October 24, 2011

Written By: Megan M. Schwartz

The New Jersey Office of the State Comptroller (“OSC”) issued a procurement report entitled “Weaknesses in the Pay-to-Play Law’s ‘Fair and Open’ Contracting System” on Sept. 15, 2011, which highlights the flaws and deficiencies in New Jersey’s fair-and-open contracting process and in local governments’ administration of that process.

The report offers recommendations for systemic improvement, including the elimination of the fair and open process exception and requiring local contracting units to use the statutory competitive contracting process. Both government vendors and local public contracting units alike will benefit from reviewing this report.

Best Practices

Hill Wallack LLP’s Municipal Law practice group has previously advised municipal clients to use competitive contracting as its “fair and open process” for the procurement of professional services and has drafted the corresponding specifications. In addition, Hill Wallack LLP has drafted local pay-to-play ordinances to include a statement defining competitive contracting as the municipality’s sole “fair and open process.”

Pay-to-Play

A premise for government contracting laws is that public funds are best protected through a competitive system of procuring goods and services. The Local Public Contracts Law (“LPCL”) requires New Jersey municipalities to publicly advertise and seek bids on contracts above a monetary threshold with award being made to the “lowest responsible bidder,” unless an exemption applies.

One such exemption is professional services, which includes, for example, legal, engineering and financial services. This exemption has led to a perception that many professional services awards are predicated on political campaign contributions and other favoritism, commonly known as “pay-to-play.”

The public’s concerns surrounding pay-to-play resulted in legislation that generally prohibits government contracting units from awarding a contract with a value in excess of $17,500 to a vendor that has made a contribution exceeding $300 to certain political committees within the preceding year.

The primary exemption to this prohibition is that a vendor may receive the award if the local contracting unit has procured the services “pursuant to a fair and open process.” Under the law, public entities determine what constitutes a fair and open process. OSC’s contract reviews have revealed that the law’s fair and open requirements present very few real obstacles to a contracting unit awarding a professional services contract to a politically favored vendor.

Competitive Contracting

The LPCL set forth an alternative to “lowest responsible bidder” sealed bid procurement method known as “competitive contracting,” which the law lists as an option for the procurement of professional services.

Despite the availability of this option, the OSC report found few municipalities use this method for the procurement of professional services and instead default to a largely unstructured and vague “fair and open process.”

As a result, the OSC’s recommendations for reforming pay-to-play laws include, among others, eliminating the fair and open process exception and requiring local contracting units to use the statutory competitive contracting process in order to qualify for the fair and open exception. Hill Wallack LLP has been successfully advising its governmental clients to use the competitive contracting process in this manner for years.

About Hill Wallack LLP’s Municipal Law Practice Group

Hill Wallack LLP’s Municipal Law Practice Group has a long history providing cutting edge advice to governmental contracting units, as well as vendors involved in government contracting, on a broad range of legal matters, including competitive contracting and pay-to-play issues. Our counsel on governmental processes keeps public entities and private sector vendors ahead of the curve in these ever-changing areas of law. In addition, Hill Wallack LLP attorneys have been the principal lecturers on this issue for the Institute for Continuing Legal Education for seven years.

For more information on pay-to-play issues, see, "Hill Wallack LLP Partner Speaks Out on Proposed Pay to Play Reform Efforts."

For more information, contact one of the attorneys who work in this area:

Megan M. Schwartz, Esq.
Patrick D. Kennedy, Esq. 
Paul P. Josephson, Esq.
Rocky L. Peterson, Esq.
Maeve E. Cannon, Esq.

This article provides information of general interest and is not intended, and should not be used, as a substitute for consultation with legal counsel. Any questions regarding the specific issues raised in this article should be directed to the authors or to your contacts at Hill Wallack LLP.