New York Law Review

Tag: public construction contracts

  • New York State Chapter, Inc. v. New York State Thruway Authority, 88 N.Y.2d 56 (1996): Project Labor Agreements and Competitive Bidding

    New York State Chapter, Inc. v. New York State Thruway Authority, 88 N.Y.2d 56 (1996)

    Project Labor Agreements (PLAs) are neither absolutely prohibited nor absolutely permitted in public construction contracts in New York; a PLA will be sustained for a particular project where the record supporting the determination to enter into such an agreement establishes that the PLA was justified by the interests underlying the competitive bidding laws.

    Summary

    This case addresses the legality of Project Labor Agreements (PLAs) in public construction contracts under New York’s competitive bidding laws. The New York Court of Appeals held that PLAs are permissible if justified by the interests underlying competitive bidding, such as promoting the public fisc and preventing favoritism. The court upheld the Thruway Authority’s use of a PLA for a bridge repair project, finding it was supported by evidence of cost savings and project-specific needs. However, it struck down the Dormitory Authority’s (DASNY) PLA for a cancer institute modernization, as the record lacked evidence that the PLA advanced competitive bidding goals.

    Facts

    The Thruway Authority sought to refurbish the Tappan Zee Bridge, a major revenue-producing asset. The Authority determined efficiency was critical to minimize disruption and maximize public safety. A consultant’s report estimated significant labor savings with a PLA due to uniform scheduling and enhanced work shift flexibility. The last time a non-union contractor was awarded a project, a labor dispute erupted. DASNY sought to modernize the Roswell Park Cancer Institute. After receiving a memo regarding PLAs, DASNY was approached by labor representatives. Internal discussions revealed mixed reactions, including concerns about costs and labor availability. Shortly thereafter, local unions picketed open shop contractors working at Roswell Park.

    Procedural History

    In the Thruway Authority case, trade organizations challenged the PLA in a CPLR article 78 proceeding. The Supreme Court sided with the challengers, but the Appellate Division reversed, upholding the Thruway Authority’s decision. In the DASNY case, contractor associations challenged the PLA, and the Supreme Court initially annulled it. The Appellate Division reversed, finding no violation of competitive bidding statutes. The Court of Appeals then heard both cases.

    Issue(s)

    1. Whether public authorities governed by New York’s competitive bidding laws may lawfully adopt prebid specifications known as Project Labor Agreements (PLAs) for construction projects?

    Holding

    1. No, not always. PLAs are neither absolutely prohibited nor absolutely permitted. The decision to adopt a PLA for a specific project must be supported by the record and advance the interests embodied in the competitive bidding statutes, such as protection of the public fisc and prevention of favoritism. The Thruway Authority’s PLA was upheld, but the Dormitory Authority’s PLA was struck down.

    Court’s Reasoning

    The Court of Appeals stated that New York’s competitive bidding statutes aim to assure prudent use of public money and acquire high-quality goods/services at the lowest cost. Quoting Gerzof v Sweeney, 16 NY2d 206, the court emphasized that specifications excluding bidders must be rational and essential to the public interest. The court identified the two central purposes of competitive bidding: (1) protecting the public fisc and (2) preventing favoritism. A PLA impeding competition must be rationally related to these purposes. More than a rational basis is needed; the agency must show the PLA advances the interests of competitive bidding. For the Thruway Authority, the court found the PLA directly tied to competitive bidding goals, citing cost savings, project complexity, and labor history. The court noted, “The Thruway Authority’s detailed focus on the public fisc— both cost savings and uninterrupted revenues — the demonstrated unique challenges posed by the size and complexity of the project, and the cited labor history collectively support the determination that this PLA was adopted in conformity with the competitive bidding statutes.” However, for DASNY, the record lacked evidence of projected cost savings or unique project features necessitating a PLA. The court stated, “What is dispositive is that the record fails to show that DAS-NY’s decision to enter into the PLA had as its purpose the advancement of the interests underlying the competitive bidding statutes.” The court also rejected DASNY’s justification based on promoting minority hiring, stating it was unrelated to the goals of competitive bidding.

  • Kalisch-Jarcho, Inc. v. City of New York, 72 N.Y.2d 727 (1988): Enforceability of ‘Disputed Work’ Clause in Public Contracts

    Kalisch-Jarcho, Inc. v. City of New York, 72 N.Y.2d 727 (1988)

    A ‘disputed work’ clause in a public construction contract, requiring the contractor to perform work directed by the municipality and postpone claims for additional compensation until project completion, is enforceable so long as the disputed work is arguably within the contract and the municipality’s directive is made in good faith.

    Summary

    Kalisch-Jarcho, a plumbing contractor, disputed whether it was responsible for installing concrete pads under fuel tanks in a project for New York City. The city insisted it was. Instead of following the contract’s ‘disputed work’ clause, Kalisch-Jarcho sought a declaratory judgment. The Court of Appeals reversed the lower courts, holding that the clause was enforceable. The court distinguished this case from Borough Constr. Co. v. City of New York, emphasizing that the disputed work was arguably within the contract’s scope, and the city acted in good faith. The court upheld the contract’s procedure for resolving disputes, designed to prevent project delays while preserving the contractor’s right to seek compensation later.

    Facts

    The City of New York contracted with Kalisch-Jarcho for plumbing work on a new sanitation depot. A dispute arose immediately regarding the responsibility for excavating and installing concrete pads beneath underground fuel tanks. Kalisch-Jarcho argued this fell under the general construction contract, while the City insisted it was the plumbing contractor’s duty. The project architect and the Commissioner of the Department of Sanitation both determined the work was Kalisch-Jarcho’s responsibility, directing them to proceed under the contract’s dispute resolution clause.

    Procedural History

    Kalisch-Jarcho bypassed the contract’s dispute resolution mechanism and filed a lawsuit seeking a declaratory judgment that it was not obligated to perform the disputed work. The trial court granted summary judgment to Kalisch-Jarcho. The Appellate Division affirmed. The New York Court of Appeals reversed the Appellate Division’s order, holding that Kalisch-Jarcho was obligated to comply with the contract’s dispute resolution clause.

    Issue(s)

    Whether a ‘disputed work’ clause in a municipal contract, requiring a contractor to perform disputed work and postpone claims for additional compensation, is enforceable, or whether it violates public policy as articulated in Borough Constr. Co. v. City of New York.

    Holding

    No, because the public policy concerns defined in Borough Constr. Co. v City of New York are not implicated when the disputed work is arguably within the contract’s scope and the municipality is acting in good faith.

    Court’s Reasoning

    The Court of Appeals reasoned that while declaratory judgment actions are generally permissible for settling contract disputes, they are inappropriate when the contract specifies a different, reasonable means for resolution. Article 27 of the contract outlined such a procedure. The court distinguished this case from Borough Constr. Co. v City of New York, which protected against collusive claims for extra work. Here, the work was arguably within the contract, the City acted in good faith, and the contract provision served the legitimate public interest of avoiding project delays. The court emphasized the importance of honoring contracts negotiated at arm’s length by sophisticated parties. The court stated: “The principle is surely fundamental that a rule developed to govern a situation not addressed in the parties’ contract does not ordinarily preclude parties from agreeing in a contract to resolve the problem in a different manner from the rule that would otherwise apply.” The court also noted that concerns about Administrative Code of the City of New York § 6-110 and article 25 of the contract prohibiting extra work increasing the price by more than 10% do not apply because the Commissioner determined the work was required by the contract, not extra work.