January 1, 1900

by Patrick Kennedy and Maeve Cannon

The Need to Maintain Efficiency and Continuity in the Public Contracting System and Still Maintain Competition

The State has historically awarded blanket "shopping list" multiple award contracts for many products and services to be purchased by counties and municipalities pursuant to State contract. Unlike bids and awards for specified items, e.g. the purchase of 20 cars, these contracts can at times constitute a qualification process for future purchases. Indeed, although a Request For Proposals (RFP) and a formal bid is used to create the "award", there is at times limited competition among all of the bidders. In fact, for these types of contracts, many qualified bidders can be "awarded" a contract, and these vendors can be permitted to sell their product or products to State agencies, counties and municipalities.

Multiple Awards

These "multiple awards" are not new and historically leave efficient means of providing a choice of products to the using agencies and to local governments. Multiple award contracts are, in many cases, the only practical avenue of sales for many products. For example, for those types of products which are not practical to itemize in a bid, this type of award allows the State to create an RFP where bidders submit a bid price consisting of a discount from their catalogue. By awarding several contracts to multiple vendors, each of whom can sell their products to the various agencies, the State assures that there will be a wide range of supplies of sufficient quantity and variety to meet governmental needs, while providing a publicly bid discount from the cost of those items. The system also greatly diminishes what would be the cost of developing specifications and publicly bidding each of the items in the catalogue and the cost to local governments in developing specifications for these same products.

Although there is a valuable purpose and need for these contracts, especially as they relate to the ability of local governments to utilize State contracts, there exists under current law an inherent conflict between the efficiency that they promote and the overriding legislative goals of assuring competition and awarding contracts to the "lowest responsible bidder". In these awards, there may at times be very little or no up-front competition, and there is a judicial concern for ultimate, time-of-purchase competition, even though these contracts often contain an admonishment to agencies, counties and municipalities that they must purchase from the lowest bidder meeting their needs when they make the actual purchase.

Criteria For Multiple Awards

In 1986, the legislature established standards for these multiple award contracts. Criteria is set forth at N.J.S.A. 52:34-12.1 under which more than one contract may be awarded pursuant to the overriding statutory scheme. That statute allows award of contracts to more than one vendor where at least one of three criteria are met and where the record supports a need for the number of vendors sought. The three criteria are relatively straightforward. The statute allows award to more than one vendor where: (1) standardization of product is required; (2) delivery requirements are such that more than one vendor is needed; or (3) to furnish the quantities needed by using agencies. This statute seemingly precludes an open award of contracts to "all qualified" vendors, as it specifically requires that the State determine the number of vendors needed to provide the quantities needed for State and local government.

There have been at least three recent Appellate Division decisions discussing the issues of multiple awards since the adoption of the legislation. Two cases invalidated specifications which were generated without the perceived necessary factual basis to meet the legislative criteria. In the third, the Court expressed its continuing concerns with the multiple award process, but allowed the existing contract to proceed while asking the State to correct the problem for future contracts. As a result of these cases, the State appears to be in the process of determining how best to comply with the Court's concerns while maintaining the efficiency necessary to provide goods and services to its using agencies and local governments.

One beneficial step toward resolution to the problem is increasing the bidding limit for current purchases, which was accomplished recently through passage of Chapter 440, P.L. 1999, amending the State and local public contracting laws, and became effective April 17, 2000. But this step will not cure the problem. The best solution appears to be a legislative recognition that these types of contracts are beneficial because of the efficiencies they generate to both State agencies and local governments. Legislation permitting these contracts in those instances where the State predetermines that the benefits of competition and efficiency warrant such action, under legislatively imposed guidelines, assuring all bidders full freedom to compete, seems the best approach.

Recent Changes

As recently as June 26, 2000, the legislature has responded by drafting a bill, A-2414, amending N.J.S.A. 52:34-12.1 to add two more situations under which the State may make award to more than one vendor. Under this bill, the State may make multiple awards: (1) to provide for the standardization of equipment, interchangeability of parts or continuation of services; or (2) to provide using agencies or participants in cooperative purchasing agreements with a diversity of product choices to meet the individual needs of a community. This bill was passed by both the Assembly and the Senate on June 26, 2000 and awaits the governor's signature. As the State determines how to best approach multiple award contracts, Hill Wallack continues to remain abreast of the changes in these laws and is prepared to discuss the impact of such changes upon your business needs.

Patrick D. Kennedy and Maeve E. Cannon are partners and Anthony L. Velasquez is an associate of Hill Wallack where they are members of the Litigation Division and the Administrative Law/Government Procurement Practice Group.