This opinion is uncorrected and subject to revision before

publication in the New York Reports.

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No. 182 

In the Matter of ACME Bus Corp.,

 Appellant,

 v.

Orange County, et al.,

 Respondents.

Richard C. Hamburger, for appellant.

Carol C. Pierce, for respondents Orange County et al.

FAHEY, J.:

In this CPLR article 78 proceeding to annul Orange

County's award of transportation contracts to Quality Bus

Service, LLC (Quality) and VW Trans, LLC (VW), the question

presented is whether the award was arbitrary and capricious. We

hold that it was. We address whether evaluation criteria for

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public bids submitted pursuant to General Municipal Law § 104-b

must be followed as set out in the requests for proposals or if

the criteria may be changed, after the receipt of proposals, by

the government agency responsible for evaluating them.

I.

In May 2013, the Orange County Department of General

Services issued a request for proposals (RFP) from companies to

provide transportation of children receiving preschool special

education services in three transportation zones in Orange

County. The County solicited proposals for three-year contracts

for each zone, with options for two successive one-year

extensions. The RFP evaluated proposals in nine categories, with

a certain number of points assigned to each category, for a total

of 100. The first eight categories measured performance by

various criteria, while the ninth, worth 20 points, evaluated

cost.

The RFP stated that "[t]he Offeror submitting the

lowest cost proposal will be awarded 20 points. Awarding of

points to the remaining Offerors will be based on percentage to

points ratio." In the same sentence, the RFP explained by way of

"example" that "if the total cost [difference] between the lowest

Offeror and the next lowest Offeror is 10% then Offeror two will

have 2 points deducted from the maximum score of 20."

The RFP further provided that "[t]he submission of a

proposal implies the Offeror's acceptance of the evaluation

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criteria and Offeror's acknowledgment that subjective judgments

must be made by the Evaluation Committee . . . . The County

reserves the right to: accept other than the lowest price offer,

waive any informality, or reject any or all proposals, with or

without advertising for new proposals, if in the best interest of

the County." 

Quality submitted a cost proposal for each of the three

zones. VW submitted a cost proposal for the third zone only. 

ACME Bus Corp. (ACME), which held the contract at the time,

submitted two alternative proposals, one containing pricing for

each of the zones, and one providing an estimate for all three

zones combined, at a discounted price. Under both proposals,

ACME had the highest cost for the three zones.

In July 2013, Orange County awarded transportation

contracts for the first two zones to Quality and for the third

zone to VW. Transportation services pursuant to the contracts

commenced on September 1, 2013, and continued until August 31,

2016; the County then exercised its first option to extend the

contracts, which now expire on August 31, 2017.

After it was notified of the award, ACME commenced this

article 78 proceeding against the County, Quality, and VW,

seeking to vacate the award of the contracts "as arbitrary and

capricious, . . . affected by an error of law, and . . . made in

violation of lawful procedure." ACME alleges a number of defects

in the County's process of choosing its transportation providers,

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only one of which is pertinent here.

The County disclosed the proposals submitted by Quality

and VW, as well as the score sheets used by the County to

evaluate the proposals. As the parties interpret these

documents,1 Quality had the highest overall scores for the first

two zones, while VW had the highest total score for the third. 

In the cost category, ACME had been awarded only 8 points out of

20, i.e. a 12-point deduction. ACME contended that if it had

been awarded the RFP's "percentage to points ratio" deduction for

cost, it would have received only a 5.4-point deduction and

achieved a higher total score than VW in the third zone.

The County, seeking dismissal of the proceeding,

submitted an affidavit of the employee of the County's consultant

transportation management company who had been responsible for

scoring the RFP's cost category. The employee wrote that

"[i]n evaluating the cost proposals and

determining a point to percentage ratio upon

which to evaluate and score the three

offerors, it was determined that we could not

use the example as set forth in the RFP . . .

because in Zone 3, there was only a 7%

difference in price between the lowest bidder

VW and the next lowest bidder Quality. . . . 

Therefore, if we used the example set forth

in the RFP i.e. 2 points per 10% difference,

we would not have been able to deduct any

points from Quality."

The transportation management company employee then

1 We are troubled by the fact that the County, in seeking

to demonstrate to the Court that VW had the highest score for the

third zone, cites pages from the record that contains single

score sheets for that zone, and not the average of the scores.

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stated that "it was determined that the County, in scoring the

offerors on price . . . would use a 2 point deduction for every

4% difference in price, rounding to the nearest whole number,"

instead of a 2-point deduction for every 10%.

Supreme Court dismissed the proceeding, ruling that

ACME "had failed to sustain its burden of demonstrating that the

[County's] determination lacked a rational basis or that actual

impropriety, unfair dealing or some other violation of statutory

requirements occurred." The court "decline[d] petitioner's tacit

invitation to redo the . . . scoring of the proposals," stating

that "the scorers had a rational basis for their determination

and the court's inquiry there ends." 

The Appellate Division affirmed (Matter of ACME Bus

Corp. v Orange County, 126 AD3d 688 [2d Dept 2015]).

We granted ACME leave to appeal (26 NY3d 906 [2015]),

and now reverse.

II.

ACME contends that the County's scoring mechanism in

the cost category deviated from the formula stated in the RFP,

and that its award was therefore arbitrary and capricious within

the meaning of CPLR 7803 (3). We agree.

The contracts at issue here, "requir[ing] the exercise

of specialized or technical skills, expertise or knowledge"

(Matter of Omni Recycling of Westbury, Inc. v Town of Oyster Bay,

11 NY3d 868, 869 [2008]), were not subject to the competitive

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bidding statute (see General Municipal Law § 103), but were

awarded under General Municipal Law § 104-b. That statute

requires contracts to "be procured in a manner so as to assure

the prudent and economical use of public moneys in the best

interests of the taxpayers of the political subdivision or

district, to facilitate the acquisition of goods and services of

maximum quality at the lowest possible cost under the

circumstances, and to guard against favoritism, improvidence,

extravagance, fraud and corruption" (General Municipal Law §

104-b [1] [emphasis added]).

To further these objectives, the statute specifies that

the County "shall adopt internal policies and procedures

governing all procurements of goods and services which are not

required to be made pursuant to the competitive bidding

requirements . . . or of any other general, special or local law"

(id. [emphasis added]). The written policy adopted by the County

pursuant to this requirement specifies, in Part V (Procurement of

Professional Services), that the County's award of a contract

pursuant to an "RFP must be made in accordance with the

evaluation criteria specified in the RFP" (emphasis added).

Here, the County deviated from the criteria specified

in its RFP when it evaluated the proposals received pursuant to

its request. The emphatic language used in the RFP's paradigm of

a percentage to points ratio -- stating that if a 10% cost

difference exists between the lowest offeror and the next lowest,

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then the latter "will have 2 points deducted from the maximum

score of 20" -- makes clear that the "example" was meant to

explain that a percentage to points ratio is one in which a one

percent cost difference translates to one percent of the total

number of points allocated to cost. Instead, the County used a

2-point deduction for every 4% difference in price.2 Applying

this new formula, a one percent cost difference corresponded to

2.5%, rather than one percent, of the number of points assigned

to cost.3

2 As the transportation management company employee's

affidavit revealingly states, this was "a point to percentage

ratio," rather than the "percentage to points ratio" contemplated

by the RFP.

3 The County, in trying to explain why it deviated from

its own specification, provided contradictory explanations that

lack a rational basis. In an email, the transportation

management company employee claimed that she had awarded points

in the cost category by deducting a certain number of points for

every $10,000 difference between the cost proposals. Such a

method bears no resemblance to a percentage to points ratio. 

Shortly thereafter, the same employee submitted the affidavit in

which she stated that the County deducted two points for every 4%

difference in price. In an attempt to justify this change, the

employee alluded to "a 7% difference in price between the lowest

bidder VW and the next lowest bidder Quality" in the third zone,

and suggested that no points could have been deducted from

Quality had the RFP's formula been used. The reasoning is

spurious. A 7% difference between VW and Quality in the third

zone would have equated to a 1.4-point deduction to Quality, the

second-lowest offeror, not a zero deduction, and this number

could have been rounded down to a 1-point deduction.

Additionally, the record reflects that the County awarded 18

points to Quality for cost in the third zone. Under the formula

that the County purportedly used, a 7% difference would have

equated to a 4-point deduction or 16, rather than 18, points for

Quality in the third zone, bringing into question whether the

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The County abandoned the cost formula it had promised

to apply and instead created a new formula that disfavored ACME. 

This was arbitrary and capricious for two, independent reasons.

First, the County's failure to follow the cost category

evaluation criteria outlined in the RFP was in violation of the

County's own procurement policy, stating that the "award . . .

must be made in accordance with the evaluation criteria specified

in the RFP" (emphasis added). We have repeatedly held in a

variety of contexts that an agency acts arbitrarily when it fails

to comply with its own rules (see e.g. Vukel v New York Water &

Sewer Mains, Inc., 94 NY2d 494, 497 [2000]; Frick v Bahou, 56

NY2d 777, 778 [1982]). The same principle applies to the County

here.

The second reason has significance that extends beyond

the present case. In Matter of AAA Carting & Rubbish Removal,

Inc. v Town of Southeast (17 NY3d 136 [2011]), we held that a

municipal contract, awarded pursuant to the competitive bidding

statute, should be vacated if the municipality "accept[ed] a

higher bid based on subjective assessment of criteria not

specified in the bid request," because such an action "gives rise

to speculation that favoritism, improvidence, extravagance, fraud

or corruption may have played a role in the decision" (AAA

Carting & Rubbish Removal, Inc., 17 NY3d at 144). We conclude

County used that formula after all.

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that the policy grounds articulated in AAA Carting with respect

to the competitive bidding procedures of General Municipal Law §

103 apply to the procedures under § 104-b at issue here. 

We now hold that an award of a contract under General

Municipal Law § 104-b is arbitrary and capricious if the

municipality evaluates a proposal using a standard that deviates

from a standard expressly set forth in the RFP. Such a deviation

betrays a lack of "sound basis in reason" for the determination

(Matter of Murphy v New York State Div. of Hous. & Community

Renewal, 21 NY3d 649, 652 [2013]; see generally Pell v Board of

Education, 34 NY2d 222, 231 [1974]).

Our holding promotes the goals of fairness and the

prevention of fraud and corruption in the bidding process. The

offeror is given notice of the standards to be applied and acts

accordingly. When different standards are applied, the process

is subverted. Changing the expressly defined rules mid-way gives

rise to speculation of fraud or corruption.

The County would have us distinguish General Municipal

Law §§ 103 and 104-b in this regard. The statutes, however, are

alike in a fundamental legislative purpose. The primary purposes

of competitive bidding under General Municipal Law § 103 "are the

(1) protection of the public fisc by obtaining the best work at

the lowest possible price; and (2) prevention of favoritism,

improvidence, fraud and corruption in the awarding of public

contracts" (AAA Carting & Rubbish Removal, Inc., 17 NY3d at 142

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[internal quotation marks omitted] [emphasis added]). Similarly,

under General Municipal Law § 104-b, services that are not

required by law to be procured by competitive bidding must

nevertheless "be procured in a manner so as . . . to guard

against favoritism, improvidence, extravagance, fraud and

corruption" (General Municipal Law § 104-b [1]; see also Assembly

Sponsor's Mem in Support, Bill Jacket, L 1991, ch 413 at 22). It

is true that, pursuant to General Municipal Law § 103, the

contract must be awarded to the lowest responsible bidder,

whereas under General Municipal Law § 104-b a contract may be

awarded to one other than the lowest responsible dollar offeror

if the municipality can justify the award (see General Municipal

Law § 104-b [2] [e]). However, insofar as the prevention of

favoritism, fraud and corruption is concerned, the purpose is

identical. The policy reasoning underlying our decision in AAA

Carting & Rubbish Removal, Inc. -- "guard[ing] against such

factors" (AAA Carting & Rubbish Removal, Inc., 17 NY3d at 144) --

is equally applicable in the General Municipal Law § 104-b

context under the circumstances here, where a municipality

evaluates a proposal by a standard which is not consistent with

that set forth in the RFP.

The County emphasizes that it was changing its

standards to ensure that the lowest cost proposal was accepted. 

If the County believed that the RFP's methodology did not

adequately reflect the importance of the cost consideration, its

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only option was to reject all the proposals and start over with

an RFP that better reflected the weight to be given to cost (see

AAA Carting & Rubbish Removal, Inc., 17 NY3d at 144). The County

could not change its own rules mid-game, no matter the benefits. 

Indeed, to allow such conduct would be an invitation to

impropriety. It would give any corrupt municipal employee a

blueprint for avoiding judicial review of bid-rigging: first,

advertise one set of standards in the request for bids; then,

after the proposals have been received and the sealed portions

opened, devise new standards to enable selection of your favored

company, while making sure that your selection seems

superficially reasonable from an economic point of view.

The dissent's suggestion that it is improper to

overturn the County's award where there is no evidence of

"improper motives" (dissenting op at 5) fails to recognize that

awards may be overturned even without evidence of actual

impropriety. The test is whether the award is "irrational,

dishonest or otherwise unlawful" (AAA Carting & Rubbish Removal,

Inc., 17 NY3d at 142, quoting Matter of Conduit & Found. Corp. v

Metropolitan Transp. Auth., 66 NY2d 144, 149 [1985]). We

overturn actions in which agencies fail to comply with their own

rules not only to combat actual unfairness, but also to uphold

the public's perception that these agencies act fairly in

awarding contracts. Moreover, the dissent's hypothesis that

"[h]ad Orange County provided no example, it could have justified

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its choice of the actual formula as rational" (dissenting op at

6) lacks merit, because the meaning of a percentage to points

ratio is commonly understood, with or without an example. The

new formula used by the County in the dissent's hypothetical

scenario would still represent a material change from the RFP

criterion.

In sum, the County acted arbitrarily as a matter of law

by accepting proposals based on a method of evaluation that is

inconsistent with the standard set out in its RFP. Its

determination must be set aside. There is no necessity for us to

consider ACME's remaining arguments.

Accordingly, the order of the Appellate Division should

be reversed, with costs, and the matter remitted to Supreme Court

for further proceedings in accordance with this opinion.

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Matter of ACME Bus Corp. v Orange County

No. 182 

GARCIA, J.(dissenting):

ACME, an unsuccessful bidder, seeks to vacate a

contract that Orange County awarded to the lowest bidder after

evaluating all proposals pursuant to a proper RFP. ACME bore the

burden here of demonstrating "actual impropriety, unfair dealing,

or some other violation of statutory requirements when

challenging an award of a public contract" (ACME Bus Corp. v Bd.

of Educ. of Roosevelt Union Free Sch. Dist., 91 NY2d 51, 55

[1997]). Because ACME has failed to demonstrate that this

contract was awarded arbitrarily and capriciously or without

rational basis, I would decline to set aside Orange County's

decision.

ACME submitted two proposals, one with pricing for each

zone separately and one with combined, discounted pricing for all

three zones. There is no dispute that in terms of cost -- under

both proposals -- ACME was the most expensive. Nevertheless, the

majority faults Orange County for awarding the contract to the

lower bidder because of what it characterizes as a wholesale

"deviat[ion] from the criteria specified in its RFP" (majority op

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at 6). A review of the language of the RFP and the review by

Orange County of the proposals shows that this was not the case. 

The RFP stated that the cost category would be worth 20

percent of the overall score, demonstrating Orange County's

assessment of the weight to be given to this important factor. 

Further, the RFP noted this category would be scored on a

"percentage to points" ratio and provided an example of how this

ratio would be applied: "The Offeror submitting the lowest cost

proposal will be awarded 20 points. Awarding of points to the

remaining Offerors will be based on percentage to points ratio;

example: if the total cost between the lowest Offeror and the

next lowest Offeror is 10% then Offeror two will have 2 points

deducted from the maximum score of 20" (emphasis added). The

majority describes the example's language as "emphatic" (majority

op at 6). But the language is far from emphatic, nor does it

contain any language that supports the majority's interpretation

of the example as mandatory. The RFP could have stated that "the

percentage to points ratio will use the following formula." 

Instead, the RFP stated that it would use a percentage to points

ratio, and then provided a hypothetical example of its

application. While Orange County did not apply the formula given

in the example, a rational basis existed for applying the ratio

used, and the failure to do so is not equivalent to changing the

RFP's criteria (see Awl Indus. v Triborough Bridge & Tunnel

Auth., 41 AD3d 141, 142-143 [1st Dept 2007]). 

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The scorer of the cost category explained that the

formula actually applied differed from the example provided in

the RFP in an attempt to "establish a point to percentage ratio

that could be applied to each and every cost proposal in each

zone fairly and accurately representing the proposed costing

impact to the County" in light of a very small difference in

price between the lowest bidder VW and the next lowest bidder

Quality. The record supports this argument. Orange County

rationally decided that had it applied the ratio as demonstrated

in the RFP example, the significant price differential between

ACME and the other proposals would not have been adequately

reflected and so the differential in the points awarded would not

have accurately reflected the weight to be given to this cost

consideration. As the example was just that -- an example -- the

decision to deviate from the hypothetical was not a failure to

follow the agency's own rules (see majority op at 8) and was not

arbitrary and capricious. Moreover, the formula actually used by

Orange County ensured that the final awards accurately reflected

cost. Had the formula in the example been used instead,1 the

proposals would have been scored in a way that did not

appropriately "assure the prudent and economical use of public

1 Even if the proposals had been scored in complete

compliance with the descriptive example provided in the RFP, ACME

still would have scored lower in the cost category than Quality

in Zones 1 and 2. While ACME would have had a higher total score

than VW in Zone 3 under that formula, VW's proposal still cost

approximately $68,000 per month less than ACME's in Zone 3. 

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moneys in the best interests of the taxpayer" (General Municipal

Law § 104-b [1]). Accordingly, Orange County's decision not to

apply the percentage to points ratio in the exact manner

described in the RFP's example had a rational basis and ACME has

failed to demonstrate "favoritism, improvidence, fraud [or]

corruption stemming from the process used to award the subject

school transportation contracts" (ACME Bus Corp., 91 NY2d at 56). 

Orange County's actions here were entirely consistent

with the guiding principles of General Municipal Law § 104-b

governing the RFP process, which is intended to be less stringent

than section 103's competitive bidding procedures (see Matter of

Quest Diagnostics, Inc. v County of Suffolk, 21 Misc 3d 944, 951

[Sup Ct Suffolk County 2008] [noting that the Legislature

intended by means of General Municipal Law § 104-b to "afford[]

the municipalities a measure of discretion in determining what

constitutes their best interests"]); Awl Indus., 41 AD3d at 142-

143 ["(W)hile it is true that all who submit proposals (under

RFPs) must be treated fairly, there is no legal requirement that

a final contract must conform to the original RFP"]). The

majority relies heavily on cases discussing contracts awarded

pursuant to General Municipal Law § 103, which is inapplicable to

the RFP process here. The fact that section 104-b bestows the

counties with increased flexibility in the conduct of their RFPs

than that which applies under section 103 is unacknowledged by

the majority. Even the cases applying section 103 on which the

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majority relies, however, focus on preventing municipalities from

awarding a contract to a "higher bid" (majority op at 8-11 citing

AAA Carting & Rubbish Removal, Inc., 17 NY3d 136, 144 [2011]). 

While we agree with the majority that section 104-b, like section

103, focuses on protection of the public fisc and prevention of

fraud, the majority's holding undoes an award that protected the

former without any evidence at all that Orange County acted with

improper motives. 

 In addition, the majority's analysis of Orange

County's procurement policy overlooks the fact that, had Orange

County awarded the contract to ACME, it would have had to address

the requirements of section 104-b. Section 104-b mandates a

written justification when an award does not go to the lowest

priced proposal that must address "how such an award furthers the

public good; assures the prudent use of taxpayers' money; ensures

that the purchased goods are of the best quality at the lowest

possible cost in light of the circumstances existing; and guards

against favoritism, extravagance, fraud and/or corruption." An

award to ACME, as a higher bidder, would have required Orange

County to submit such a written justification addressing those

factors, yet the record does not demonstrate that Orange County

would have been able to articulate proper justifications

sufficient to comply with this policy, in light of the $68,000

per month cost difference between ACME and VW. Its only

justification would have been its inability to deviate from an

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example of the formula provided in the RFP despite the fact that

it did not accurately account for cost differential.

It seems unfair to suggest that refusing to overturn as

arbitrary and capricious a county's use of a ratio that more

accurately reflects the cost differential among bidders, and

results in the award of the relevant contract to the lowest

bidder, will result in a green light for municipal employees to

engage in impropriety (majority op at 11). Rather, the

majority's holding empowers losing bidders to sue counties

immediately upon the award of the contract to a lower bidder, and

will require counties to factor into their budgets the cost of

article 78 proceedings and FOIL requests following the conduct of

any RFP process (see e.g. ACME Bus Corp. v County of Suffolk, 136

AD3d 896 [2d Dept 2016]); Wilson Omnibus Corp. v Fallsburg Cent.

Sch. Dist., 167 AD2d 803 [3d Dept 1990]). 

Had Orange County provided no example, it could have

justified its choice of the actual formula as rational, indeed

prudent. Perhaps the only lesson from today's decision is that

counties should leave themselves the flexibility afforded by

section 104-b by not providing any such guidance or by making

clear that any example is just that and not an invitation for

costly litigation that ultimately undermines the very purpose of

that statute.

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* * * * * * * * * * * * * * * * *

Order reversed, with costs, and matter remitted to Supreme Court,

Orange County, for further proceedings in accordance with the

opinion herein. Opinion by Judge Fahey. Chief Judge DiFiore and

Judges Rivera, Abdus-Salaam and Stein concur. Judge Garcia

dissents and votes to affirm in an opinion in which Judge Pigott

concurs.

Decided November 22, 2016

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