Ensures compliance with competitive bidding law.
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: 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 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: 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-h) 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-h(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-h (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-h(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.
STATE OF NEW YORK ________________________________________________________________________ 6410 IN SENATE February 6, 2012 ___________Introduced by Sen. RIVERA -- read twice and ordered printed, and when printed to be committed to the Committee on Local Government AN ACT to amend the general municipal law and the state finance law, in relation to ensuring compliance with the competitive bidding law THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Short title. This act shall be known and may be cited as the "municipal competitive bidding enforcement act." S 2. The general municipal law is amended by adding a new section 103-h to read as follows: S 103-H. ENFORCEMENT OF COMPETITIVE BIDDING LAW. 1. DEFINITIONS. (A) "PROCUREMENT ACTION" MEANS ANY TRANSACTION WHICH IS CLAIMED TO CONSTI- TUTE A CONTRACT FOR PUBLIC WORK INVOLVING AN EXPENDITURE OF MORE THAN TWENTY THOUSAND DOLLARS OR A PURCHASE CONTRACT INVOLVING THE EXPENDITURE OF MORE THAN TEN THOUSAND DOLLARS WHICH SHOULD BE AWARDED TO THE LOWEST RESPONSIBLE BIDDER, AS PROVIDED BY SECTION ONE HUNDRED THREE OF THIS ARTICLE. (B) "GOOD FAITH BIDDER" MEANS ANY PERSON WHO HAS SUBMITTED A BID IN RESPONSE TO AN ADVERTISEMENT FOR SEALED BIDS, OR WHO COULD SUBMIT A GOOD FAITH BID ON A PROCUREMENT ACTION. 2. COMPTROLLER'S OPINIONS. UPON A COMPLAINT FILED BY A TAXPAYER OF THE POLITICAL SUBDIVISION OR BY A GOOD FAITH BIDDER, THE OFFICE OF THE STATE COMPTROLLER SHALL ISSUE AN OPINION ON WHETHER A PROPOSED PROCUREMENT ACTION BY A POLITICAL SUBDIVISION COMPLIES WITH THE COMPETITIVE BIDDING REQUIREMENTS OF SECTION ONE HUNDRED THREE OF THIS ARTICLE. THE COMPLAINT SHALL SPECIFY THE PROCUREMENT ACTION THAT IS CLAIMED TO VIOLATE SECTION ONE HUNDRED THREE OF THIS ARTICLE. THE TAXPAYER OR GOOD FAITH BIDDER SHALL SERVE A COPY OF THE COMPLAINT ON THE POLITICAL SUBDIVISION PRIOR TO SERVING THE COMPLAINT ON THE COMPTROLLER. UPON THE FILING OF A PRIMA FACIE VALID COMPLAINT WITH THE COMPTROLLER, THE COMPTROLLER SHALL NOTIFY THE POLITICAL SUBDIVISION. UPON RECEIPT OF SUCH NOTICE FROM THE COMP- TROLLER, THE POLITICAL SUBDIVISION MAY NOT PROCEED WITH THE COMPLAINT OF PROCUREMENT ACTION FOR A PERIOD OF THIRTY DAYS. IN RENDERING HIS OR HER OPINION, THE COMPTROLLER MAY CONSULT WITH THE OFFICE OF GENERALEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD14411-01-2 S. 6410 2
SERVICES AS TO THE REASONABLENESS AND VALIDITY OF ANY BID SPECIFICA- TIONS. THE COMPTROLLER SHALL ISSUE A WRITTEN OPINION PURSUANT TO THIS SUBDIVISION WITHIN THIRTY DAYS OF SUCH NOTICE TO THE POLITICAL SUBDIVI- SION AND SHALL PROMPTLY SERVE COPIES OF THE OPINION ON THE POLITICAL SUBDIVISION AND ON THE COMPLAINING PARTY. 3. ATTORNEY GENERAL. IF THE COMPTROLLER'S OPINION IS THAT THE PROCURE- MENT ACTION WOULD VIOLATE SECTION ONE HUNDRED THREE OF THIS ARTICLE, THE COMPTROLLER SHALL TRANSMIT A COPY OF THE OPINION TO THE ATTORNEY GENER- AL. NOTWITHSTANDING ANY OTHER PROVISION OF LAW, THE ATTORNEY GENERAL IS AUTHORIZED TO BRING A SPECIAL PROCEEDING IN THE SUPREME COURT TO HAVE A PROCUREMENT ACTION ENJOINED OR DECLARED NULL AND VOID ON THE GROUND THAT IT IS IN VIOLATION OF SECTION ONE HUNDRED THREE OF THIS ARTICLE. 4. DAMAGES TO GOOD FAITH BIDDER. A GOOD FAITH BIDDER MAY BRING AN ACTION IN THE SUPREME COURT TO RECOVER DAMAGES AND ATTORNEY'S FEES FROM A POLITICAL SUBDIVISION, WHICH ENGAGES IN A VIOLATION OF SECTION ONE HUNDRED THREE OF THIS ARTICLE. THE COURT SHALL AWARD DAMAGES AND ATTOR- NEY'S FEES IF THE COURT FINDS THAT THE GOOD FAITH BIDDER WOULD HAVE BEEN THE LOWEST RESPONSIBLE BIDDER, BUT FOR THE POLITICAL SUBDIVISION'S VIOLATION OF SECTION ONE HUNDRED THREE OF THIS ARTICLE. THE COURT IS AUTHORIZED IN ANY SUCH ACTION TO DECLARE AN ILLEGALLY AWARDED CONTRACT TO BE NULL AND VOID. (A) IF THE COMPTROLLER HAS ISSUED AN OPINION THAT THE PROCUREMENT ACTION WOULD BE IN VIOLATION OF SECTION ONE HUNDRED THREE OF THIS ARTI- CLE AND THE POLITICAL SUBDIVISION HAS THEREAFTER PROCEEDED WITH THE PROCUREMENT ACTION, THE MEASURE OF DAMAGES SHALL BE THREE TIMES THE GOOD FAITH BIDDER'S LOST PROFITS. (B) IF THE COMPTROLLER HAS NOT ISSUED AN OPINION THAT THE PROCUREMENT ACTION WOULD BE IN VIOLATION OF SECTION ONE HUNDRED THREE OF THIS ARTI- CLE, THE MEASURE OF DAMAGES SHALL BE THE LESSER OF (I) THE GOOD FAITH BIDDER'S LOST PROFITS AND (II) THE DIFFERENCE BETWEEN THE PRICE OF THE NULLIFIED CONTRACT AND ANY AMOUNT THAT THE COURT AWARDS TO THE PERSON WHO PERFORMED ON THE NULLIFIED CONTRACT. 5. CIVIL PENALTY. ANY PERSON WHO SHALL WILFULLY AND INTENTIONALLY VIOLATE THE COMPETITIVE BIDDING REQUIREMENTS OF SECTION ONE HUNDRED THREE OF THIS ARTICLE SHALL BE PERSONALLY LIABLE FOR A CIVIL PENALTY OF NOT MORE THAN ONE THOUSAND DOLLARS. IN A PROCEEDING BROUGHT PURSUANT TO THIS SECTION, THE COMPTROLLER'S OPINIONS AND AUDITS MAY BE ADMITTED INTO EVIDENCE ON THE ISSUE OF THE RESPONDENT'S STATE OF MIND, PROVIDED THAT (A) THE OPINION OR AUDIT WAS ISSUED PRIOR TO THE ALLEGED VIOLATION, (B) THE OPINION OR AUDIT WAS ISSUED NO MORE THAN TEN YEARS PRIOR TO THE ALLEGED VIOLATION, AND (C) THE OPINION OR AUDIT CONCERNED THE SAME KIND OF ITEM OR SAME KIND OF PRACTICE AS THE ALLEGED VIOLATION. 6. COMPLAINT FEE. WHENEVER THE COMPTROLLER ACCEPTS A COMPLAINT FOR FILING PURSUANT TO THIS SECTION, THE COMPTROLLER SHALL REQUIRE AND COLLECT A FEE OF ONE HUNDRED DOLLARS, WHICH SHALL BE PAID INTO THE STATE TREASURY AND WHICH SHALL, SO FAR AS IS NECESSARY, BE APPROPRIATED ANNU- ALLY BY THE LEGISLATURE TO THE COMPTROLLER TO BE USED IN IMPLEMENTING THIS ARTICLE. S 3. Section 103 of the general municipal law is amended by adding a new subdivision 14 to read as follows: 14. EXCEPT AS OTHERWISE EXPRESSLY AUTHORIZED BY THIS ARTICLE, A POLI- TICAL SUBDIVISION MAY NOT REQUIRE THAT BIDS CONFORM TO UNDULY RESTRIC- TIVE SPECIFICATIONS. ALL SPECIFICATIONS SHALL BE DRAFTED SO AS TO PROMOTE OVERALL ECONOMY FOR THE PURPOSES INTENDED AND TO ENCOURAGE COMPETITION IN SATISFYING THE NEEDS OF THE POLITICAL SUBDIVISION. A BRAND NAME MAY BE USED AS A SPECIFICATION ONLY IF THE SPECIFICATIONS. 6410 3
CLEARLY STATES THAT THE BRAND NAME OR EQUIVALENT IS ACCEPTABLE. WHERE A BRAND NAME OR EQUIVALENT SPECIFICATION IS USED IN A BID SOLICITATION, THE SOLICITATION SHALL CONTAIN EXPLANATORY LANGUAGE THAT THE USE OF A BRAND NAME IS FOR THE PURPOSE OF DESCRIBING THE STANDARD OF QUALITY, PERFORMANCE AND CHARACTERISTICS DESIRED AND IS NOT INTENDED TO LIMIT OR RESTRICT COMPETITION. IN ANY OPINION, PROCEEDING OR ACTION BROUGHT PURSUANT TO SECTION ONE HUNDRED THREE-H OF THIS ARTICLE, A BID SPECIFI- CATION DEVELOPED AND PROVIDED BY THE OFFICE OF GENERAL SERVICES SHALL BE DEEMED VALID. S 4. Subdivision 2 of section 103 of the general municipal law, as amended by section 4 of chapter 608 of the laws of 2011, is amended to read as follows: 2. Advertisement for bids and offers shall be published in the offi- cial newspaper or newspapers, if any, or otherwise in a newspaper or newspapers designated for such purpose. Such advertisement shall contain a statement of the time when and place where all bids received pursuant to such notice will be publicly opened and read and where the identity of all offerers will be publicly disclosed, and the designation of the receiving device if the political subdivision or district has authorized the receipt of bids and offers in an electronic format. Such board or agency may by resolution designate any officer or employee to open the bids and offers at the time and place specified in the notice. Such designee shall make a record of such bids and offers in such form and detail as the board or agency shall prescribe and present the same at the next regular or special meeting of such board or agency. All bids received shall be publicly opened and read at the time and place so specified and the identity of all offerers shall be publicly disclosed at the time and place so specified. ALL BIDS RECEIVED AND OPENED SHALL BE PUBLIC RECORDS AND SHALL BE AVAILABLE FOR PUBLIC INSPECTION AND COPY- ING. At least five days shall elapse between the first publication of such advertisement and the date so specified for the opening and reading of bids and offers. S 5. Subdivision 2 of section 103 of the general municipal law, as amended by section 5 of chapter 608 of the laws of 2011, is amended to read as follows: 2. Advertisement for bids and offers shall be published in the offi- cial newspaper or newspapers, if any, or otherwise in a newspaper or newspapers designated for such purpose. Such advertisement shall contain a statement of the time when and place where all bids received pursuant to such notice will be publicly opened and read and where the identity of all offerers will be publicly disclosed. Such board or agency may by resolution designate any officer or employee to open the bids and offers at the time and place specified in the notice. Such designee shall make a record of such bids and offers in such form and detail as the board or agency shall prescribe and present the same at the next regular or special meeting of such board or agency. All bids received shall be publicly opened and read at the time and place so specified and the identity of all offerers shall be publicly disclosed at the time and place so specified. ALL BIDS RECEIVED AND OPENED SHALL BE PUBLIC RECORDS AND SHALL BE AVAILABLE FOR PUBLIC INSPECTION AND COPYING. At least five days shall elapse between the first publication of such advertisement and the date so specified for the opening and reading of bids and offers. S 6. Subparagraph 1 of paragraph (b) of subdivision 4 of section 35 of the general municipal law, as amended by chapter 692 of the laws of 1989, is amended to read as follows:S. 6410 4
(1) Not later than ninety days after presentation to the governing board of a report of examination performed by the office of the state comptroller, or receipt by the governing board of any report of an external audit performed by an independent public accountant or any management letter in conjunction with such an audit, the governing board may, in its discretion, provide to the comptroller, and file in the office of the clerk, or with the secretary if there is no clerk, of the municipal corporation, industrial development agency, district, agency or activity, a written response to the findings and recommendations, if any, in the report or letter. PROVIDED, HOWEVER, THAT IF SUCH REPORT OR LETTER CONTAINS A FINDING THAT THE COMPETITIVE BIDDING REQUIREMENTS OF SECTION ONE HUNDRED THREE OF THIS CHAPTER WERE VIOLATED, THE GOVERNING BOARD MUST FILE A WRITTEN RESPONSE. In the case of municipal corpo- rations, industrial development agency, districts, agencies or activ- ities subject to examination by the commissioner of education, any writ- ten response shall also be provided to such commissioner. S 7. The state finance law is amended by adding a new section 164-a to read as follows: S 164-A. PROVIDING BID SPECIFICATIONS TO POLITICAL SUBDIVISIONS. THE COMMISSIONER OF GENERAL SERVICES SHALL PROVIDE TO ANY POLITICAL SUBDIVI- SION, AT NO CHARGE, ANY SPECIFICATION THAT THE COMMISSIONER HAS DEVEL- OPED FOR ITEMS TO BE LET FOR BIDS IN PURCHASE CONTRACTS. THE COMMISSION- ER MAY DEVELOP ADDITIONAL SPECIFICATIONS AT THE REQUEST OF ANY POLITICAL SUBDIVISION AND MAY PROVIDE SUCH SPECIFICATIONS TO THE POLITICAL SUBDI- VISION AND MAY CHARGE THE POLITICAL SUBDIVISION FOR THE COST OF DEVELOP- ING SUCH SPECIFICATIONS. S 8. If any clause, sentence, paragraph, section or part of this act shall be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair or invalidate the remainder ther- eof, but shall be confined in its operation to the clause, sentence, paragraph, section or part thereof directly involved in the controversy in which such judgment shall have been rendered. S 9. This act shall take effect on the first of January next succeed- ing the date on which it shall have become a 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 pursuant to subdivision (a) of section 41 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.