L & M Bus Corp. v. the N.Y. City Dep't of Educ.

• Decision Date: 14 June 2011
• Docket Number: No. 110,110
• Court: New York Court of Appeals
• Parties: In the Matter of L & M Bus Corp., et al., Respondents, v. The New York City Department of Education, et al., Appellants, Local 1181 of the Amalgamated Transit Union, Intervenor-Appellant.

2011 NY Slip Op 05114

In the Matter of L & M Bus Corp., et al., Respondents, v. The New York City Department of Education, et al., Appellants Local 1181 of the Amalgamated Transit Union, Intervenor-Appellant.

No. 110

Court of Appeals of New York

Decided: June 14, 2011

Dona B. Morris, for appellants.

Richard A. Brook, for intervenor-appellant.

John F. Grubin, for respondents.

LIPPMAN, Chief Judge:

This appeal asks us to decide whether certain specifications in the bid solicitation of the New York City Department of Education (DOE) for a school transportation contract comport with the public bidding laws. We conclude that the "Employee Protection Provisions" (EPPs) contained in the solicitation are subject to heightened scrutiny, and hold that DOE has not proven that the EPPs are designed to save the public money, encourage robust competition, or prevent favoritism. However, we apply rational basis review to the remaining disputed bid specifications and hold that DOE's actions regarding the pricing of school transportation and discounted payment arrangements are rational business judgments that lie within DOE's discretion.

I.

Prior to 1979, the Board of Education of the City of New York (the Board) administered "Special Education" and "General Education" contracts with private bus companies for the transport of disabled children and the general population of school-aged children to their respective schools. Contracts were awarded pursuant to the competitive bidding procedure under Education Law § 305 (14) and included a provision requiring "replacement" contractors to give hiring priority, according to seniority, to employees of private bus companies who lost their jobs as a result of the change in contractor. When the Board attempted to exclude this provision from certain bid solicitations, members of Local 1181-1061, Amalgamated Transit Union, AFL-CIO (Local 1181) went on strike.

Following a court-ordered arbitration, the Board, Local 1181, and major bus companies entered a settlement, which required the 1979 contracts to include certain "Employee Protection Provisions" (EPPs) in the specifications. In particular, the EPPs established a master seniority list, requiring contractors with the Board to give priority in hiring to employees on the list when such employees become unemployed because of reassignment of busing contracts. The New York City Department of Transportation (DOT), however, had at the same time been administering transportation contracts for young children in the pre-kindergarten (Pre-K) and early intervention (EI) programs by competitive, sealed bidding, without such EPPs.

In 2006, DOT transferred its Pre-K and EI contracts to DOE. Local 1181, which represents approximately 325 drivers and escorts who work for Pre-K and EI bus companies, requested that DOE include the EPPs in its solicitation for contract bids. DOE agreed, and the solicitation provided that

"[a]ny 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), mechanic, dispatcher and attendant (escort-matron) performing service pursuant to such contract starting from the first employee from the [master seniority list] until such [master seniority list is] exhausted" (Bid Solicitation ¶ 4.24.1.3).A similar provision appliedto existing contractors (see id. ¶ 4.24.1.2).

DOE invited bids for providing transportation between home and school to handicapped children participating in Pre-K and EI programs. Bids were required to be submitted "on a per rider per day basis" so that DOE could track transportation costs per child for purposes of its own reimbursement. DOE solicited bids on a five-year contract to transport participants to schools, not necessarily located in the same borough, based on an estimate of the number of participants and the frequency and level of transportation required at any given time. The contract also provided DOE with a 2% discount for timely payment and vendors with increased reimbursement in the event of a reduction in the number of children transported - but only if the decrease were to exceed 30% of ridership.

Petitioners, 23 transportation vendors, commenced this CPLR article 78 proceeding to prevent DOE from implementing the allegedly illegal bid solicitation. Petitioners asserted that the requirement that bids be submitted "on a per rider per day basis" created such grave uncertainties, that potential bidders would submit speculative bids, risk substantial economic harm, or not bid at all. Moreover, petitioners urged that inclusion of EPPs would cause bidders to inflate their bids to protect against the unknown costs of giving priority to whichever employees from the master seniority list were unemployed after the DOE awarded the contracts. Likewise, petitioners claimed that the failure to include in the solicitation the addresses or boroughs of children to be bused, as had been included in DOT's prior solicitation, prevented bidders from calculating costs. Petitioners also sought revision or removal of nine specific provisions of the solicitation. Local 1181 was granted leave to intervene and moved to dismiss for failure to state a cause of action insofar as petitioners sought to bar the inclusion of EPPs.

As relevant to this appeal, Supreme Court granted the petition to the extent of declaring the following bid specifications unlawful: (i) section 4.24, "Employee Protection Provisions;" (ii) section 1.100(B), regarding DOE's right to change the service requirements in the Contractor's Manual at any time without prior notice; (iii) section 4.10, to the extent it permitted DOE to add entire schools and programs in the vendors' service requirements without adjusting the vendors' prices; (iv) section 4.1, to the extent it provided for a price adjustment only in the event of a loss of ridership in excess of 30%; (v) section 1.48, "Liquidated Damages"; and (vi) section 1.35; 2% discount for DOE for "prompt payment." Supreme Court additionally ordered DOE to include in the specifications the addresses of children who currently participatedin Pre-K/EI busing. ¹

The Appellate Division affirmed the relevant aspects of Supreme Court's order (Matter of L & M Bus Corp. v New York City Dept. of Educ., 71 AD3d 127 [1st Dept 2009]). Discussing the uncertainty inherent in various provisions of the bid specifications, the court observed that the solicitation "presents a considerable challenge to potential bidders due to the complexity in ascertaining the extent of the transportation services to be supplied" (id. at 132) and that further difficulty arises in "the uncertainty surrounding the individual contractor's responsibility for labor costs" (id. at 133). In striking the EPPs, the court reasoned, "the anticompetitive impact resulting from the restriction of the vendors' autonomy to hire nonunion workers subjects these arrangements to the same scrutiny applied to [project labor agreements]" (id. at 135).

We granted leave to appeal and now modify the Appellate Division order.

II.

General Municipal Law § 103 (1) mandates that "all contracts for public work . . . be awarded . . . to the lowest responsible bidder." Education Law § 305 (14) and Family Court Act § 236 (3) (b), which governs the busing of children participating in EI programs, similarly require that transportation contracts be awarded to the lowest responsible bidder ². Dual aims underlie these requirements: "(1) protection of the public fisc by obtaining the best work at the lowest possible price; and (2) prevention of favoritism, improvidence, fraud and corruption in the awarding of public contracts" (Matter of New York State Ch., Inc., Associated Gen. Contrs. of Am. v New York State Thruway Auth., 88 NY2d 56, 68 [1996] [hereinafter "New York State Chapter"]).

DOE contends that the Appellate Division erred by applying to EPPs the heightened standard of review used to evaluate Project Labor Agreements (PLAs). A PLA is "aprebid contract between a construction project owner and a labor union (or unions) establishing the union as the collective bargaining representative for all persons who will perform work on the project" and typically "provides that only contractors and subcontractors who sign a prenegotiated agreement with the union can perform project work" (id. at 65). Consistent with the goals of public bidding laws, we held in Matter of Council of City of N.Y. v Bloomberg (6 NY3d 380 [2006] [hereinafter "Council v Bloomberg") that "PLAs and other procedures having an anticompetitive effect on the bidding process can be justified only by proof that they are designed to save the public money by causing contracts to be performed at smaller cost or without disruption" (id. at 392).

In New York State Chapter (88 NY2d at 65), we ruled that the features of PLAs that trigger heightened scrutiny are their atypical nature and comprehensive scope:

"Generally, when a public entity adopts a specification in the letting of public work that impedes the competition to bid for such work, it must be rationally related to these twin purposes. Where it is not, it may be invalid [citing Associated Bldrs. & Contrs. v City of Rochester, 67 NY2d 854, 855 (1986)].

As applied particularly to PLAs, which are clearly different from typical prebid specifications in their comprehensive scope, more than a rational basis must be shown. The public authority's decision to adopt such an agreement for a specific project must be supported by the record; the authority bears the burden of showing that the decision to enter into the PLA had as its purpose and likely effect the advancement of the interests embodied in the competitive bidding statutes. Judicial review, although limited, is not without importance in that it safeguards the interests protected by the competitive bidding mandate. PLAs may not be approved in a pro...