Opinion 89-3

This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

PUBLIC CONTRACTS -- Purchases through County or State (must be under same terms and conditions as the state or county contract) -- Contracts Requiring Bidding (purchase from State contract vendor under terms and conditions varying from State contract)

GENERAL MUNICIPAL LAW, §§104, 109-b: The exception for purchases made through the New York State Office of General Services does not apply to a purchase from the State contract vendor upon terms and conditions which materially or substantially vary from the State contract.

This is in reply to your inquiry concerning a purchase of equipment by a political subdivision from a vendor holding a State contract which contains a price extension clause allowing political subdivisions to participate in the contract award. You state that the State contract, as extended, is for an outright purchase rather than an installment purchase. You ask whether, under these circumstances, the political subdivision, without competitive bidding, may enter into a 60-month installment purchase agreement with the State vendor. You note that total payments due under the installment contract are in excess of the competitive bidding monetary threshold and that the payments include interest at a rate stated in the contract.

General Municipal Law, §109-b authorizes political subdivisions to enter into installment purchase contracts for equipment, machinery and apparatus (General Municipal Law, §109-b[3]). Subdivision six of section 109-b provides that contracts entered into pursuant to section 109-b shall constitute purchase contracts for competitive bidding purposes and shall be subject to competitive bidding requirements if the total amount proposed to be paid over the term of the contract exceeds the monetary threshold fixed for purchase contracts under General Municipal Law, §103. General Municipal Law, §103 provides that, except as otherwise expressly provided by the State Legislature or by local law adopted prior to September 1, 1953, all purchase contracts involving an expenditure in excess of $5,000 must be awarded to the lowest responsible bidder after public advertisement for sealed bids in the manner prescribed by that section.

Section 104 of the General Municipal Law provides an exception to the bidding requirements of section 103 for purchases made through the New York State Office of General Services (OGS):

Notwithstanding the provisions of section one hundred three of this chapter or of any other general, special or local law, any officer, board or agency of a political subdivision ... authorized to make purchases of materials, equipment or supplies, may make such purchases, except of printed materials, through the office of general services subject to such rules as may be established from time to time pursuant to section one hundred sixty-three of the state finance law; provided that any such purchase shall exceed five hundred dollars and that the political subdivision ... for which such officer, board or agency acts shall accept sole responsibility for any payment due the vendor ...

Pursuant to State Finance Law, §163, OGS has promulgated rules and regulations governing participation in State contracts (9[A-1] NYCRR, §250.5; OGS Purchasing Memorandum No. CL-100). One requirement of OGS's rules is that "(p)urchases shall be made in accordance with the [State] contracts' terms and clauses" (Purchasing Memorandum No. CL-100, p 1).

In our view, OGS' requirement that purchases under a State contract be made on the same terms as that contract is consistent with the purposes of General Municipal Law, §104 and general principles of competitive bidding law. The primary purpose of section 104 is to permit political subdivisions and others authorized by law to take advantage of lower prices generally obtained by large quantity purchases by the State (Governor's Bill Jacket, L 1942, ch 868, adding former State Finance Law, §179-a). Also, since State contracts are awarded subject to competitive bidding requirements (see State Finance Law, §174), the participating political subdivisions and their taxpayers receive the benefits of competitive bidding, while saving administrative costs attendant to the competitive bidding process (1977 Opns St Comp No. 77-728, unreported; 1955 Opns St Comp No. 7721, unreported). In order to obtain these benefits, however, it is our opinion that a political subdivision must acquire an item under materially the same terms and conditions as the State contract. If material changes are made from the State contract's terms and conditions, the political subdivision is no longer participating in the State contract which has been extended to political subdivisions, as intended by section 104. Instead, the political subdivision, in effect, would be entering into a new, separate contract and would not be obtaining the advantages of participating in the State contract.

The courts, for purposes of determining whether a political subdivision may award a contract to a bidder whose bid varies from the bid specifications, have concluded that a variance which is material or substantial may not be waived, so that all bidders are treated equally and so that the possibility of fraud, collusion or favoritism is avoided (LeCesse Bros. v Town Board of the Town of Williamson, 62 AD2d 28, 403 NYS2d 950, affd 46 NY2d 960, 415 NYS2d 413). A bid which varies materially from the specifications is "tantamount to a proposal for new bid specifications" (Merritt v Gallagher, 96 AD2d 933, 934, 466 NYS2d 381, 383). Similarly, since the State contract is based on terms and conditions in specifications which provided a common basis for all bidders, it is our opinion that a contract which materially varies from the State contract is essentially a new and different proposal from the one bid upon by State bidders and that a political subdivision may not avail itself of General Municipal Law, §104 under these circumstances.

A variance is material or substantial when it would impair the interests of the political subdivision, place the successful bidder in a position of unfair economic advantage, or place other bidders at a competitive disadvantage (Cataract v Town of Newfane, 53 NY2d 266, 440 NYS2d 913; LeCesse, supra; Varsity Transit v Board of Education of the City of New York, 130 AD2d 581, 515 NYS2d 520; Donno v Board of Trustees, 115 AD2d 603, 496 NYS2d 764). In the instant situation, the variance between the State contract and the political subdivision's contract relates to the terms of payment. The State contract calls for full payment after delivery, while the political subdivision's contract is for an installment purchase with periodic payments over 60 months at a stated interest rate. It is our opinion that this change in the terms of payment clearly constitutes a material or substantial variance from the State contract because it gives the State vendor the advantage of offering an alternative financing arrangement to the political subdivision, a benefit not enjoyed by others who competed for the State contract (see Sanford Fire Apparatus v Board of Fire Commissioners, 81 Misc 2d 992, 367 NYS2d 891). Moreover, since the payments to be made under the contract include an interest charge and generally will exceed the price extended under the State contract, it cannot even be said that the purchase is made at the same price provided under the State contract. Therefore, it is our opinion that a political subdivision may not, without competitive bidding, enter into an installment purchase contract in excess of the competitive bidding monetary threshold with a vendor holding a State contract which has been extended to political subdivisions as an outright purchase.

February 13, 1989
Cornelius F. Healy
Deputy State Comptroller