ACME Bus Corp. v. Orange Cnty.

• Decision Date: 22 November 2016
• Citation: 68 N.E.3d 671,45 N.Y.S.3d 852,2016 N.Y. Slip Op. 07835,28 N.Y.3d 417
• Parties: In the Matter of ACME BUS CORP., Appellant, v. ORANGE COUNTY et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

28 N.Y.3d 417

68 N.E.3d 671

45 N.Y.S.3d 852

2016 N.Y. Slip Op. 07835

In the Matter of ACME BUS CORP., Appellant,

v.ORANGE COUNTY et al., Respondents.

Court of Appeals of New York.

Nov. 22, 2016.

Hamburger, Maxson, Yaffe & McNally, LLP, Melville (Richard C. Hamburger, David N. Yaffe and Andrew K. Martingale of counsel), for appellant.

Langdon C. Chapman, County Attorney, Goshen (Carol C. Pierce of counsel), for Orange County and another, respondents.

Dickover, Donnelly & Donovan, LLP, Goshen (David A. Donovan of counsel), for Quality Bus Service, LLC, respondent.

Finkelstein & Partners, LLP, Newburgh (Joseph P. Rones of counsel), for VW Trans, LLC, respondent.

OPINION OF THE COURT

FAHEY, J.

In this CPLR article 78 proceeding to annul Orange County's award of transportation contracts to Quality Bus Service, LLC and VW Trans, LLC, the question presented is whether the award was arbitrary and capricious. We hold that it was. We address whether evaluation criteria for public bids submitted pursuant to General Municipal Law § 104–b must be followed as set out in the requests for proposals or if the criteria may be changed, after the receipt of proposals, by the government agency responsible for evaluating them.

I.

In May 2013, the Orange County Department of General Services issued a request for proposals (RFP) from companies to provide transportation of children receiving preschool special education services in three transportation zones in Orange County. The County solicited proposals for three-year contracts for each zone, with options for two successive one-year extensions. The RFP evaluated proposals in nine categories, with a certain number of points assigned to each category, for a total of 100. The first eight categories measured performance by various criteria, while the ninth, worth 20 points, evaluated cost.

The RFP stated that "[t]he Offeror submitting the lowest cost proposal will be awarded 20 points. Awarding of points to the remaining Offerors will be based on percentage to points ratio." In the same sentence, the RFP explained by way of "example" that "if the total cost [difference] between the lowest Offeror and the next lowest Offeror is 10% then Offeror two will have 2 points deducted from the maximum score of 20."

The RFP further provided that

"[t]he submission of a proposal implies the Offeror's acceptance of the evaluation criteria and Offeror's acknowledgment that subjective judgments must be made by the Evaluation Committee.... The County reserves the right to: accept other than the lowest priced offer, waive any informality, or reject any or all proposals, with or without advertising for new proposals, if in the best interest of the County."

Quality submitted a cost proposal for each of the three zones. VW submitted a cost proposal for the third zone only. ACME Bus Corp., which held the contract at the time, submitted two alternative proposals, one containing pricing for each of the zones, and one providing an estimate for all three zones combined, at a discounted price. Under both proposals, ACME had the highest cost for the three zones.

In July 2013, Orange County awarded transportation contracts for the first two zones to Quality and for the third zone to VW. Transportation services pursuant to the contracts commenced on September 1, 2013, and continued until August 31, 2016; the County then exercised its first option to extend the contracts, which now expire on August 31, 2017.

After it was notified of the award, ACME commenced this article 78 proceeding against the County, Quality, and VW, seeking to vacate the award of the contracts "as arbitrary and capricious, ... affected by an error of law, and ... made in violation of lawful procedure." ACME alleges a number of defects in the County's process of choosing its transportation providers, only one of which is pertinent here.

The County disclosed the proposals submitted by Quality and VW, as well as the score sheets used by the County to evaluate the proposals. As the parties interpret these documents,¹ Quality had the highest overall scores for the first two zones, while VW had the highest total score for the third. In the cost category, ACME had been awarded only eight points out of 20, i.e. a 12–point deduction. ACME contended that if it had been awarded the RFP's "percentage to points ratio" deduction for cost, it would have received only a 5.4–point deduction and achieved a higher total score than VW in the third zone.

The County, seeking dismissal of the proceeding, submitted an affidavit of the employee of the County's consultant transportation management company who had been responsible for scoring the RFP's cost category. The employee wrote that

"[i]n evaluating the cost proposals and determining a point to percentage ratio upon which to evaluate and score the three offerors, it was determined that we could not use the example as set forth in the RFP ... because in Zone 3, there was only a 7% difference in price between the lowest bidder VW and the next lowest bidder Quality.... Therefore, if we used the example set forth in the RFP i.e. 2 points per 10% difference, we would not have been able to deduct any points from Quality."

The transportation management company employee then stated that "it was determined that the County, in scoring the offerors on price ... would use a 2 point deduction for every 4% difference in price, rounding to the nearest whole number," instead of a two-point deduction for every 10%.

Supreme Court dismissed the proceeding, ruling that ACME "ha[d] failed to sustain its burden of demonstrating that the [County's] determination lacked a rational basis or that an actual impropriety, unfair dealing or some other violation of statutory requirements occurred." The court "decline[d] petitioner's tacit invitation to redo the ... scoring of the proposals," stating that "the scorers had a rational basis for their determination and the court's inquiry there ends."

The Appellate Division affirmed (Matter of ACME Bus Corp. v. Orange County, 126 A.D.3d 688, 5 N.Y.S.3d 231 [2d Dept.2015] ).

We granted ACME leave to appeal (26 N.Y.3d 906, 2015 WL 5552648 [2015] ), and now reverse.

II.

ACME contends that the County's scoring mechanism in the cost category deviated from the formula stated in the RFP, and that its award was therefore arbitrary and capricious within the meaning of CPLR 7803(3). We agree.

The contracts at issue here, "requir[ing] the exercise of specialized or technical skills, expertise or knowledge" (Matter of Omni Recycling of Westbury, Inc. v. Town of Oyster Bay, 11 N.Y.3d 868, 869, 873 N.Y.S.2d 248, 901 N.E.2d 741 [2008] ), were not subject to the competitive bidding statute (see General Municipal Law § 103 ), but were awarded under General Municipal Law § 104–b. That statute requires contracts to

"be procured in a manner so as to assure the prudent and economical use of public moneys in the best interests of the taxpayers of the political subdivision or district, to facilitate the acquisition of goods and services of maximum quality at the lowest possible cost under the circumstances, and to guard against favoritism, improvidence, extravagance, fraud and corruption " (General Municipal Law § 104–b [1 ] [emphasis added] ).

To further these objectives, the statute specifies that the County "shall adopt internal policies and procedures governing all procurements of goods and services which are not required to be made pursuant to the competitive bidding requirements ... or of any other general, special or local law" (id. [emphasis added] ). The written policy adopted by the County pursuant to this requirement specifies, in part v (procurement of professional services), that the County's award of a contract pursuant to an "RFP must be made in accordance with the evaluation criteria specified in the RFP" (County of Orange Procurement Policy part V[E] [Mar. 2012] [emphasis added] ).

Here, the County deviated from the criteria specified in its RFP when it evaluated the proposals received pursuant to its request. The emphatic language used in the RFP's paradigm of a percentage to points ratio—stating that if a 10% cost difference exists between the lowest offeror and the next lowest, then the latter "will have 2 points deducted from the maximum score of 20"—makes clear that the "example" was meant to explain that a percentage to points ratio is one in which a one percent cost difference translates to one percent of the total number of points allocated to cost. Instead, the County used a two-point deduction for every 4% difference in price.² Applying this new formula, a one percent cost difference corresponded to 2.5%, rather than one percent, of the number of points assigned to cost.³

The County abandoned the cost formula it had promised to apply and instead created a new formula that disfavored ACME. This was arbitrary and capricious for two, independent reasons.

First, the County's failure to follow the cost category evaluation criteria outlined in the RFP was in violation of the County's own procurement policy, stating that the "award ... must be made in accordance with the evaluation criteria specified in the RFP" (emphasis added). We have repeatedly held in a variety of contexts that an agency acts arbitrarily when it fails to comply with its own rules (see e.g. Matter of Vukel v. New York Water & Sewer Mains, 94 N.Y.2d 494, 497, 706 N.Y.S.2d 675, 727 N.E.2d 1229 [2000] ; Matter of Frick v. Bahou, 56 N.Y.2d 777, 778, 452 N.Y.S.2d 18, 437 N.E.2d 277 [1982] ). The same principle applies to the County here.

The second reason has significance that extends beyond the present case. In Matter of AAA Carting & Rubbish Removal, Inc. v. Town of Southeast , 17 N.Y.3d 136, 927 N.Y.S.2d 618, 951 N.E.2d 57 (2011), we held that a municipal contract, awarded pursuant to the competitive bidding statute, should be vacated if the municipality "accept[ed] a higher bid based on subjective assessment of criteria not specified in the bid request,"...