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By: Thomas H. Welby Gregory J. Spaun Published: October 2019

Appellate Court Upholds of Dismissal of Claims for Delay Damages and Contract Balance Based on False Vendex Submission

New York’s competitive bidding statutes require contracts for public work to be awarded to the lowest responsible and responsive bidder. The statutes are designed to reject a contractor who is unqualified or whose bid is not responsive to the criteria in the request for bids. Although the law does not define “responsible”, it has been interpreted as meaning that the low bidder has sufficient skill, experience, financial resources and integrity to perform the contract. In determining whether a bidder is responsible, a public agency may require the submission of information and documentation, and it may consider information already on file with the agency.

In the recent case of Omni Contracting Co., Inc. v New York City Housing Authority, an appellate court showed exactly how strong the public policy underlying the competitive bidding statutes is by upholding the “harsh result” of the dismissal of an otherwise valid $3.6 million delay claim and a $1.1 million contract balance claim based on false statements made by the contractor in its submissions to the New York City Vendor Information Exchange (“Vendex”).

Background

Between May of 1999 and July of 2002, Omni was the target of two Department of Labor investigations stemming from its (or its subcontractors’) failure to pay prevailing wage on two public works projects. Omni resolved one of these investigations by entering into an agreement to pay delinquent prevailing wages on behalf of one of its subcontractors. The other investigation was resolved against Omni after a hearing, at which it was found that Omni and its affiliated subcontractor had underpaid workers and filed false certified payroll documents. During this same time period, Omni made several submissions to Vendex in connection with bids on eight other public works projects. The Vendex questionnaires submitted by Omni asked whether there were any administrative charges pending against the bidder, and whether the bidder was the subject of an investigation. Omni responded “no” to each of these inquiries. In connection with the bid it was ultimately awarded, the Housing Authority required Omni to respond to a questionnaire asking whether there were any actions or proceedings pending or concluded within the 5 years preceding the submission, and whether there were any unsatisfied claims or causes of action pending against the bidder. Omni similarly responded “no” to each of these inquiries.

Based on the above questionnaire responses and its low bid, Omni was awarded the contract for work at the Morrisania Houses on July 30, 2002. The principal contract amount was for $9,067,000, and the work was supposed to have been completed by October 13, 2004. The project was delayed, and the work was ultimately completed on July 30, 2009. Shortly before the completion of the project, Omni sued the Housing Authority, seeking delay damages in the amount of $3,603,764, and to recover an unpaid contract balance of $1,161,937. In its answer, the Housing Authority alleged that the contract was procured by fraudulent means in that Omni made false representations in its responses to the Vendex and pre-bid questionnaires. After discovery, the Housing Authority moved for summary judgment dismissing Omni’s complaint. The Housing Authority argued that as a result of Omni’s fraud in obtaining the contract, it was void as against public policy, and that Omni was prohibited from realizing any recovery on that void contract.

Decision

The motion court granted the Housing Authority’s motion and dismissed Omni’s complaint. The court did side with Omni with regard to the answers it gave in response to the Housing Authority’s own pre-bid questionnaire, specifically finding that with the language of the questions, as posed, a bidder could have reasonably interpreted the questions as being limited to actual court cases. However, the court found that the Vendex questions were sufficiently broad that a reasonable bidder should have understood that they included the administrative DOL investigations. Accordingly, the court held that Omni’s negative responses on the Vendex questionnaires could only be described as fraudulent and designed to procure public works contracts under false pretenses. In that regard, and in what it described as a “harsh result”, the motion court dismissed Omni’s complaint, and left it with no recovery on over $4.7 million in claims.

Omni took an appeal from the dismissal of its complaint, and the appellate court affirmed. In doing so, that court found that Omni should have known that the Vendex responses Omni made to one agency would be made available to other agencies, including the Housing Authority. Accordingly, the Housing Authority did not need to specifically inform Omni that it was going to consult Vendex. As the information Omni submitted to Vendex was false, the Housing Authority was able to avoid the contract and leave Omni without any recovery on its claims.

Comment

The public bidding statutes evince a strong public policy of fostering honest competition in order to obtain the best work or supplies at the lowest price. Omni Contracting shows how far courts will go in defending that public policy, going so far as to mete out “harsh results” and void contracts procured through fraud—even where such results in the invalidation of over $4.7 million in otherwise valid claims. Accordingly, bidders for public works projects would be well advised to be forthright and honest in responding to requests for information and questionnaires, and to keep in mind that previous submissions on other public work projects may be accessible to other agencies. This is especially true with the issuance of Executive Order No. 192.

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