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  • April 16, 2010

    State Failed to Demonstrate Cooperative Purchasing Agreement Is Most Cost-Effective Procurement Method for Auto Parts, Court Rules

    At a time when unemployment in New Jersey remains high and businesses are struggling to recover from the recession, an appellate court has issued an important decision for businesses that supply goods and services to public entities in the state.

    The Superior Court of New Jersey, Appellate Division, issued a favorable ruling in a challenge brought by state auto suppliers to a State decision to cease buying auto parts from 135 New Jersey suppliers, and instead enter into a cooperative purchasing agreement with other state and local governments to buy auto parts from a national supplier.

    The Appellate Division concluded that the Division of Purchase and Property failed to demonstrate that participation in the cooperative purchasing agreement was the most cost-effective method to procure auto parts. Further, the court determined that current contract holders and qualified bidders are entitled to receive notice when the state decides to enter a cooperative purchasing agreement, and that such notice must be sufficient “to allow timely challenges to the decision to utilize the collective purchasing process….”

    The decision is of crucial importance to many businesses in the state, across a wide variety of industries, because New Jersey has joined other state and local governments across the country in increasingly using cooperative purchasing agreements to procure goods and services from large national suppliers. Such solicitations for cooperative purchasing arrangements typically require bidders to be national businesses, excluding local suppliers from consideration.

    In In the Matter of Protest of Award of New Jersey State Contract A71188 for Light duty Automotive Parts, the challengers were three vendors of automotive parts who held previous State contracts and their industry association, the New Jersey Coalition of Automotive Retailers (NJCAR). The first notice the Division gave that it planned to enter into a cooperative purchasing agreement was the notice announcing the Division already had awarded its contract to national supplier AutoZone, Inc.

    Key points concerning the decision, and background behind this decision, include:

    • New Jersey has a statute authorizing the Director of the Division of Purchase and Property to participate in a cooperative purchasing agreement awarded by another state, political subdivision or cooperative purchasing group.
    • The cooperative purchasing statute requires the Director, prior to entering into any contract awarded through a cooperative purchasing agreement, to (1) determine the cooperative purchasing agreement to be the most cost-effective method of procurement; and (2) review and approve the specifications and proposed terms and conditions of the cooperative purchasing agreement.
    • On the previous contract for the procurement of auto parts, the State awarded a State Contract to approximately 135 local auto parts dealers with significant discounts off list price. This Contract served all state and local public entities throughout New Jersey.
    • The State allowed its existing contract with New Jersey based dealers to lapse and instead entered into a contract to purchase auto parts from AutoZone through the U.S. Communities cooperative purchasing agreement originally procured in Charlotte, North Carolina.
    • The original procurement specifications for the AutoZone Contract were limited to auto parts suppliers with a national sales force and a national distribution network. Although a national presence is not required to service New Jersey, New Jersey auto parts dealers were precluded from competing for the Charlotte contract, and were effectively shut out from competing for New Jersey’s business when the State awarded the contract to AutoZone. Exclusionary and restrictive specifications violate New Jersey public bidding law, which require open and competitive specifications.
    • New Jersey awarded the AutoZone Contract without any in-state competition and the incumbent vendors had no opportunity to compete for the business. As such, NJCAR protested the Director’s award to AutoZone and subsequently appealed the State’s rejection of that protest.
    • On appeal, after full briefing and oral argument, the Appellate Division held the Division failed to develop a record demonstrating the AutoZone Contract to be the most cost-effective method of procurement of auto parts. Based on the absence of specific findings of fact and the scant record, the court remanded this matter to the Division for further proceedings as to the Director’s ultimate conclusion that the AutoZone Contract offers the most cost-effective procurement option for auto parts in New Jersey.

    The businesses that previously held auto parts contracts with the state are New Jersey taxpaying businesses that never even had the opportunity to compete for the AutoZone contract. While the challengers to this case do not challenge the Division’s authority to enter into cooperative purchasing agreements, they do expect the state to provide notice of its intentions, and to meet the legal requirement that it demonstrate its decision is the most cost-effective method of procurement.

    Recent News Coverage of this Issue

    Article in NJBiz
    New Jersey Law Journal Case Summary
    New Jersey Law Journal Case Alert (requires login)

    About The New Jersey Coalition of Automotive Retailers

    The New Jersey Coalition of Automotive Retailers (NJ CAR) was founded in 1918 and is a non-profit organization serving more than 530 franchised new car and truck retailers throughout New Jersey. NJ CAR promotes the principals of commercial honor and integrity in the sale and service of motor vehicles. NJ CAR keeps its members informed on a variety of business matters, practices, trends, and legislation. The Coalition also works to ensure all members are educated regarding what is required to achieve regulatory compliance.

    About Hill Wallack LLP

    Hill Wallack LLP is a leading law firm in central New Jersey and eastern Pennsylvania, with offices in Princeton and Atlantic City, NJ, and Yardley, PA. The firm has built a reputation for comprehensive problem-solving and aggressive advocacy. The firm has broad-based commercial capabilities and deep experience in a number of industry sectors, including community associations. With extensive government experience, Hill Wallack LLP represents businesses and public entities in many areas in which public and private interests intersect. Our attorneys are called upon to tackle some of the toughest legal and business challenges. We do more than advise on the law—we craft real-world solutions.