Opinion ID: 2320838
Heading Depth: 1
Heading Rank: 5

Heading: State Purchases Act

Text: We now address the question of law that may affect numerous large-scale state construction projects, namely, whether the state purchases act permits or prohibits the use of PLAs in conjunction with the award of public contracts. In 1989, the state legislature enacted sweeping legislation that updated the law governing state procurement by repealing chapter 2 of title 37 of the General Laws in its entirety and replacing it with a new set of provisions based on the American Bar Association's Model Procurement Act. P.L. 1989, ch. 526, §§ 1 and 2. The new legislation, entitled State Purchases, directed: This chapter shall be liberally construed and applied to promote its underlying purposes and policies, § 37-2-2(a), namely, to: (4) Provide for increased public confidence in the procedures followed in public procurement; (5) Insure the fair and equitable treatment of all persons who deal with the procurement system of the state; (6) Provide increased economy in state and public agency procurement activities by fostering effective competition; (7) Provide safeguards for the maintenance of a procurement system of quality, integrity and highest ethical standards; and (8) Ensure that a public agency, acting through its existing internal purchasing function, adheres to the general principles, policies and practices enumerated herein. Section 37-2-2(b). The primary goals of the statute are similar to those of the competitive bidding statutes in New York and Massachusetts, namely, (1) protection of the public fisc by obtaining the best work at thelowest possible price; and (2) prevention of favoritism, improvidence, fraud and corruption in the awarding of public contracts. New York State Chapter, Inc. v. New York State Thruway Authority, 666 N.E.2d 185, 190 (N.Y.1996) (hereinafter, New York Thruway ); see John T. Callahan & Sons, Inc. v. City of Malden, 713 N.E.2d 955, 961 (Mass.1999) (quoting same). Section 37-2-18 of the statute, which sets forth the guidelines for competitive sealed bidding, provides in part: (a) Contracts exceeding the amount provided by § 37-2-22 [$10,000 for construction] shall be awarded by competitive sealed bidding unless it is determined in writing that this method is not practicable.    (b) The invitation for bids shall state whether the award shall be made on the basis of the lowest bid price or the lowest evaluated or responsive bid price. If the latter basis is used, the objective measurable criteria to be utilized shall be set forth in the invitation for bids, if available.    (e) The contract shall be awarded with reasonable promptness by written notice to the responsive and responsible bidder whose bid is either the lowest bid price, lowest evaluated, or responsive bid price. Interpreting nearly identical provisions in the municipal competitive bidding statute, we held that such language does not preclude an awarding authority from taking into account factors beyond price when selecting the `best' or `superior' bidder. H.V. Collins Co. v. Tarro, 696 A.2d 298, 303 (R.I.1997). In addition, § 37-2-31 provides that [s]ubject to the limitations of §§ 37-2-29 and 37-2-30, any type of contract which will promote the best interests of the state may be used. At present, neither the state purchases act nor the regulations promulgated pursuant to the statute refers to PLAs. In consideration of these factors, we are of the opinion that PLAs, such as the URI PLA, do not per se violate the state purchases act, nor are PLAs per se permissible under the statute and indeed, contractors conceded that they never claimed that project labor agreements are per se illegal. Section 37-2-51 establishes a presumption of correctness for state procurement decisions: The decision of any official, board, agent, or other person appointed by the state concerning any controversy arising under or in connection with the solicitation or award of a contract shall be entitled to a presumption of correctness. The decision shall not be disturbed unless it was: procured by fraud; in violation of constitutional or statutory provisions; in excess of the statutory authority of the agency; made upon unlawful procedure; affected by other error or law; clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; arbitrary; capricious; characterized by an abuse of discretion; or clearly unwarranted exercise of discretion. This presumption comports with the standard enunciated by this Court in the seminal case of Gilbane Building Co. v. Board of Trustees of State Colleges, 107 R.I. 295, 300, 267 A.2d 396, 399 (1970), in describing judicial review of state contract awards: The judiciary will interfere with an award only when it is shown that an officer or officers charged with the duty of making a decision has acted corruptly or in bad faith, or so unreasonably or so arbitrarily as to be guilty of a palpable abuse of discretion. We noted that [a] similar rule prevails in most jurisdictions under statutes requiring that contracts for public improvements be given to the `lowest responsible bidder.' Id. We have also applied this standard to the award of municipal contracts under municipal competitive bidding statutes. See H.V. Collins Co., 696 A.2d at 302; Truk Away of Rhode Island, Inc. v. Macera Bros. of Cranston, Inc., 643 A.2d 811, 816 (R.I.1994); Paul Goldman, Inc. v. Burns, 109 R.I. 236, 240, 283 A.2d 673, 676 (1971). We are of the opinion that the requirements of the Gilbane rule have been incorporated, expanded, and made applicable to procurement decisions under the state purchases act, thereby reaffirming the principle that government by injunction save in the most compelling and unusual circumstances is to be strictly avoided. Truk Away, 643 A.2d at 816. In general, [w]e do notbelieve    that those whose duty it is to contract for the construction of a public improvement should be placed in a legalistic straitjacket. Gilbane, 107 R.I. at 302, 267 A.2d at 400. Nevertheless, when, as here, a PLA requirement is at issue, we believe that the state bears a different burden than when other types of specifications are at issue. Under the Gilbane standard, the party challenging a state procurement decision or bid specification generally bears the burden of proof. Id. at 300, 267 A.2d at 399. But here, as was pointed out by the New York Court of Appeals: By comprehensively requiring all bidders to conform to a variety of union practices and limiting their autonomy to negotiate employment terms with a labor pool that includes nonunion workers  attributes that, by their scope, set these agreements apart from more common specifications, like construction materials or design criteria  PLAs have an anticompetitive impact on the bidding process. New York Thruway, 643 N.Y.S.2d 480, 666 N.E.2d at 188. Thus, although any bid specification may narrow the universe of potential bidders on a project by requiring specialized skills, materials, or conditions, PLAs deter a particular class of bidders, namely, nonunion bidders, from participating in the bid process for reasons essentially unrelated to their ability to competently complete the substantive work of the project. On the other hand, as the size and complexity of a project increases, so too does the premium on timely completion, and for certain projects, the potential benefits of a PLA, such as the ban on work stoppages, may come to outweigh the anticompetitive impact of such agreements. Moreover, the assurance of predictable costs and the procurement of a steady supply of labor should not depend on whether the owner of the project is a public or private entity. To the extent that a private purchaser may choose a contractor based upon that contractor's willingness to enter into a prehire agreement, a public entity as purchaser should be permitted to do the same. Building & Construction Trades Council v. Associated Builders & Contractors of Mass./R.I., Inc., 507 U.S. 218, 231, 113 S.Ct. 1190, 1198, 122 L.Ed.2d 565, 579 (1993). (Emphasis in original.) In circumstances similar to those that existed in the case before us, the New York Court of Appeals reasoned that when a PLA appears as a specification in a public contract, more than a rational basis must be shown for its inclusion. New York Thruway, 643 N.Y.S.2d 480, 666 N.E.2d at 190. The public authority's decision to adopt such an agreement for a specific project must be supported by the record; the authority bears the burden of showing that the decision to enter into the PLA had as its purpose and likely effect the advancement of the interests embodied in the competitive bidding statutes. Id. After citing New York Thruway with approval in Callahan, the Massachusetts Supreme Judicial Court set a similar standard for the adoption of PLAs under that state's competitive bidding statutes: We agree with [the New York court's] formulation. When an awarding authority's use of a PLA is challenged, the authority bears the burden of demonstrating that it adopted a PLA to further the purposes of the competitive bidding statute   .    In other words, a PLA will not be upheld unless (1) a project is of such size, duration, timing, and complexity that the goals of the competitive bidding statute cannot otherwise be achieved and (2) the record demonstrates that the awarding authority undertook a careful, reasoned process to conclude that the adoption of a PLA furthered the statutory goals.  Callahan, 713 N.E.2d at 961. (Emphasis added.) We are persuaded that the reasoning of the New York and Massachusetts courts can be effectively applied in interpreting Rhode Island's competitive bidding statute. Therefore, we are of the opinion that an awarding authority may include a PLA as a bid specification in a public contract, but the awarding authority may do so only after it has established that (1) the size and complexity of the project are such that a PLA supports the goals and objectives of the state purchases act, and (2) the recorddemonstrates that the awarding authority has conducted an objective, reasoned study using reviewable criteria in determining that the adoption of a PLA helps to achieve the goals of the state purchases act. If the awarding authority does so, then its decision to adopt a PLA will be entitled to the presumption of correctness, provided by § 37-2-51. The burden then will shift to the party challenging the decision to prove that adopting a PLA was nonetheless unwarranted for any of the reasons specified in § 37-2-51, for example, that the decision was made in excess of the statutory authority of the agency. If, on the other hand, the awarding authority fails to conduct an objective, reasoned study before adopting a PLA, then the decision to adopt a PLA will not be entitled to the presumption of correctness and will be invalidated ab initio.  Post hoc rationalization for the agency's adoption of a PLA cannot substitute for a showing that, prior to deciding in favor of a PLA, the agency considered the goals of competitive bidding. New York Thruway, 643 N.Y.S.2d 480, 666 N.E.2d at 193. In the instant case, the trial justice found that an appropriate study is required so that the decision-maker can be armed with appropriate facts and not simply rely on long-held assumptions in exercising the discretion vested in him. The failure here to use studied examination of the impact of a project labor agreement on the underlying purposes and policies of the purchasing act    does lead, in the opinion of this Court, to an arbitrary decision predicated on a clearly unwarranted exercise of discretion without the facts upon which to base it. The fact that some bid packages were withdrawn precipitously, then reissued with the PLA addendum, supported the finding that the procedure was arbitrary and capricious, and any alleged threats of labor unrest alone did not provide a sufficient basis on which to issue a PLA. The trial justice summed up, [A]bsent a demonstrated, reviewable study serving as the basis for the designation of this as a PLA project, such requirement is violative of our state purchasing law. Although an evaluative cost study is not a per se requirement under the state purchases act, and the state purchasing regulations do not impose such a requirement, it is our opinion that before adopting a PLA, an awarding authority must carry out an objective, reasoned evaluation that has incorporated reviewable criteria in order to fulfill the goals and purposes of the state purchases act, given a PLA's anticompetitive effect. The study should assess[] specific project needs and demonstrate[] that a PLA [is] directly tied to competitive bidding goals. New York Thruway, 643 N.Y.S.2d 480, 666 N.E.2d at 191. An objective, reasoned evaluation is necessary to dispel any suggestion of caprice or arbitrariness in imposing this type of contract. Because we believe that PLAs can be imposed only after the awarding authority has carried out an evaluative study, the trial justice did not err in so finding. Our stay of the judgment in this case acknowledged the reality that contracts had been awarded and that the project was well on its way. Notwithstanding our stay of the judgment, it is our conclusion that the requirement of a PLA in a public contract can be imposed only after an evaluative study has provided evidence that the goals and purposes of the state purchases statute can thereby be achieved.