In the Matter of the L&M Bus Corp. v. NYC Dept. of Education

2011 WL 2313819 (Ct of App, June 14, 2011)

This case concerned the question of whether certain specifications in the bid solicitation of the Dept of Education (DOE) for a school transportation contract complied with the public bidding laws.

The issue to be addressed here is the legality of the Employee Protection Provisions (EPP). An EPP requires 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.

In striking the EPPs the appellate division reasoned “the anti-competitive impact resulting from the restriction of the vendor’s autonomy to hire nonunion workers subjects these arrangements to the same scrutiny applied to [project labor agreements(PLA)].

The court provided the following definition of a PLA:

“A PLA is ‘a prebid 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’.”

Consistent with the goals of public bidding laws, the Ct of App has previously held that “PLAs and other procedures having an anticompetitive effect of 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.”

“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 invalid.”

“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 …. PLAs may not be approved in a pro forma manner.”

In this case the court stated that “EPPs are precisely the sort of atypical, restrictive and comprehensive prebid specifications that invoke the heightened security standard…”

“Accordingly , we hold that EPPs are comparable to PLAs in their status as a typical, patently restrictive, comprehensive pre-bid specifications and in their potential for anticompetitive consequences. We therefore employ the more stringent review and turn to an assessment of whether ….. DOE has demonstrated ‘proof that [EPPs] are designed to save the public money by causing contracts to be performed at a smaller cost and without disruption.”

Based on its review of EPPs, the court found that over their histories they have had both anticompetitive and cost-inflating effects. As a consequence the court found “that DOE has not met its burden of demonstrating how EPPs reduce costs or prevent disruption of service.

Thus the Ct of App affirmed the lower courts’ decisions holding the EPP to be unlawful, and striking it from the bid specifications.