority can use any method of procurement it chooses." It adds that soliciting bids or proposals anyway helps ensure best value and eliminate favoritism, but is not required.

Q: Is there a cap on the percentage?
A: The opinion does not set a cap. It applies the Hemphill standard that the fee "must be for a specific amount, or an amount that can be readily determined by the contracting parties, and must be reasonable and appropriate for the benefit received," and leaves reasonableness to the Authority's determination.

Q: How is the fee calculated?
A: As described in the request, the fee is "a fixed percentage of the amount of the lease payments the Authority receives from the lessee over a defined period of time upon the placement of an applicable business, industry, or tenant." The AG found no provision of state law prohibiting that structure.

Q: How long can the percentage run?
A: The request described the fee running "over a defined period of time." The opinion did not set a maximum; it tied permissibility to the Authority's best-interest determination and the reasonableness of the fee.

Q: Could the Authority instead pay a flat fee per placed tenant?
A: The AG said its yes answer to the percentage question made the second question (a tiered fixed fee based on lease value) moot. It did not hold that a fixed or tiered fee would be prohibited.

Q: Does this apply to other types of authorities (port, redevelopment, hospital)?
A: The opinion concerns an airport authority and its powers under § 61-3-15. Its general statements about personal and professional services being exempt from competitive bidding draw on opinions about other public bodies, but the opinion itself decides only the airport-authority question.

Q: Where does the airport authority's power to enter this contract come from?
A: The opinion relies on § 61-3-15(d), which gives an authority the power "to execute such contracts and other instruments and take such other action as may be necessary or convenient to carry out the purposes of this chapter."

Background and statutory framework

The Gulfport-Biloxi Regional Airport Authority is created under Mississippi's airport authority statute, Section 61-3-1 et seq. Section 61-3-15 lists the authority's powers, including the catch-all "to execute such contracts and other instruments and take such other action as may be necessary or convenient to carry out the purposes of this chapter." That broad grant supports a wide range of consultant and service contracts.

The AG's analysis turns on a settled rule it restates here: "personal and professional services procured by a governing authority are exempt from public purchasing statutes and the governing authority can use any method of procurement it chooses" (citing Stokes, 2017, and Broom, 2019). A site location/development firm's services fall in that category, so the Authority was free to negotiate the contract directly, though the AG noted that soliciting bids or proposals still helps ensure best value and avoid favoritism.

On performance-based fees, the AG has consistently allowed them where:

• The service is a personal or professional service exempt from competitive bidding
• The rate is reasonable and appropriate for the benefit received
• The contracting body has determined the arrangement is in its best interest

The Hemphill (2014) opinion's standard, "Such a fee must be for a specific amount, or an amount that can be readily determined by the contracting parties, and must be reasonable and appropriate for the benefit received," is the working test. A percentage of lease payments meets the readily-determined test. Reasonableness depends on the market and the services.

Citations and references

Statutes:

• Miss. Code Ann. § 61-3-1 et seq., airport authority enabling statute
• Miss. Code Ann. § 61-3-15, airport authority powers (including subsection (d), the contract authority)

Prior AG opinions:

• MS AG Op., Stokes (Oct. 20, 2017), personal and professional services are exempt from competitive bidding
• MS AG Op., Broom (Jan. 18, 2019), same
• MS AG Op., Brown (Aug. 5, 2016), municipality may pay contractor a percentage of insurance-claim savings
• MS AG Op., Polles (Dec. 8, 1994), Department of Wildlife, Fisheries, and Parks may use contingency fees for golf course management
• MS AG Op., Hemphill (Sept. 18, 2014), school district may pay placement agency a percentage of the hired employee's salary; fee must be specific or readily determinable, reasonable, and appropriate

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2021/07/B.-Long-June-23-2021-Determination-of-Fee-for-Site-Location_Development-Firm.pdf

Original opinion text

June 23, 2021

Bobby R. Long, Esq.
Attorney for Gulfport-Biloxi Regional Airport Authority
Post Office Drawer W
Gulfport, Mississippi 39502

Re: Determination of Fee for Site Location/Development Firm

Dear Mr. Long:

The Office of the Attorney General has received your request for an official opinion.

Background

You state that the Gulfport-Biloxi Regional Airport Authority (the "Authority") would like to issue a request for qualifications for a site location/development firm to assist in locating an aviation related industry or commercial operation that would be willing to lease all or a portion of this property.

Questions Presented

1. Can the Authority base the fee to be paid a site location/development firm on a fixed percentage of the amount of the lease payments the Authority receives from the lessee over a defined period of time upon the placement of an applicable business, industry, or tenant?

2. If the answer to the first question is no, can the Authority pay a negotiated fixed fee upon the placement of an applicable business, industry, or tenant that depends on the total value of the lease, i.e., $10,000.00 on a lease valued at $50,000.00 to $100,000.00, $15,000.00 on a lease valued at $100,000.00 to $150,000.00, etc. for a defined period of time?

Brief Response

1. Yes. We are not aware of any provision of state law that would prohibit the Authority from paying a fixed fee to a site location/development firm, where such fee is based on a percentage of the lease payments paid to the Authority by commercial tenants.

2. The answer to your first question renders your second question moot.

Applicable Law

The Authority was created pursuant to Section 61-3-1 et seq. Section 61-3-15 provides, in part:

An authority shall have all the powers necessary or convenient to carry out the purposes of this chapter (excluding the power to levy and collect taxes or special assessments) including, but not limited to, the power:

...

(d) To execute such contracts and other instruments and take such other action as may be necessary or convenient to carry out the purposes of this chapter.

Our office has consistently opined that personal and professional services procured by a governing authority are exempt from public purchasing statutes and the governing authority can use any method of procurement it chooses. See e.g., MS AG Op., Stokes at 1 (Oct. 20, 2017); MS AG Op., Broom at 2 (Jan. 18, 2019). We have further stated that while a governing authority is not required to seek competitive bids in the procurement of service contracts, soliciting bids/proposals ensures that they are receiving the best value and eliminating favoritism of specific contractors. MS AG Op., Stokes at *1 (Oct. 20, 2017).

This office previously opined that a municipality had authority to pay a contractor a fee based on a percentage of any savings achieved through the claim negotiation services provided by the contractor, assuming the municipality determined that the compensation was reasonable for the services performed. MS AG Op., Brown (Aug. 5, 2016). On another occasion, citing the Mississippi Department of Wildlife, Fisheries, and Parks' broad authority over state parks and its ability to manage and lease out such property, we opined that if that department found that it was in the state's best interest, it could enter into a contingency fee agreement for the management of two golf courses. MS AG Op., Polles at 1 (Dec. 8, 1994). This office has also opined that a school district could pay a placement agency a search fee based on a percentage of the salary of the hired employee. MS AG Op., Hemphill at 2–3 (Sept. 18, 2014). In Hemphill, we stated: "Such a fee must be for a specific amount, or an amount that can be readily determined by the contracting parties, and must be reasonable and appropriate for the benefit received by the school district." Id. at *3. Similarly, we find no prohibition against an airport authority basing the fee paid to a site location/development firm on a fixed percentage of the amount of lease payments paid by the lessee, if the airport authority determines that such an arrangement is in that authority's best interest.

If this office may be of any further assistance to you, please do not hesitate to contact us.

Sincerely,

LYNN FITCH, ATTORNEY GENERAL

By: /s/ Phil Carter
Phil Carter
Special Assistant Attorney General