Government Procurement Law Legal Issues State Purchasing Forum June 16 and 17, 2004

1. Government Procurement Law Legal Issues State Purchasing Forum June 16 and 17, 2004 Noreen VanDoren, Esq.

2. Government Procurement & Competitive Bidding • Procurement Law Issues: • Late Bids – Little & Ives v. Smith (Sup. Ct. 1937) • Tie Bids • Bid Mistake/Bid Withdrawal • Rejection of All Bids SFL §163(9)(d) • Specifications (“or Equal” or proprietary) • Bid Protest • Non-Collusive Bidding Certification SFL §139-d • Responsibility of Bidders SFL §163(9)

3. CHECK CASHERS …….. Government Procurement & Competitive Bidding THE CASE • Check Cashers (also referred to as Transactive) decision is one of the first cases interpreting an agency’s discretionary power under the Procurement Stewardship Act of 1995. • In the Matter of Transactive Corporation v. New York State Department of Social Services, et al.; In the Matter of Check Cashers Association of New York, Inc., et al. v. New York State Department of Social Services, et al., 236 A.D. 2d 48; 665 N.Y.S. 2d 701 (11/26/97)

4. Government Procurement & Competitive Bidding CHECKCASHERS …... • THE STAKES • Project to develop an electronic benefits transfer system (EBTS) for welfare recipients • $145 million to the winning bidder • $3 million per month loss to local check cashers

5. CHECK CASHERS …. GovernmentProcurement & Competitive Bidding THE PARTIES • Department of Social Services (DSS), as part of a coalition of 7 northeastern states (NCS) • Check Cashers Assoc. of New York (a non-bidder) • Transactive Corp. (a non-bidder), but part of a “bidding team” who would be the major subcontractor to Fleet Financial Group (a bidder) • Citicorp (the winning bidder)

6. Government Procurement & Competitive Bidding CHECK CASHERS …….. THE PROCUREMENT • Bidders had to submit bids in 2 parts -- (1) Technical (2) Financial • Each part would be reviewed by separate technical and financial committees, and ranked • Final review and selection would be made by a third selection committee

7. CHECK CASHERS ... Government Procurement & Competitive Bidding TECHNICAL EVALUATION • The RFP stated that 5 weighted technical criteria would be used to evaluate bids • Within the 5 weighted criteria shown in the RFP, DSS developed 109 more detailed scoring items. • The 109 items were not shown in the RFP, but were provided separately to each of the 5 bidders.

8. CHECK CASHERS …….. Government Procurement & Competitive Bidding COST EVALUATION • The RFP stated that if the cost among qualified bids varied significantly, so that the bids were not in a competitive price range, then the price would be the basis for award • The competitive price range was established at 10% among the bids • The 10% range was not stated in the RFP but was established by NCS after the bidders submitted their initial proposals, but prior to the DSS request for “best and final” offers

9. CHECK CASHERS …….. Government Procurement & Competitive Bidding BIDS RECEIVED • Five initial bids were received, then “Best and final offers” were requested from all 5 bidders • Fleet ranked 1st technically and Citicorp 4th • Citicorp ranked 1st in price (lowest) and Fleet was 18% higher

10. First Level Judicial Review NYS Supreme Court: • Both Complainants (Check Cashers and Transactive) had standing to sue DSS over the contract award to Citicorp, and • DSS failed to properly follow the Procurement Stewardship Act in making the contract award

11. NYS Supreme Court DSS did not: • disclose the actual weight given to cost, relative to the technical criterion • disclose all 109 technical scoring items • document that the 10% price range would be used prior to receipt of initial bids DSS should have: • used price as a determinative only if two or more proposals were substantially equivalent

12. Second Level Judicial Review Appellate Division (3rd Dept) Held: • Upheld the award to Citicorp--DSS had followed the statute • Found the award was made in the public interest and predicated upon a rational basis • The law requires generalization but not particularization • Only Transactive and not Check Cashers had standing to sue as part of a “bidding team” and was within the “zone of interest” protected by the statute

13. Appellate Division • DSS only had to generally state the overall technical criteria in the RFP, not every one of the 109 specific items • The proposals were scored in the manner specified in the RFP • DSS did the requisite “cost-benefit” analysis - any increase in value due to a higher price would offset the cost savings of the lower priced proposal

14. Appellate Division • The RFP adequately advised bidders that a competitive price range would be used • The competitive price range of 10% used was established prior to the request for final offers, it was in the public interest and did not unfairly disadvantage any of the bidders • DSS did not have to use price as a prerequisite but only as a tie-breaker when two or more proposals are found to be substantially equivalent • Post-bid negotiations are allowed so long as no changes to original specifications or any concessions to the low bidder are made

15. Third Level Judicial Review Court of Appeals Held: • Disagreed with the lower courts on purely procedural grounds • Held that neither Transactive nor Check Cashers had standing to sue DSS • Never reached the substantive issues

16. The Final Word…... • The Appellate Division’s decision on the substantive issues remains • DSS did not violate the “letter or spirit” of the Procurement Stewardship Act

17. Pallette Stone Corporationv. NYS Office of General Services,168 Misc. 2d 869 (Sup. Ct. Albany Co. 1996) Government Procurement & Competitive Bidding Issue: Can a contractor lower the bid prices post contract award?

18. Invitation for Bids • One Year Multiple Award Commodities Contract for bituminous concrete

19. 64 Bidders Awarded Contracts • Pallette Stone Corporation: At contract award: offered lowest price among multiple bidders • Peckham Materials Corp.: Post award: gave Washington County better price than lowest price offered to the State.

20. THE STAKESValidity of Multiple Contract Awards for Commodities – Ability to use Multiple Contract Awards originated in the 1995 Procurement Stewardship ActValidity of Postbid Price Reductions for Commodities - Ability to follow the Market Place in Purchasing for the State Government Procurement & Competitive Bidding

21. The ProcurementInvitation for Bids issued in September 1996 for bituminous concretewith multiple awards. Purchase orders could be placed consideringfactors such as(i)availability of the commodity, (ii)specific time bituminous concrete was needed for project,(iii)delivery costs for commodity,(iv)proximity of bituminous concrete plant to the projectsite, and (v)basic cost of the bituminous concrete, General Specifications called for contractor to reduce prices if price was offered to other similarly situated customers (“Most Favored Nations” Clause). Detailed Specifications for this IFB advised bidders that price reductions would be prospective and not impact pending purchase orders.

22. CONTROLLING PROVISIONS • State Finance Law section 163 (10): Provides for Multiple Awards • Contract Paragraph 54: - If substantially the same or a similar quantity of a commodity is sold by the contractor under the same or similar terms and conditions as that of any State contract for such commodity then held by the contractor, at a price lower than the State contract Price, the price to the State shall be immediately reduced to the lower price.

23. Peckham’s Post-award Price • In light of the State Finance Law and Contract provisions, Peckham offers to extend the lower price to the State • OGS issues Memorandum accepting the lower price, cites SFL 163(10)(c)

24. Pallette’s Complaint • Other bidders should not be allowed to reduce their bid post-award – • It’s not fair • It undermines the competitive process • OGS overstepped its authority in allowing the post-award reduction

25. State Finance Law • Section 163(10) Letting of contracts. Contracts for commodities shall be awarded on the basis of lowest price to a responsive and responsible offerer. Contracts for services shall be awarded on the basis of best value from a responsive and responsible offerer. Multiple awards for services and commodities shall be conducted in accordance with paragraph (c)…

26. Section 163(10)(c): • The commissioner or state agency may elect to award a contract to one or more responsive and responsible offerers provided, however, that the basis for the selection among multiple contracts at the time of purchase shall be the most practical and economical alternative and shall be in the best interests of the state.

27. Court: Purpose of Competitive Bidding Process: • Guard against favoritism, fraud and corruption • Benefit the Taxpayers

28. Competitive Bidding Process was Not Established: • Help enrich corporate bidders

29. Court: • Record contains no evidence of favoritism, fraud or corruption; • The public interest is advanced through the reduction in cost; and • There has been no change in terms. All contractors still subject to same terms and condition.

30. Commissioner’s Interpretation of Section 163(10)(c): • The Public, as taxpayers, gain the benefit of price reductions enjoyed by the State post-award so long as all awardees are permitted to reduce their prices as well.

31. Albany Supreme Court: • Commissioner’s interpretation of the statute is not only rational, but “desirable”.

32. Decision Supreme Court : For the Defendants, OGS and Peckham:

33. APPEAL TO THIRD DEPARTMENTby Pallette Stone245 A.D.2d 756,(App. Div. 3d Dep't 1997)

34. Appellate Division: • Supreme Court’s Decision that Commissioner of OGS rationally interpreted State Finance Law section 163 was reasonable and not arbitrary or capricious. • Decision: Affirmed!!!!

35. Government Procurement & Competitive Bidding The Case 1. In the Matter of Embee Corp. v. Ringler 2. In the Matter of Taub’s Carpet and Tile Corp v. Ringler 194 Misc2d 400 (Albany Co. October 2002) OGS sought to terminate contract awards to 2 bidders upon discovery that pricing bid was lower than statutorily required prevailing wage rates. Mistake was not discovered until after final contract approval. Contractors disagreed arguing that they should be allowed to increase price to prevailing wage rate. In support, they rely on Pallete Stone decision.

36. Government Procurement & Competitive Bidding The Stakes • Loss of multi-year contracts for carpet installation • Both vendors rely on government purchases for majority of business • OGS acted arbitrarily and capricious in not permitting price increase to prevailing wage rate • Actions undermine competitive process

37. Government Procurement & Competitive Bidding The State • Bids were facially non-responsive and did not meet specifications • Statutorily required prevailing wage rates are not waivable • Price increases are not permitted after bid opening • Only option was to terminate contracts

38. Government Procurement & Competitive Bidding Decision • State’s actions not arbitrary or capricious as there was a rational basis for decision. • Errors by State employees cannot bind State • Bids must substantially conform to bid specifications. Their bids did not and the variance was material. • Increase in price not supported because of higher cost to public. Would allow possibility of fraud, corruption or favoritism.

39. Government Procurement & Competitive Bidding Appeal to Third Department Taub’s Carpet & Tile Corp. v. Ringler, 1 AD3rd 730 (Nov. 2003) JUDGMENT AFFIRMED Failure to bid in conformance with DOL requirements provided a rational basis for the Commissioner to reject the bid. Cancellation of contract upon discovery of erroneous award based on a nonconforming bid, and not permitting modification of the proposal to correct the installer's error, was rational and in accordance with the policies underlying the competitive bidding statutes.

40. Government Procurement & Competitive Bidding The Case • In the Matter of American Rock Salt Company v. McCall et al • In the Matter of Cargill, Inc. v. McCall et al Albany County Supreme Court January 2003 • In 2000, Legislature enacted State Finance Law §144-a establishing a preference in certain instances for NYS business selling rock salt. The law provided for reciprocal price preference for NYS bidder or supplier of rock salt against a bidder or supplier from a discriminatory state, country or political subdivision.

41. Government Procurement & Competitive Bidding The Case continued..... • Bids were opened in July 2002 for rock salt for the State and political subdivisions • American Rock Salt requests OGS and OSC application of the preference in 9 counties of 17 where competing bidder was International Salt Company based on 7% import tariff imposed by Chile. International’s supply of salt came from Chile. • OSC determines tariff  preference and denies American’s request

42. Government Procurement & Competitive Bidding The Casecontinued..... • American challenges OSC & OGS decision • Arguments focus on correctness of State’s determination and whether the statute was properly interpreted • Court, at length, finds interpretation made by the State to be proper and valid • Court sees statute as limited in its application to reciprocal procurements involving public contracts • Also deemed relevant and properly considered by the State was lack of need for product in Chile

43. Government Procurement & Competitive Bidding Cargill or Timing Can be Everything • Cargill files essentially same claim, but 2½ months after contracts were awarded. • Claim related to only 1 county that had been awarded to International Salt • Agreed to be heard on laches issue only

44. Government Procurement & Competitive Bidding What is laches? A suit is barred on the ground of laches or stale demand where the following facts are disclosed: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complainant seeks a remedy; (2) delay in asserting the complainant’s rights, the complainant having had knowledge or notice of the defendant’s conduct and having been afforded an opportunity to institute a suite; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event that relief is accorded to the complainant or that the suit is not barred. 75 NY Jur 2d, Limitations and Laches §333

45. Government Procurement & Competitive Bidding OUTCOME Both petitions denied

46. Government Procurement & Competitive Bidding • Court found Cargill had notice from time of award and filing of American Claim • Salt Contract was being performed by International under harsh winter conditions. • Cargill failed to seek equitable relief through temporary restraining order to limit harm to State and International

47. Government Procurement & Competitive Bidding • Under circumstances Court would not take action to cause further harm to State and local governments • Affirmed that all grounds in American decision were equally applicable to Cargill

48. Government Procurement & Competitive Bidding Adelaide The Court addressed the concepts of bidder responsibility and the Commissioner’s authority to reject a bid under the Procurement Stewardship Act in the context of a competitive bid for hazardous materials sampling and testing services. Matter of Adelaide Health Associates v. State of New York Office of General Services, 248 A.D. 2d 861; 669 N.Y.S. 2d 975 (1998).

49. Government Procurement & Competitive Bidding THE STAKES Filing for Chapter 11 Bankruptcy as valid grounds for determining a bidder to be non-responsible. Validity of rejection of low bidder for non- responsibility.

50. Government Procurement & Competitive Bidding THE PARTIES AND THE PROCUREMENT Office of General Services Administers Centralized Contracts for Commodities, Services and Technology (OGS). OGS found Adelaide not responsible and rejected their bid due to their disclosure of filing for Chapter 11 Bankruptcy and questions on their solvency. Adelaide Environmental Health Associates, lowest price bid for hazardous materials sampling and testing services. Spectrum Environmental Associates, Inc., second lowest price bidder who received contract award as result of OGS reject of Adelaide bid.