Opinion
104001-2008.
Decided September 5, 2008.
Since the early 1980s, the New York City's school-age bus transportation industry has been plagued with allegations of corruption and fraud at the hands of union and organized crime leaders, resulting in the loss of millions of dollars in state taxpayer dollars. This action stems from the Department of Education's insertion of "employee protection provisions" into bid specifications for pre-school bus transportation contracts, which, according to the petitioners, promote further corruption and fraud, in violation of New York's public bidding laws.
Petitioners' Order to Show Cause, Exhs. C and D; Petitioners' Memorandum of Law, page 2.
I. Background
From 1965 to 1979, the Board of Education ("BOE") administered "Special Education" and "General Education" contracts with private bus companies to transport disabled school-aged children and the general population of school-aged children to their schools. The contracts were awarded based on a competitive bidding procedure under New York Education Law § 305, and included, inter alia, the following provision:
The Board of Education of the City of New York was abolished in 1992 under Mayor Michael Bloomberg, and became the Department of Education.
. . . employees of private bus companies who lose their jobs as a result of the loss of the contract by a previous contractor must be given priority in hiring according to seniority by any replacement contractor.
In February 1979, when the BOE announced that it would exclude the above provision from certain solicitations, the bus driver, mechanic and matron employees from Local 1181 of the Amalgamated Transit Union ("Local 1181") commenced a strike, causing the BOE to lose State aid and incur costs in obtaining alternative transportation for the children.
As a result, the BOE, Local 1181, and major bus companies entered into an agreement, whereby "employee protection provisions" ("EPPs") were required to be included in the specifications for the 1979 Special Education and General Education contracts. The EPPs established a "Master Seniority List" ("MSL" or the "List") requiring contractors with the BOE to give priority in hiring to employees on the List, until the List is exhausted, when such employees become unemployed due to the reassignment of routes.Since 1979, and except for a few small contracts, the Department of Education ("DOE") never bid out these contracts again, but merely negotiated extensions of the original contracts.
According to petitioners, by 1990, Local 1181 had gained control over the costs of bus operations, leading to corruption in the student transportation system and causing DOE to spend excessive dollars per student.
In the meantime, the New York City Department of Transportation ("DOT") was administering transportation contracts for children in the Pre-Kindergarten ("Pre-K") and Early Intervention ("EI") programs by competitive sealed bidding, without EPPs.
In order to standardize bus transportation, in 2006, DOT transferred its Pre-K and EI contracts to DOE. DOE did not bid these contracts out, but exercised extension clauses that permitted limited extensions at the City's option. However, since extensions would no longer remain after June 2008 for many of these contracts, such contracts would now be solicited.
Following the transfer of these contracts to DOE, Local 1181, which represents approximately 9000 employees, including approximately 325 drivers and escorts who work for Pre-K and EI school bus companies, asked DOE to include the EPPs in the Pre-K and EI transportation contracts to be solicited. Notably, Family Court Act § 236 (3)(b) (the "FCA") requires that such contracts be procured by competitive sealed bidding and awarded to the lowest responsible bidder. Thus, DOE sought legislation to amend the FCA to permit solicitation through a "Request for Proposals" ("RFP") process, wherein DOE would be permitted to award contracts which "could be required to include protection of bus company employees." The RFP process would "insure that . . . drivers are not penalized by new contracts that do not honor past commitments including wages and benefits." This proposed legislation was rejected.
Yet, DOE included EPPs in its solicitation, under Section 4.24.1.2 as follows:
"Any new contractors, i.e., those who did not provide service pursuant to contract expiring June, 2008 . . . shall give priority in employment in July, 2008 or thereafter on the basis of seniority to every operator (driver) . . . and attendant (escort-matron) performing such service pursuant to such contract starting from the first employee from the MSLs until such MSLs are exhausted."II. Article 78 Petition
Petitioners, comprising various pupil bus transportation companies located in New York City, now seek (1) to enjoin the DOE, BOE, and the Executive Director for Contracts and Purchasing (collectively "respondents") from soliciting bids for pupil transportation services until certain specifications are removed or revised; (2) to enjoin the respondents from awarding any contracts on such bids; and (3) a declaration that the specifications are unlawful, and that no contracts shall be awarded based on them.
Specifically, petitioners request a stay against the solicitation unless and until DOE (1) removes the EPPs, (2) provides the addresses of all children who are to be bused, (3) removes Section 1.100(B), regarding DOE's right to change the service requirements, (4) removes or revises Section 4.10, to the extent it permits DOE to add entire schools and programs in the vendors' service requirements without adjusting the vendors' prices, (5) removes or revises Section 4.10, to the extent it permits DOE to delete entire schools and programs in the vendors' service requirements without adjusting the vendors' prices, (6) removes or revises that portion of Section 4.10 which provides for a price adjustment only in the event there is a loss of ridership in excess of 30%, (7) eliminates the "liquidated damages" under Section 1.48, (8) removes Section 1.35, which entitles DOE to deduct 2% of the vendor's compensation for timely payment, (9) removes or revises Section 1.5A, regarding DOE's right to terminate a contract, without reimbursement of costs incurred by the vendor, (10) removes the dispute resolution procedures under Section 1.93, appointing DOE's Chief Executive as the arbiter, (11) removes Section 1.71, regarding the MacBride Principles, and (12) limits its insurance requirements in Section 2.6.14 to coverage that its commercially available. In the event the Court desires to strike the MacBride requirements from the specifications, petitioners seek a declaration that NYC Admin. Code 6-115.1 conflicts with the public bidding laws.
According to petitioners, DOE's solicitation is anti-competitive and causes vendors to inflate their bids in violation of the twin goals of the public bidding statutes.
Additionally, in Section 1.100, DOE improperly includes a reservation of rights to change the rules "at any time without prior notice" to the contractor, and advises that a new version of the "Manual of Procedures and Requirements" will be available in July, after the bids are submitted.
Likewise, under Section 4.10, DOE can require that such a bidder service any new school that enters a particular geographical "Zone" after the contract is entered into, at the same unit price originally bid, without permitting the bidder to adjust its price. DOE's recent amendment to this Section to permit an adjustment in the event of a decrease in the number of children carried under a contract fails to consider that a vendor's cost is based on the number of buses required.
In addition, the liquidated damages provisions (Section 1.48) do not represent an equitable attempt to cover damages DOE reasonably expects to suffer from any violation. The "Liquidated Damages" provision under Section 2556(11) of the Education Law does not appear to permit the inclusion of such damages in contracts for transportation services. More importantly, the penalties imposed on the vendors for the misconduct of their employees deprive the vendors of the flow of funds necessary to properly transport children.
Section 1.35 misapplies the Chancellor's "prompt vendor payment" priority of assuring timely payment to vendors. Section 1.35, which permits DOE to "deduct" 2% from invoices submitted by the contractor if payment is made within 30 days, penalizes the contractor for prompt payments made by DOE. No such provision is imposed upon General Education contract providers, who could absorb a potential loss to the vendor resulting from a prompt payment by DOE.
Petitioners initially argued that Section 1.28, which grants DOE the right to request "Voluntary Price Reductions in the event that any of the price(s) quoted are deemed high," invites corruption and favoritism. However, since DOE contends that it will apply Section 1.28 "only prior to award of a contract under the Bid Solicitation," petitioners withdraw from the Petition that part of its application pertaining to Section 1.28.
Petitioners also argue that there is no statutory support for Section 1.93's dispute resolution procedure, which requires disputes to be resolved by DOE's Chief Executive for School Support Services. That public authorities have been permitted to use similar dispute resolution procedures does not warrant DOE's imposition of such procedures.
Further, Section 1.71, which limits bidders to those having no business operations in Northern Ireland or who abide by the MacBride Principles imposed by local law, conflicts with the public bidding laws. There is no distinction between domestic partner benefit laws, which the Court of Appeals previously found violative of the public bidding laws, and the social justice laws in Northern Ireland.
The MacBride Principles encompass equal opportunity employment standards by Dr. Sean MacBride, Nobel Peace laureate, for corporations in Northern Ireland proposing, inter alia, (1) to increase the representation of individuals from underrepresented religious groups in the workforce; (2) that all job openings should be publicly advertised and special recruitment efforts should be made to attract applicants from underrepresented religious groups; (3) that layoff, recall, and termination procedures should not in practice, favor particular religious groupings; (4) the establishment of procedures to assess, identify and actively recruit minority employees with potential for further advancement; and (5) the appointment of a senior management staff member to oversee the company's affirmative action efforts (United Technologies Company, Fed. Sec. L. Rep. P 76,635; 1993 WL 48821).
Additionally, the specifications pertaining to insurance coverages are so broad and vaguely stated that they encompass coverage that is not commercially available.
Finally, DOE's continuous revisions in the face of imminent due dates do not give potential bidders sufficient opportunity to estimate their lowest possible bid, contrary to public policy as expressed in bidding statutes.
Respondents requested that the Court reject petitioners' letter, and requested that the parties proceed by motion. The Court advised that it would treat petitioners' letter as an application, and permit respondents to submit formal opposition papers.
Unless the preliminary injunction is granted, petitioners will be severely prejudiced. If, "after opening their bids, the solicitation is held invalid and rebidding on corrected specifications takes place, petitioners will be bidding against vendors to whom their earlier bids have been disclosed."
DOE's Opposition
DOE argues that petitioners are unlikely to succeed on the merits and there is no emergency that would justify injunctive relief.
Public bidding laws are intended to benefit taxpayers, and should be construed with sole reference to the public interest. The bid specifications were approved as to form by Corporation Counsel and reflect the expertise of DOE as to how best to provide for the transportation of Pre-K and EI students. Official acts by the DOE are accorded a presumption of regularity, which petitioners failed to overcome. DOE has wide authority and discretion to create the bid specifications at issue, which are rational and reflect DOE's business judgment, and petitioners cannot request that the Court direct the manner in which a governmental agency performs its discretionary function.
As union officials have threatened to strike if the EPPs were not included in the contracts, the EPPs ensure that the subject transportation services proceed without such a disruption. Further, EPPs facilitate the retention of staff familiar with the needs of Pre-K and EI children would yield better overall performance results. EPPs further minimize certain pension-related "withdrawal liability" risks that dissaude many prospective bidders from bidding. And, employee protection provisions similar to those herein have been in the DOE's school-aged children bus contracts for decades, and the Legislature recently approved the extension of these contracts. That the proposed amendment was rejected in the legislature does not indicate legislative disapproval. DOE also points out that governmental agencies in other jurisdictions have adopted provisions similar to the EPPs here to promote procurement goals.
Under Federal law, an employer that participates in a "multi-employer" pension plan, but later withdraws, is required to pay a certain amount into the plan. However, EPPs in DOE contracts have resulted in certain exemptions from withdrawal liability, on the basis that the exemption poses no risk to the insurance system, since the multi-employer plan is not harmed by the normal attrition of employers where "successful bidders hire workers" who are on a seniority list.
The standard of legal review applied to PLAs is inapplicable to the EPPs here. Unlike EPPs herein, PLAs establish labor unions as the exclusive collective bargaining representatives, limit work on a project to contractors that sign pre-negotiated agreements with unions, and impose other constraints on employment on a project.
Here, DOE's solicitation is a "requirements contract" designed by contract "class," and a class consists of two zones of pre-schools and program sites within a geographical area. Because the actual number of children to be transported varies from year to year and throughout the year, and the number of pre-schools and programs in a zone can change, the solicitation requires the bidder to provide services to all eligible children in a zone based upon a fixed price per child per day. Requiring the bidder to provide transportation services to all program participants at a fixed price, even when the number of children fluctuates significantly is consistent with the purposes served by requirement contracts. The fact that the actual number of students transported within a zone may change during a given year is no different from the variation that exists under any basic requirements contract, and does not create an uncertainty on which it is impossible to bid.
Nor are the specifications uncertain, in that they are for Pre-K and EI students. A substantial number of these students are not in the same school or in the same residence from year to year, making their current addresses meaningless.
In addition, the termination for convenience clause is valid, without any provision requiring good faith. Petitioners do not have a vested property interest in any public bid or contract or being awarded contracts with terms to their liking. And, DOE may also require that bidders follow the School Bus Contractor's Manual, and any claim that DOE will amend such rules in an arbitrary manner is unfounded and premature.
The liquidated damage provision applies to serious violations, and there is no showing that this provision is grossly disproportionate to the damages risked or involves a loss capable of precise estimation in all circumstances. Further, sanctions against employers for acts of its employees are permissible.
The 2% discount DOE receives is fair, serves the public interest, and applies equally to all invoices that are paid within the specified time periods. All bidders can take these discounts into account when computing the amount of their bids.
Alternative dispute resolution clauses involving a governmental entity which provide that the arbiter of disputes be an employee of such entity are also permissible.
Also, petitioners lack standing to challenge the MacBride Principles in Section 1.71 as they failed to allege that they have any business operations in Northern Ireland. There is no barrier to bidding if a bidder does not have business operations in Northern Ireland.
Nor is there any indication that insurance for coverage involving sexual molestation by a bidder's employee is commercially unavailable. Insurance requirements are included in other DOE contracts for professional services, and vendors have entered into contracts with these requirements. And, a bidder can seek a waiver or alternate coverage if it is unable to meet the insurance obligations.
Bidders were also given 55 days from the initial publication until the submission date, which is 50 days more than that which is required under General Municipal Law § 103(2).
Moreover, petitioners failed to demonstrate that they will suffer irreparable harm if a temporary stay is not issued. Petitioners are free to submit bids, and challenge the specification after the bids are accepted and contracts awarded. If the Court finds that the bids are improper, DOE can reject all bids or rescind an award. If the Court issues a temporary stay, current Pre-K and EI contracts expire on July 1, 2008, and if new contracts are not awarded and in place by then, the students, their parents, and the DOE will be irreparably harmed.
The Court notes that this date has come and gone and DOE has not returned to court arguing that the feared irreparable harm materialized.
Finally, the equities favor the DOE. Providing safe, timely and effective transportation of Pre-K and EI students is best accomplished by proceeding with the acceptance, opening, and award of the competitive bids.
Local 1181's Motion to Dismiss Petition
Local 1181 moves pursuant to CPLR 7804(f) and CPLR 3211(a)(7) to dismiss the Petition, for failure to state a cause of action. According to the Union, EPPs ensure stability in the provision of services to children by an industry that faces a "growing demand for qualified drivers and other employees," and safeguard the children by ensuring that experienced drivers and other employees are retained. In the absence of EPPs, companies awarded contracts have no obligation to hire drivers from companies that lost work due to DOE's actions or to recognize those drivers' prior wage rates, benefit, or seniority.
DOE is required to promote the "best interests of the district" and "seek, obtain and consider new proposals" concerning contracts for the transportation of children. DOE must modify its specifications in the public interest, and has set forth minimum standards of skills for drivers to ensure the safe transportation of the children.
Even if the EPPs have an anti-competitive impact, they do not exclude a class of would-be bidders; petitioners are not excluded from bidding.
Furthermore, nothing in the FCA prohibits DOE from including the EPPs in an RFP, and there is no caselaw demonstrating that DOE lacks such authority. Nor did petitioners submit any affidavits to support their claim that bidders are forced to submit high bids in order to cover any eventualities. Instead, an employer's inability to calculate a bid or submission of a high bid is attributable not to the inclusion of EPPs, but attributable to the instance where home addresses of children to be transported were not disclosed by DOE. In any event, petitioners failed to show that they are submitting bids without full knowledge of their responsibilities; it is clear that they are required to give priority on the basis of seniority pursuant to the List to every driver, mechanic, dispatcher, and attendant who becomes unemployed as a result of a contractor's loss of contract or a reduction in service by DOE, in accordance with their wage scales with their prior employers. Moreover, petitioners can factor into their bid the amount of any potential increase in wage costs due to hiring displaced employees at higher wage rates in the same way that companies have bid on general education contracts since 1979. And, an employee hired off the List may not necessarily be paid at a higher wage rate than an employee hired from another source. Further, even in the absence of EPPs, petitioners do not know the "market rate" at which they can hire qualified employees after July at the time they bid. Since the purpose of a bid specification is to ensure that performance goals are achieved efficiently, a specification is not rendered invalid simply because it creates uncertainty.
The EPPs promote the hiring of qualified employees, reduce employee turnover, training, accidents, attendance problems, misconduct, lack of familiarity with routes and other costs associated with lower quality service. The absence of EPPs creates a risk that companies would not be able to perform bus service due to a shortage of qualified employees or a labor dispute. In 1995 when the Giuliani administration threatened to remove EPPs, there was a "wildcat" strike unauthorized by Local 1181, which involved 150 drivers employed by Pioneer Bus Company. Thus, EPPs contribute to labor peace and the absence of EPPs risks labor strife. Petitioners and other successful bidders can hire displaced employees at discounted wage rates not otherwise foreseeable. Finally, the EPPs do not elevate one type of company over another. Petitioners' Reply to DOE
No caselaw supports the notion that a threat of a strike justifies the insertion of conditions on competitive sealed bidding. Nor is Local 1181 in any position to strike.
According to petitioners, Local 1181's President pleaded guilty to racketeering; its Secretary-Treasurer died in October 2007, and its former Director of Employees Pension and Welfare Fund pleaded guilty to obstruction of an FBI's investigation.
Unlike the other jurisdictions, no legislation supports DOE's imposition of EPPs on public bidding. DOE cannot assert that legislation is unnecessary to insert EPPs when it sought legislation to allow DOE to award pre-school transportation contracts through an RFP.
The EPPs stifle competition when a non-unionized bus company is able to win, for example, two contracts with a low bid, and must later give priority to and hire unionized employees at higher wages than they received from the prior employer.
Further, EPPs should not receive less judicial scrutiny than PLAs, as DOE suggests. Unlike PLAs, which affect a single project, EPPs affect an entire industry of pupil transportation. Also, while a PLA lasts only until a project is completed, EPPs have been extended continuously since1979. Further, in PLAs, the unions make a certain concession to the agency for the life of the project, which may result in cost savings. However, with EPPs, unions make no concessions or commitments, resulting in no cost reductions.
Ensuring labor peace, uninterrupted services, and experienced workers are not stated goals of the public bidding laws. Nor would EPPs ensure labor peace, since Local 1181 has not agreed to refrain from striking in exchange for the insertion of EPPs. Nor do the alleged savings incurred by avoiding labor disruptions satisfy the goals of the public bidding law. The goal of reducing costs has been satisfied where unions made concessions, and Local 1181 has made none. DOE failed to provide a record of the projection of costs savings, even post hoc.
Further, the concept of worker retention provisions in DOE school bus transportation contracts have not been endorsed by the Legislature, as DOE suggests. There is no indication that the Legislature permitted the extension of school-age transportation contracts because it approved of EPPs. Also, the amendment to the Education Law to permit DOE to extend school-age transportation contracts in lieu of public bidding does not apply to Pre-K/EI contracts. The City could have inserted EPPs in Pre-K/EI contracts long before receiving threats from Local 1181. The Legislature's failure to amend the public bidding law to endorse worker retention provisions in pre-school contracts, implies that competitive bidding without EPPs is preferred.
Evidence shows that DOE did not anticipate that any significant savings would result from the use of EPPs. Nor is there any evidence that a potential bidder has ever or will be deterred from bidding on a Pre-K/EI contract for fear of incurring "withdrawal liability." In fact, EPPs offend the public bidding law by favoring one class of bidders over all others, since only unionized employers participate in "multi-employer" plans. Thus, the exemption from "withdrawal liability" cited by DOE applies only to Local 1181. Further, "withdrawal liability" does not deter unionized contractors from bidding on pre-school contracts. Nor were vendors given any "exemption," but were afforded a special rule defining when withdrawal from the Union's pension plan occurs. There is nothing in the Federal Register indicating that such a vendor would lose an "exemption." And, it is highly unlikely that such a vendor could effect a "complete withdrawal" so as to incur withdrawal liability.
Including EPPs would deter non-union contractors from bidding. Any successful bidder would be required to contribute to Local 1181's pension plan as a result of hiring employees from the List for whom contributions were made to the plan by a prior employer. If sufficient Local 1181-covered employees come on board, resulting in the unionization of the company, such company will seek to remain unionized, because any successful effort to remove union status would result in "withdrawal liability." Further, in the event EPPs are later removed, employers will remain bound to comply with pension and other benefit requirements afforded by a prior employer, without any way to fund them by winning further contracts.
Collective bargaining agreements with pre-school providers unionized by Local 1181 do not contain obligations to contribute to the Union pension plan. Such concessions will disappear if the costs, and hence the bids, of all preschool providers are progressively driven up by the insertion of mandatory EPPs in preschool contracts.
As an ordinance requiring participation in an apprenticeship training program as a precondition to award of a construction contract was found invalid, the Court should likewise find invalid the DOE specifications inserting EPPs.
The contracts sought in its solicitation are not requirements contracts, in which the vendor's bid amount is the vendor's unit of compensation. In school transportation contracts, there is no relationship between the actual costs of the bidder (costs to provide a bus) and the price per child; the cost to carry three children may be the cost to carry 20. The vendor cannot predict the number of children, as well as entire schools, that will be served over the course of the contract. Nor can the vendor rely on the number of children estimated by DOE for a given "Zone," which can change at any time.
Further, without children's addresses and ages, existing vendors will know from which Zones to transport the children and which children will age out, while other bidders may not. Such information is critical to calculating price per pupil per day and a meaningful bid.
Also, petitioners' challenge to the liquidated damages clause as a penalty is not premature. The employment of more personnel and other costs to investigate and record violations are not legally cognizable bases for such damages. And, the liquidated damages clause permits damages where no loss is anticipated. In one situation, DOE imposed new obligations on vendors, and then physically prevented one vendor from operating five of his buses for failing to comply. DOE later assessed liquidated damages against the vendor for failing to provide services. The vendor ultimately agreed to give up his contracts in exchange for DOE's waiver of the damages it assessed. There is also systemic bribery between vendors and DOE officials, empowered by liquidated damage provisions in DOE's contracts. And, tn exchange for payoffs from school-aged transportation providers, Local 1181 officials promised not to unionize their companies.
Affidavit of Aleksander Ginzburg, page 5.
Joyce Reply Affidavit, Exh. 9.
Joyce Reply Affidavit, Exh. 4.
DOE's right to change the requirements in the Manual in the event that the new requirements are more costly to observe, without a price adjustment, prevents bidders from knowing their responsibilities before they bid. Even if DOE has not yet exercised this right in an arbitrary manner, petitioners may challenge this specification prior to the award of any contract.
Nor is petitioners' concern about the termination clause speculative, as DOE suggests, since DOE has recently terminated all the contracts of Carol Bus Transportation Corp., USA Bus Corp., and GVC Ltd. under such a clause.
DOE's 2% "prompt payment discount" deduction from timely paid invoices favors school-age contractors who bid for the Pre-K/EI contracts, because DOE has an agreement with existing school-age contractors not to take the 2% deduction to which it is entitled under the general education contracts. And, DOE does not explain how the 2% discount will serve any of the public bidding goals or the interests of children, or how this discount will not drive up bids.
Although petitioners do not have a business in Northern Ireland, they still have standing to challenge Section 1.71's MacBride Principles. And, L M Bus, a New York City taxpayer, has standing under General Municipal Law § 51.
Should the Court conclude that petitioners lack standing to challenge the insertion of 1.71, then petitioners seek leave to amend the petition to permit the challenge to proceed as one brought by a taxpayer.
Further, according to an insurance brokerage executive, the liability insurance coverage for sexual molestation mandated by the specifications is unavailable. And, since vendors now know that they cannot obtain such insurance, or an equal alternative, winning bidders agreeing to the specifications will be considered in default for misrepresenting their ability to obtain it.
Affidavit of Stephen Levy.
Petitioners' Reply to Local 1181
In light of CPLR 105(u), every statement in the Petition need not be supported by a separate affidavit. Further, DOE bears the burden of proving that the EPPs lower taxpayer costs and/or prevent corruption, and Local 1181, like the DOE, failed to show how EPPs advance public bidding goals, or secure experienced staff. A successful bidder seeking one new matron must accept a matron with less experience who has been employed by a DOE vendor, over a matron with much more experience who has not been so employed. Further, that the responsibilities imposed by the EPPs are unambiguous does not render the EPPs permissible.
CPLR 105(u) provides that a "verified pleading" may be utilized as an affidavit whenever the latter is required.
Discovery
Petitioners sought leave pursuant to CPLR § 408 for communications between the DOE and Local 1181 relating to the insertion of the EPPs, communications among DOE and New York City employees evidencing the reasons for seeking an amendment of the FCA, and records of the questions and answers given at the pre-bid meeting on February 11, 2008.
See letter dated March 24, 2008.
In the event the Petition is not dismissed, Local 1181 seeks discovery to answer the Petition and to ascertain the reasons as to why DOT performed Pre-K and EI bus services, why DOE contracted for general school bus transportation without competitive bidding, for transferring the contract from DOT to DOE, the bases for DOE's determination to contract for Pre-K transportation work through an RFP process, and DOE's determination to support the amendment and the costs to the City, DOE and the public of any work stoppages. Local 1181 also seeks to depose petitioners as to whether they support the EPPs and are truly unable to submit calculated bids because of the EPPs.
Petitioners and respondents claim that discovery sought by Local 1181 is unwarranted. Respondents add that correspondence to and from the Corporation Counsel is immune under the attorney/client privilege. Further, many of the documents are protected by the deliberative process privilege, which protects analysis and opinions regarding governmental decision making. And, no transcript of the pre-bid meeting exists, and any additional records regarding the pre-bidding meeting are unnecessary to decide whether, as a matter of law, certain bid specifications were unlawful or made in excess of respondents' authority.
III. Analysis
A. Injunction of DOE's Solicitation
In order to be entitled to a preliminary injunction, the movant must demonstrate (1) a likelihood of ultimate success on the merits, (2) irreparable injury if the provisional relief is withheld, and (3) that a balance of the equities tips in the moving party's favor ( Doe v Axelrod, 73 NY2d 748, 750, 536 NYS2d 44, 45; Housing Works, Inc. v City of New York, 255 AD2d 209, 213, 680 NYS2d 487, 491 [1st Dept 1998]). In addition, where as here, the injunctive relief would upset the status quo and grant some form of the ultimate relief requested, the movant has the heightened burden of showing that extraordinary circumstances warrant the relief ( see, Rosa Hair Stylists v Jaber Food Corp., 218 AD2d 793, 794, 631 NYS2d 167, 169 [2d Dept 1995]).
General Municipal Law § 103 (1) mandates that "all contracts for public work . . . be awarded . . . to the lowest responsible bidder." Education Law § 305 likewise mandates that "contracts for the transportation of school children . . . shall be awarded to the lowest responsible bidder, which responsibility shall be determined by the board of education or the trustee of a district." It is uncontested that the two central purposes of New York's competitive bidding laws are to (1) protect the public fisc by obtaining the best work at the lowest possible price and (2) prevent favoritism, improvidence, fraud, and corruption in the awarding of public contracts ( Acme Bus Corp. v Board of Educ. of Roosevelt Union Free School Dist., 91 NY2d 51, 666 NYS2d 996).
Contrary to respondents' contention, despite any presumption of regularity that may attach to official governmental acts, a solicitation that offends the public policy underlying the public bidding statute may be challenged by petitioners ( see e.g., Sagamore Auto Body v County of Nassau, 104 AD2d 818 [2d Dept 1984]).
Petitioners sufficiently met their burden of establishing the likelihood of success on the merits of their claim that the DOE bid specification contains provisions that fail to protect the public fisc or prevent favoritism, improvidence, fraud and corruption so as to facilitate awards of school-age bus transportation contracts to the lowest responsible bidders.
In particular, petitioners have sufficiently established that the EPPs violate the FCA requirement that transportation contracts be procured by competitive sealed bidding and awarded to the lowest, responsible bidder. Even assuming the EPPs were considered a type of "Project Labor Agreement" ("PLA"), which pertain to construction projects owned by public authorities, petitioners have sufficiently demonstrated that DOE failed to show that the EPPs advance the interests of competitive bidding statutes. Petitioners preliminarily establish that the EPPs hinder the bidders from calculating and putting in a lowest possible bid. The solicitation fails to provide key information, i.e., the addresses of the children to be transported, which is necessary to prepare a bid on the basis of a unit price of child per day. Nor has there been an sufficient showing of a history of labor unrest in the administration of Pre-K and EI transportation contracts, to be thwarted by the EPPs.
The record sufficiently supports petitioners' contention that the EPPs conflict with New York's public bidding statutes. Procedures and specifications that exclude a class of would-be bidders must not only be "rational" but "essential to the public interest." Petitioners sufficiently show preliminarily that EPPs are not "typical" specifications, because they are comprehensive in that they affect the cost of labor, stifle competition, and punish contractors that fail to comply with any of their terms. While DOE's primary reason for inserting the EPPs is to ensure labor peace, labor peace has never been a legitimate goal of the public bidding laws, except in the context of a PLA. Moreover, post hoc rationalization for adopting EPPs is not a substitute for a showing that DOE considered the goals of competitive bidding prior to such adoption.
Under the EPPs, a new contractor which does not have an existing contract with the DOE for transportation of school-aged children, must secure its workers by granting priority to employees who will be listed as unemployed after a date June 30, 2008. Clearly, the expense of labor is a prime factor in the calculation of a bid. As petitioners' point out, however, the new contractor will not know who is going to be unemployed until the results of the bidding are released. The costs related to the salaries, pension contribution entitlements, and other benefits of those who will be unemployed are obviously unknown, but will have to be borne by the successful bidder. Bidders are forced to speculate the number of potential Local 1181 unemployed employees, and their former salaries and benefits to be incurred, and will have to formulate their bids based on such speculative numbers. Thus, the contractor is forced to submit an inflated bid to cover this eventuality, which runs counter to producing the lowest bid as required by the bidding statute.
The Court finds as credible petitioners' contention, that a company which won the bid on the basis of its lower labor costs, would face undue financial hardship servicing a second contract with the higher paid employees, since the compensation the company receives is based on the bid achieved by utilizing the lower labor costs. Since the company cannot staff a second contract with present staff needed on the first contract, it must refrain from bidding on a second contract due to the possibility of increased labor costs resulting in little or no profitability. Further, new contractors, with no expiring contracts with the DOE, could not use any existing staff to support a newly acquired contract with the DOE, because a contractor "who did not provide service pursuant to [a DOE] contract expiring June 2008" must first obtain its employees for the acquired contract from the List.
At its core, the EPPs promote job security, which is a "desirable end," especially given the current state of economic affairs. However, the DOE cannot pursue this end "by departing from the requirements of the bidding statutes" ( see Matter of Council of the City of New York v Bloomberg, 6 NY3d 380). The laws requiring competitive bidding were designed to benefit taxpayers ( Matter of Acme Bus Corp. v Board of Ed., 91 NY2d 51) and not the interests of employees of vendors competing for public contracts, and here, the primary beneficiaries of the EPPs are the Local 1181 employees.
The only relationship between the EPPs and the purported savings to the public is the "costs" in not obtaining alternative transportation for students in the event of a strike by Local 1181. Procedures having an anticompetitive effect can be justified, however, where there is evidence that they are "designed to save the public money by causing contracts to be performed at smaller costs or without disruption" ( In the Matter of Council of the City of New York v Bloomberg, 6 NY3d 380). However, any costs saved by staving off a strike cannot be justified by forcing vendors, in a competitive bidding process based on actual costs to the vendor, to inflate bids at the ultimate expense of taxpayers. The argument that EPPs advance the goals of the bidding statutes by averting strikes and labor unrest is undermined by the fact that the specifications at issue do not contain any requirement that the vendor promise labor peace or refrain from commencing strikes throughout the life of the contract. Thus, while labor stability and the uninterrupted completion of a public contract may be a legitimate goal, the unnecessary inflation of bids at the taxpayers' expense cannot be justified in the absence of any proof that these goals will be realized by the EPPs. More importantly, there is no projection of cost savings resulting from the EPPs.
Whether the EPPs are similar to PLAs is not dispositive. Unlike typical prebid specifications, PLAs are comprehensive in scope. PLAs are prebid contracts between a particular union and a construction project owner, wherein the project owner agrees to engage only those contractors and subcontractors who sign a pre-negotiated agreement with the union. Since PLAs thus require all bidders "to conform to a variety of union practices" and limit the bidders' autonomy to negotiate with nonunion workers, PLAs "have an anticompetitive effect" ( Matter of New York State Ch., In., Associated Gen. Contrs. of Am. v New York State Thruway Auth., 88 NY2d 56). Thus, when a specification impedes competition to bid for public work, it must be rationally related to protecting the public fisc and preventing favoritism, improvidence, fraud and corruption ( Id.). In Matter of New York State, a certain PLA was held invalid where the record failed to indicate any cost savings resulting from the PLA or that labor unrest threatened the project. Likewise here, there has been no showing that the EPPs will result in any cost savings to the taxpayer or that Local 1181 agrees to refrain from a labor strike.
Respondents' claim that the EPPs facilitate the retention of experienced staff is not only unsupported by the record, but contradicted by the reports of abuse and neglect committed by bus operators and matrons. Nor is there any evidence establishing that hiring employees from the List results in the procurement of superior employees that could not otherwise be obtained by other measures of ability. That is to say, petitioners have sufficiently challenged the contention that EPPs result in employment of superior drivers or matrons, which could be achieved by other methods. In fact, the performance of school-age transportation employees have been substandard when compared with pre-school transportation employees who have operated without the benefit of EPPs.
See "Joyce Reply Affidavit," Exh. 12 for articles reporting instances when elementary school children were dropped off and abandoned far from their homes and were raped or molested by school bus drivers, matrons or other students while on buses.
In addition, to the extent the per pupil price depends upon the number of students served and the route to be taken by a particular bus, the addresses of the children are necessary to determine the costs and resulting bid for a particular zone. The number of children served by a bus depends on where they live in relation to each other and their respective schools. The cost to transport a child per day increases as the number of children assigned to a particular bus decreases. Since the cost of a bus remains constant regardless of the number of students traveling on such bus, the price per child per day will be higher, for example, where only four children are being transported, than if 8 children were being transported. That a student may later change addresses is no basis to omit such information. Likewise, by requiring a successful bidder to service a school that enters its geographical zone after the contract is entered into, without permitting the bidder to adjust its price, forces the bidder to factor into its bid a speculative figure to protect against such an eventuality.
And, the Court finds as credible, petitioners' argument that, in the event of an increase in the number of children served, costs would rise due to the increase in the number of buses needed, and at current, there is no corresponding increase in revenue. It becomes exceedingly difficult for any bidder to calculate a bid to cover such an uncertainty of events or to cover the possibility of increased costs in servicing students. Even with respect to loss in revenues resulting from decreases in children serviced, Section 4.10(C), as amended, is insufficient to minimize unnecessary uncertainty. Ridership must drop by 30% before any adjustment by DOE is made, which causes vendors to increase their bids by 30% to account for such possibility. Thus, State taxpayers may pay 30% more at the outset, when such costs may not be necessary.
And, while vendors do not have a vested right to a public contract, the unilateral right of DOE to change the rules at any time without cause frustrates a bidder's ability reach an accurate assessment of the costs that are expected to be incurred under a given contract.
Further, contrary to respondents' contention, petitioners have submitted evidence indicating that the insurance requirements are simply not feasible.
Therefore, petitioners' have sufficiently met their burden of establishing a likelihood of success on the merits of their claims, to warrant a preliminary injunction.
In evaluating the balance of the equities on a motion for a preliminary injunction, courts
"must weigh the interests of the general public as well as the interests of the parties to the litigation" ( De Pina v Educational Testing Ser., 31 AD2d 744, 745, 297 NYS2d 472, 474 [2d Dept 1969] [quoting 7A Weinstein Korn and Miller, New York Civil Practice ¶ 6301.21]; see also, e.g., Seitzman v Hudson River Assocs., 126 AD2d 211, 215, 513 NYS2d 148, 150 [1st Dept 1987][recognizing the relevance of "the health care interest of New York and its people"]; Chatham Towers, Inc. v Bloomberg , 6 Misc 3d 814, 827, 793 NYS2d 670, 681 [Sup. Ct. NY Co. 2004][refusing to enjoin barriers around One Police Plaza, because "thousands of people are immediately affected"]; Stampp v Board of Supervisors of Cayuga County, 141 Misc 487, 491, 252 NYS2d 303, 308 [Sup. Ct. Cayuga Co. 1931][in ruling on a motion for a preliminary injunction, the courts "should consider . . . in particular the welfare of the public"]).
One of the intentions of sealed bids is to ensure that each bidder gives its best, realistic lowest bid, not a bid created just to undercut the competition which could occur if the bids were known. If the injunction is not granted, and the bids are disclosed and it is later determined that the petitioners prevail, in the rebidding process, bidders would be aware of their competitors' earlier bids. Absent an injunction, the purpose of obtaining an honest bid is undermined, and the bidder cannot unring the bell of its competitor knowing its previous bid.
In light of the above, the equities tip in favor of imposing a preliminary injunction.
B. Motion to Dismiss Petition
In light of the apparent merit to a portion of petitioners' claims, the cross-motion by Local 1181 to dismiss for failure to state a cause of action is denied.
C. Discovery
Except as to a notice to admit, discovery in Article 78 proceedings is available only by leave of the court in a CPLR article 78 proceeding ( see CPLR 408; CPLR 7804[a]; Stapleton Studios, LLC v City of New York , 7 AD3d 273 , 776 NYS2d 46 [1st Dept 2004]). The party seeking disclosure must establish that the requested information is "material and necessary" to the prosecution or defense of this proceeding ( Matter of Allocca v Kelly, 2007 NY Slip Op 7319 [1st Dept 2007]; Stapleton Studios, LLC v City of New York , 7 AD3d 273 , supra; Town of Wallkill v New York State Bd. of Real Property Services, 274 AD2d 856 [3d Dept 2000], citing Matter of Town of Mamakating v New York State Bd. of Real Prop. Servs., 246 AD2d 844, 845, 668 NYS2d 261 [3d Dept 1998]). The Court will address discovery issues at a status conference.
IV. Conclusion
Based on the foregoing, it is hereby
ORDERED that the order to show cause by petitioners for an order (1) enjoining the DOE, BOE, and the Executive Director for Contracts and Purchasing (collectively "respondents") from soliciting bids for pupil transportation services until certain specifications are removed or revised and (2) enjoining the respondents from awarding any contracts on such bids, is granted, pending further determination by the Court; and it is further
ORDERED that the branch of the order to show cause for a declaration that the specifications are unlawful, and that no contracts awarded based on them, is denied at this juncture; and it is further
ORDERED that the motion by Local 1181 to dismiss the Petition for failure to state a cause of action is denied; and it is further
ORDERED that the time for Local 1181 to answer is stayed pending this court's determination on requisite discovery; and it is further
ORDERED that the parties shall appear on September 18, 2008, 10:00 a.m. for a discovery conference; and it is further
ORDERED that petitioners serve a copy of this order with notice of entry upon all parties within five days.
This constitutes the decision and order of the Court.
Hon. Carol Robinson Edmead, J.S.C.