government procurement law

Government Procurement LawGovernment Procurement LawLegal Issues Legal Issues

State Purchasing ForumState Purchasing ForumJune 16 and 17, 2004June 16 and 17, 2004

Noreen VanDoren, Esq.Noreen VanDoren, Esq.

Government Procurement & Government Procurement & Competitive BiddingCompetitive 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)

CHECK CASHERS …….. 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)


THE STAKESTHE 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

CHECKCHECK CASHERSCASHERS …...

Government Procurement & Competitive Government Procurement & Competitive BiddingBidding

CHECK CASHERSCHECK CASHERS ….

THE PARTIESTHE 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)

GovernmentGovernment Procurement & Competitive Procurement & Competitive BiddingBidding

THE PROCUREMENTTHE 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

CHECK CASHERSCHECK CASHERS …….. ……..


CHECK CASHERSCHECK CASHERS ... ...

TECHNICAL EVALUATIONTECHNICAL 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.



COST EVALUATIONCOST 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



BIDS RECEIVEDBIDS 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


First Level Judicial ReviewFirst Level Judicial Review

NYS Supreme CourtNYS 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

NYS Supreme CourtNYS Supreme Court

DSS did notDSS 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 haveDSS should have::

used price as a determinative only if two or more proposals were substantially equivalent

Second Level Judicial ReviewSecond Level Judicial Review

Appellate Division (3rd Dept) HeldAppellate 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

Appellate DivisionAppellate 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

Appellate DivisionAppellate 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

Third Level Judicial ReviewThird Level Judicial Review

Court of Appeals HeldCourt 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

The Final Word…...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

Pallette Stone Corporation v. NYS Office of General Services,168 Misc. 2d 869 (Sup. Ct. Albany Co. 1996)

Issue: Can a contractor lower the bid prices post contract award?


Invitation for BidsInvitation for Bids

One Year Multiple Award Commodities Contract for bituminous concrete

64 Bidders Awarded Contracts64 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.

THE STAKESTHE STAKES Validity of Multiple Contract Awards for Commodities – Ability to use Multiple Contract Awards originated in the 1995 Procurement Stewardship Act Validity of Postbid Price Reductions for Commodities - Ability to follow the Market Place in Purchasing for the State


The ProcurementThe Procurement

Invitation 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.

CONTROLLING PROVISIONSCONTROLLING 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.

Peckham’s Post-award PricePeckham’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)

Pallette’s ComplaintPallette’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

State Finance LawState 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)…

Section 163(10)(c):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.

Court: Court: Purpose of Competitive Bidding Process:Purpose of Competitive Bidding Process:

Guard against favoritism, fraud and corruption Benefit the Taxpayers

Competitive Bidding Process Competitive Bidding Process was Not Established: was Not Established:

Help enrich corporate bidders

Court: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.

Commissioner’s Interpretation of Commissioner’s Interpretation of Section 163(10)(c 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.

Albany Supreme Court:Albany Supreme Court:

Commissioner’s interpretation of the statute is not

only rational, but “desirable”.

Decision Supreme Court :Decision Supreme Court :

For the Defendants, OGS and Peckham:For the Defendants, OGS and Peckham:

APPEAL TO THIRD DEPARTMENTby Pallette Stone

245 A.D.2d 756,(App. Div. 3d Dep't 1997)

Appellate Division: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!!!!


The CaseThe 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.


The StakesThe 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


The StateThe 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


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.


Appeal to Third DepartmentAppeal 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.


The CaseThe Case1. In the Matter of American Rock Salt Company v. McCall

et al2. 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.


The Case The Case continued.....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


The CaseThe Case continued.....continued.....

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


Cargill or Timing Can be EverythingCargill 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


What is laches?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


OUTCOMEOUTCOME

Both petitions denied


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


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

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).

Government Procurement Government Procurement & Competitive Bidding& Competitive Bidding

THE STAKESTHE 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.


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.



SECOND LEVEL JUDICIAL REVIEW APPELLATE DIVISION THIRD DEPARTMENT Lower Court Judgment Affirmed. The Appellate Division confirmed that “financial

stability is a relevant factor in determining whether a particular contractor may be deemed a responsible bidder” consistent with generally stated procurement principles promoting “purchasing from responsive and responsible offerors (State Finance Law §163 (2) (a) ” and ensuring “that contracts are awarded consistent with the best interests of the state (State Finance Law

§163 (2) (d).”

Rejection was a valid determination made pursuant to State Finance Law §163 (9) (f) where the State agency must make a responsibility determination and consistent with the requirement of State Finance Law §163 (10) where contracts are to be awarded “on the basis of best value from a responsive and responsible offeror.”

SECOND LEVEL JUDICIAL REVIEWAPPELLATE DIVISION

THIRD DEPARTMENT continued



Breeyear General Contracting Corp. v. OGS and Kasselman Electric Co., Inc., (Sup.Ct. Albany Co. 2004)

OGS issued a Statewide Temporary Services Contract in 2002. Breeyear and Kasselman were awarded contracts to supply Construction Trade workers. OGS sought quotes, evaluated them and awarded the purchase order to Kasselman.


Breeyear obtained a temporary restraining order from the Albany County Supreme Court and brought an Article 78 proceeding to enjoin OGS from hiring Kasselman. Basis for petition:

OGS used different evaluation process

Improper use of weighted averages

Violates the contract, SFL, Procurement Stewardship Act, Procurement Council and Mini-bid Guidelines


OGS counters:

Use of a weighted average necessary as Breeyear’s bid was unbalanced based on levels of positions and locations within the Capital District.

Consideration of discounts are applicable only when there is a tie.

SFL § 163(10) permits multiple award contracts and negotiations to obtain lowest price from any contractor.


Court decision:

Breeyear’s use of an unbalanced quote to obtain maximum benefits in titles and locations most used forced OGS to us a weight average analysis

Discount of 2% for payment within 15 days was only way for Breeyear to be low bid. Ability of state to pay quickly has many variables and failure to use this as basis for award is not arbitrary, capricious or contrary to law.


Court decision continued:

OGS’s use of a weighted analysis under the circumstances presented constituted a reasonable manner in which to determine best value and protect the public interest.

Breeyear’s petition is denied.

OGS permitted to award to Kasselman.

QuestionsQuestions

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