Ensures compliance with competitive bidding law

Summary of specific provisions

Section one of the bill names this law the "Municipal Competitive Bidding Enforcement Act." Section two creates a new General Municipal Law § 103-h, which provides for the Comptroller to issue an opinion as to the legality of a political subdivision's proposed procurement action, authorizes the Attorney General to enjoin an illegal procurement action, allows a good faith bidder who should have won a contract to sue for damages, establishes a civil penalty for a willful and intentional violation of the law, and sets a fee for initiating a Comptroller's opinion. Section three clarifies how brand names may be used in bid specifications. Section four clarifies that bids are public records. Section five establishes that a political subdivision shall respond to a Comptroller's audit that finds a violation of the competitive bidding law. Section six provides that the office of general services should supply bid specifications to political subdivisions.

Justification

There is currently no effective means of ensuring that local governments comply with the municipal competitive bidding law, which is designed to keep the cost of public contracts as low as reasonably possible. General Municipal Law § 103(1) requires that a political subdivision competitively bid public works contracts of more than $20,000 and purchase contracts of more than $10,000. The term "political subdivision" includes a municipal corporation, school district, district corporation and BOCES. GML § 100(1). The purpose of the competitive bidding law is "to assure the prudent and economical use of public moneys for the benefit of all the inhabitants of the state and to facilitate the acquisition of facilities and commodities of maximum quality at the lowest possible cost." GML § 100-a. The means to this end is to buy in the market, with the benefit of market forces on prices. The businesses that bid on contracts have an important role to play in this scheme.

While the competitive bidding statute was not enacted for the benefit or enrichment of bidders "logic and experience teach that competition for public contracts may be promoted only by fostering a sense of confidence in potential bidders that their bids will be fairly considered."

FISCHBACH & MOORE V. N.Y.C. TRANSIT AUTHORITY, 79 A.D. 2d 14, 20. Several studies have found a high incidence of violations of the competitive bidding law. The staff of the Assembly Committee on oversight, Analysis and Investigation examined audits of individual municipalities that the Comptroller filed during a thirteen month period in 1991-92. Out of a total of 852 municipalities audited, the Comptroller found competitive bidding violations in 206, or 24%, of the municipalities. The kinds of violations included improper bid splitting, abuses of change orders, overly restrictive bid specifications and simply not bothering to competitively bid when it was required. Many of the municipalities were repeat offenders; in 27 cases a previous Comptroller's audit had cited the municipality for violating the competitive bidding law.

The Oversight Committee survey confirmed findings that the comptroller had made in a 1988 study entitled: STATEWIDE SURVEY OF LOCAL GOVERNMENT PURCHASING PRACTICES. CT. The Comptroller found that: The results of our survey confirmed the continuation of a long-standing problem with municipal purchasing practices, namely the failure to competitively bid those purchases required by law.... The seriousness of the problem is demonstrated by the fact that many of our regularly scheduled audits have repeatedly disclosed instances where items should have been competitively bid but were not. SURVEY, at 7. In 1994, Assemblyman Robert K. Sweeney issued a report which also found violations of the competitive bidding laws by school and local government officials. The Assemblyman's report focused particularly on abuses involving overly restrictive bid specifications that limited bidding to only specified brand names. The report noted the lack of any effective mechanism for assuring compliance with the law. The absence of an enforcement mechanism is a key element in how the competitive bidding law can be ignored.

The Comptroller does perform audits of municipalities and those audits do address competitive bidding issues. However, when the Comptroller does find violations, he has no power to require that the situation be corrected. Indeed, a municipality is not even required to respond to a Comptroller's audit. See GML § 35 Subd. 4(b) (1). The Attorney General does not have jurisdiction over governmental violations of the competitive bidding law, unless the abuse rises to the level of criminal conduct, such as bribe-taking. A frustrated bidder or taxpayer may sue to stop a contract, but a frustrated bidder has no right to a contract award or to damages. If the court finds an illegally let contract, the municipality can generally just redo the bidding and contracting process. There is no meaningful incentive for the frustrated bidder to bear the expense of litigating to enforce the competitive bidding law. See, E.G., JANVEY & SONS. COUNTY OF NASSAU, 60 N.Y.2d 887. The bill approaches the problem in two ways. First, the bill tries to help political subdivisions to follow the law by providing them with

informed opinions on the legality of procurement actions and with particularized information on proper bid specifications. Secondly, the bill creates an enforcement mechanism that holds a political subdivision accountable when it ignores warnings of illegal conduct. The cornerstone of the bill (GML § 103-g) is a new procedure that allows a taxpayer or frustrated bidder to obtain a Comptroller's opinion on the legality of a proposed procurement action. The Comptroller has a great deal of expertise in municipal procurement due to the Comptroller's auditing in this area. The proposed Comptroller's opinions, like municipal audits, would enable the Comptroller to better perform his duty of supervising the accounts of political subdivisions. If the Comptroller opines that the proposed procurement action is illegal, the hope is that the political subdivision would refrain from so acting.

If the political subdivision chooses to disregard the Comptroller's warning, there may be two consequences. First, the Attorney General is authorized to sue to enjoin the procurement action. Second, a frustrated bidder, who should have won the contract, may sue for damages of three times the amount of its lost profits. In either case, the court would grant relief only if the court independently finds that the procurement action was illegal. The potential for money damages does entail the possibility that the political subdivision, and its taxpayers, would experience a monetary loss in the short term. This is the incentive for a political subdivision to adhere to the law. However, it is expected that adherence to the competitive bidding laws in the long term will result in a net gain for the political subdivision and its taxpayers, recognizing that a primary goal of competitive bidding laws is to ensure for the municipality the best price for the goods being purchased. It bears emphasizing that a municipality may easily avoid any loss simply by abiding by the Comptroller's opinion.

The bill (GML § 103-g(4) (b)) also allows a Court to award limited damages to a frustrated bidder when there has been no Comptroller's opinion of illegality and the court nevertheless finds the procurement action to be illegal. In the rare case where a court voids a contract for illegality after a municipality has already received performance, the court ordinarily awards the performing party its costs, which usually results in the municipality saving money off the contract price. The bill allows a frustrated bidder, without a supporting Comptroller opinion, to recover no more than the amount saved by the political subdivision by the voiding of the contract. The bill (GML § 103-g (6)) includes a one hundred dollar fee for filing a complaint initiating a Comptroller's opinion. The fee is designed to fund the Comptroller's work, as well as to provide a mechanism for screening out frivolous complaints.

The bill (GML 103-g(5)) also establishes a civil penalty for a governmental official who willfully and intentionally violates the competitive bidding law. The problem of overly restrictive bid specifications is specifically addressed in the bill. Section three codifies the case law rule that specifications may not be unduly restrictive and clarifies how brand names may be used in bid specifications. Section six allows political subdivisions to make greater use of the expertise of the office of general services in developing bid specifications. ,Other provisions of the bill clarify

that bids are public records (section four) and would require a response to a Comptroller's audit finding that a political subdivision violated the competitive bidding law (section five).

Legislative history

2012: S.3052 - Kruger

Fiscal implications

The additional work of the Comptroller will be funded by fees paid by those who avail themselves of the new procedures.

Effective date

The first of January next succeeding the date on which it shall have become law; provided, however, the amendments to subdivision 2 of section 103 of the general municipal law made by section four of this act shall not affect the expiration and reversion of such subdivision as provided in subdivision (a) of section of part X of chapter 62 of the laws of 2003, as amended, when upon such date the provisions of section five of this act shall take effect.