NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A6145
SPONSOR: Pichardo TITLE OF BILL:
An act to amend the general municipal law and the state finance law, in
relation to ensuring compliance with the competitive bidding law
PURPOSE OR GENERAL IDEA OF BILL:
To ensure that local governments and their taxpayers receive the cost
savings benefits of competitive bidding in local government purchasing
by providing political subdivisions with comptroller's opinions on
specific procurement actions and by holding political subdivisions
accountable for complying with the 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 competi-
tively 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 bene-
fit of all the inhabitants of the state and to facilitate the acquisi-
tion 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 b e 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 compet-
itive 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
an total of 852 municipalities audited, the Comptroller found compet-
itive 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:
The Comptroller found that: The results of our survey confirmed the
continuation of a long-standing problem with municipal purchasing prac-
tices, 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 partic-
ularly 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 compet-
itive 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 contract
award or to damages. If the court finds an illegally let contract, the
municipality can generally just redo the bidding and contracting proc-
ess. 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 poli-
tical 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 subdivi-
sion 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 usual-
ly results in the municipality saving money off the contract price. The
bill allows a frustrated bidder, without a supporting Comptroller opin-
ion, to recover no more than the amount saved by the political subdivi-
sion by the voiding of the contract. The bill (GML § 103-g (6)) includes
a one hundred dollar fee for filing a complaint initiating a Comp-
troller'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 govern-
mental 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 poli-
tical 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.3452 - Kruger
01/06/16 referred to local governments
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.
