Municipalities are required by statute to award contracts to the “lowest responsible bidder.” In making its lowest responsible bidder determination, city agencies are directed to use information supplied by prospective contractors including VENDEX (acronym for Vendor Information Exchange) and prequalification questionnaire replies. VENDEX forms are completed by a contractor as part of the bid process, which a city relies on in evaluating the lowest responsible bidder designation.
A responsible contractor determination is normally made prior to the award of the contract to the contractor. But what if a city discovers that the contractor made false statements or withheld information on its VENDEX form after the contractor was paid for substantial completion of the work and the contractor sues the city to recover delay damages? Can the city disregard the contract and avoid payment based on the contractor’s false VENDEX statements? This question was addressed in the recent case of Omni Contracting Company, Inc. v. The City of New York.
In June 2005 Omni Contracting Company, Inc. submitted a bid to contract for a public improvement project known as “Reconstruction of Thompson Street (Vesuvio) Playground.” The contract was awarded to Omni. In March 2006 the contractor entered into an agreement with the New York City Department of Parks and Recreation to construct the project. The contract price was $2,127,000. The contractor was originally required to complete work within 270 consecutive calendar days. During construction the contractor requested, and the City approved, six time extensions, extending the project’s completion date by nearly seven months. The City paid the contractor $2,143,866 for its work under the contract. Thereafter, the contractor sued the City, alleging that it had fully performed the contract, but that its performance was delayed by the acts of the City, and those delays caused the contractor to incur $319,386 in additional costs.
In defense to the contractor’s lawsuit, the City argued that it was fraudulently induced to enter into the contract. According to the City, the contractor made false statements and withheld information on its VENDEX form originally filed with the City in April 2004, and reaffirmed those same false statements in July 2004, February 2005, and April 2005, in the contractor’s sworn “no change” certifications.
Accordingly, it was the City’s argument that when the contractor submitted its bid for the playground project in June 2005, the contractor failed to make a required disclosure regarding its failure to pay employees a prevailing wage on several of the contractor’s other projects with the City. Based on the failed disclosure, the City argued that in was fraudulently induced to enter into the contract. The City moved for summary judgment, seeking to dismiss the contractor’s claims.
The court ruled in favor of the City. The court first noted the requirement that public projects be awarded to the lowest responsible bidder. It went on to note that under the New York City Procurement Policy Board Rules, the “failure of a firm to provide relevant information specifically requested by the Contracting Officer may be grounds for a determination of non-responsibility.” Since the contractor failed to provide requested information relating to its past prevailing wage investigations and violations, which occurred in 1999, 2001, 2004 and 2006, the court held that the contractor was not a “responsible” contractor.
The court went on to state that contracts procured through fraudulent bidding are void as against public policy. Where work is done pursuant to such an illegal contract, the court held that the contractor is not entitled to recover on its claims. Additionally, the court pointed out that the municipality can recover from the contractor all amounts paid under the illegal contract.
The court accordingly dismissed the contractor’s delay claim for the $319,386. Given that the City was not seeking to recover the entire amount paid to the contractor, the contractor was permitted to retain the monies previously paid to it by the City.
This case emphasizes the importance of accurately completing and updating VENDEX and prequalification questionnaire replies. The failure to do so may not only support a non-responsible determination, but, as shown, it may also be grounds for non-payment for work performed and the recovery of payments already made for work performed.
About the author: Mr. Miuccio is a partner of the law firm of Welby, Brady & Greenblatt, LLP and General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc.