Court Shoots Down “Piggybacking” For Public Works Contracts

Section 103 of the General Municipal Law requires that with several narrow exceptions, any contract for public work in excess of $35,000 must be sent out for public bid. Because of the opportunity for fraud and collusion, the exceptions are narrow and relate to emergency work or a demonstrated need for standardization, amongst others. One of these narrow exceptions is contained in Paragraph 16 of the statute, which provides that notwithstanding the general provisions of the statute, a municipal entity may “make purchases of apparatus, materials, equipment or supplies, or to contract for services related to the installation, maintenance or repair of apparatus, materials, equipment, and supplies” by “piggybacking” onto a “contract let by the United States of America or any agency thereof, any state or any other political subdivision or district therein”, provided that such contract has, itself, been publicly bid consistent with the statute. A court, in the recent case of Daniel J. Lynch, Inc. v Maine-Endwell Central School District, held that the statutory language permitting piggybacking for services related to the installation of equipment, etc., could not be read so broadly as to effectively permit the letting of public works contracts without submitting them to a full public bidding process.

Background

In December of 2022, the District’s voters approved a bond to finance various improvements at the District’s schools. This Project was to be carried out in six phases over five years. In July of 2023, instead of using the bidding process set forth in the General Municipal Law, the District entered into a “piggyback” contract with The Interlocal Purchasing System (“TIPS”) to undertake Phase One of the Project (replacing a sewer line and installing a new parking lot at the high school) for $2.5 million. TIPS was created by the State of Texas, and has grown into a national clearing house to match municipalities around the US to contractors who have joined the program. Once subscribed to TIPS, a municipality submits its project specifications, and the TIPS system matches the municipality with a contractor who can handle the project. Once the match is made, the parties negotiate the agreement, which incorporates the pricing provided by the TIPS contractor. Here, TIPS matched the District with Smith Site Development LLC.
The District was pleased with Smith’s work on Phase One, and it inquired of its CM whether it believed that Smith could handle Phase Two of the Project (extensive HVAC renovations at one of the elementary schools for $8.9 million). The CM indicated its belief that Smith could handle the work, and the District began negotiating with Smith, through TIPS, to perform Phase Two. The District ultimately awarded the contract to Smith.
In response, several local contractors commenced an Article 78 proceeding to declare Smith’s contract void, arguing that the piggybacking arrangement violated state law in numerous respects, including the failure to solicit public bids, the failure to let sperate contracts for the Wicks Law trades, and the failure to mandate bonds. In response, the District argued that piggybacking was not only permitted, but encouraged by Section 103(16) of the General Municipal Law, and that both the District and the TIPS system complied with the requirements set forth in that statute.

Decision

The court granted the local contractors’ petition. In doing so, the court conceded that it was hampered by the statute’s failure to define “public work contracts” or “public works projects”, but was ultimately able to use definitions from other related statutes, and held that such meant “construction or repair projects undertaken by municipalities on their infrastructure that are subject to the competitive bidding process”. With that definition, the court held that the piggybacking exception applies to the “purchase of specific classes of things, namely apparatus, materials, equipment and supplies, as well as service contracts related to those specific things” (emphasis original), and not to public works, public works contracts, or public works projects. Accordingly, the court held that the legislature specifically excluded such projects when it drafted the piggybacking exception, and the contract here was improperly let.
As to the remedy, although the Petitioners had sought disgorgement of the funds paid on the contract, the court declined to grant that draconian relief, holding that such would not be in the public interest. In doing so, the court noted that there were no allegations that the project was being performed inefficiently, or in an manner injurious to the taxpayers, and the District was not malfeasant in letting the contract to Smith. Accordingly, the court permitted Smith to complete its work, but enjoined the District from using TIPS (or a similar system) to bypass the requirement of public bidding to award future public works contracts.

Comment

In a case of clear first impression, the court here limited the use of the piggybacking scheme to, essentially, “plug-and-play” things that only need minor work to install and get running. If it involves anything more, it is classified as a public works project that must be sent out to bid. While the public bidding process—particularly when combined with the Wicks Law requiring the letting of separate contracts for general construction, plumbing, electrical, and HVAC scopes of work—can be cumbersome, the countervailing considerations of bidding for maximum competition, the reduction of opportunity for collusion, and the maintenance of bonding requirements won the day here. However, as this decision is still “hot off the press” there remains time (as of the writing of this article) for the District or Smith, as the aggrieved contractor, to file an appeal. Needless to say, if there is such an appeal, we will keep you updated as to the outcome. Regardless, if a contractor believes that it has lost out on public work through the use of piggybacking, or some other alternative procurement scheme, the contractor would be advised to consult with experienced construction counsel to see if you have a remedy.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100