By: Alexander A. Miuccio Published: July 2015

Contractor Allowed to Sue Public Works Consultant for Manipulating Bid Process

Claims for unlawful or tortious interference with contracts arise when a third party intentionally interferes with a contractual relationship and causes a party to lose the economic benefit of the contract. For example, unlawful interference may occur when a contractor intentionally induces an owner or developer to terminate its contract with a competing contractor.

In the recent case of Chenango Contracting, Inc. v Hughes Associates, a subcontractor sued a consultant to a State University project for tortious interference with the contractual relationship between the subcontractor and its prime contractor, and for wrongful interference with prospective business on other projects on the ground that the consultant intentionally manipulated the bid process.

Background

Chenango Contracting is an installer of artificial athletic turf. Chenango was retained by Adhan Piping Company, SUNY Cortland’s prime contractor, to install artificial turf at the Cortland campus. Chenango generally uses a product called FieldTurf for such projects. Chenango also sought to submit bids to install artificial turf at two other projects, one at SUNY Brockport and the other at the Niagara Falls City School District.

A competitor of FieldTurf in the artificial turf installation business is A-Turf. Hughes was retained as a consultant by SUNY to, among other things, prepare and review bid specifications for the installation of an artificial turf field at the Cortland campus. The bid specifications prepared by Hughes required A-Turf “or approved equal”. Hughes was subsequently retained as the design consultant for the Brockport and Niagara Falls projects, and Hughes again presented bid specifications which required A-Turf “or approved equal” and were tailored to favor the A-Turf product.

Chenango submitted several samples of FieldTurf to Hughes for use as an “approved equal” on the Cortland project. Hughes, however, rejected all non A-Turf samples and, as a result, Adhan terminated Chenango’s subcontract for the Cortland project (and used the A-Turf at the Cortland campus). Subsequently, A-Turf was also utilized for the Brockport and Niagara Falls projects.

Chenango sued Hughes for tortious interference with contract as to the SUNY Cortland project, and for tortious interference with prospective business as to the Brockport and Niagara Falls projects. Chenango claimed, among many others, that FieldTurf is used at numerous professional and collegiate sports facilities, and that Chenango has installed the product at a long list of major colleges and universities, as well as high schools. Chenango also claimed that Hughes was in contact with A-Turf and plotted ways to favor A-Turf while excluding Chenango and other competitors.

In furtherance of Hughes’ plan to favor A-Turf, Chenango claimed that Hughes misrepresented and/or withheld information from SUNY Cortland and other public entities in an effort to undermine Chenango and ensure that A-Turf was used on the Cortland project. As to the Brockport and Niagara Falls projects, Chenango claimed that, in collusion with A-Turf, Hughes crafted specifications to mirror A-Turf's proprietary product so as to eliminate all competitors.

Hughes moved to dismiss Chenango’s lawsuit, arguing that Chenango’s remedy was to sue SUNY in an Article 78 proceeding, rather than sue the consultant.

Decision

The court denied Hughes’ motion to dismiss Chenango’s claim, finding that the laws requiring competitive bidding were designed to benefit taxpayers rather than corporate bidders and, therefore, should be construed and administered with sole reference to the public interest. While noting that an Article 78 proceeding against a public entity is generally the remedy for a violation of the competitive bidding statutes, it acknowledged that a narrow exception may exist where a plaintiff does not seek relief from the public entity, but brings an action directly against someone working on behalf of the public entity engaged in egregious conduct unknown to the public entity aimed at intentionally subverting a bid process. Accordingly, the Court held that Chenango’s claim against the consultant for restricting competition to artificial turf manufactured by A-Turf could be part of a claim recognized under the narrow exception.

Comment

New York’s competitive bidding statutes are violated when the bid specifications preclude true competitive bidding. Specifications may not be manipulated so as to shut out competitive bidding or permit unfair advantage or favoritism. In this case, if proven at trial, the SUNY consultant acted in bad faith by refusing to allow Chenango’s “or equal” artificial turf product to be used at the SUNY Cortland project without justification. Normally, the public entity is sued in an Article 78 proceeding when it is claimed that the specifications were drawn to favor a particular manufacturer. However, SUNY had no knowledge of the consultant’s manipulation of the bid process to favor a particular manufacturer. Specifications for public projects are illegal when they are drawn not for any reason in the public interest but, rather, to insure the award of the contract to a particular manufacturer.

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