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In Re State’s Award of an Office Supplies Contract to Staples Business Advantage

A-0476-09T2 (N.J. Super. App. Div. 2011) (Unpublished)

PUBLIC BIDDING — New Jersey law contains a “piggyback option” authorizing New Jersey’s Director of Purchasing to buy goods pursuant to a cooperative purchasing agreement negotiated by another state and to negotiate even better prices than what is contained in that cooperative purchasing agreement.

A group of vendors who previously supplied office supplies to the state challenged the Director of the Department of Treasury’s Division of Purchase and Property’s decision to procure those supplies from a national supplier through a national purchasing cooperative operating under Minnesota law. They argued that the Director exceeded her authority under New Jersey’s cooperative bidding statute, N.J.S.A. 52:34-6.2, by negotiating a separate contract with the national supplier that included terms not included in the cooperative contract. Those terms included discounted pricing and a requirement to extend the purchase terms to Small/Women/Minority Business Enterprises (SWMBEs). They also claimed that the Director violated the statute since there was no record of her reviewing and approving the contract terms and determining them to be the most cost-effective prior to awarding the contract to the national supplier. Lastly, they claimed that the Director should not have awarded the contract since the cooperative had only received one bidder. The Director challenged the vendors’ standing to sue since they had not bid on the contract. The lower court rejected the vendors’ challenge and the Appellate Division affirmed.

New Jersey law allows the state to enter into cooperative purchasing agreements. Cooperative purchasing agreements are thought to be more cost effective because of volume purchasing, standardized specifications, and increased leverage in the marketplace. There are three types of cooperative purchasing agreements: (a) “true cooperatives”; (b) “piggyback options”; and (c) ” third-party aggressors”. In a “piggyback option,” one or more organizations will present their bid requirements and include an option for other organizations to tag along and adopt the contract, as awarded. New Jersey’s cooperative bidding statute allows the Director to enter into cooperative purchasing agreements with one or more states or political subdivisions as long as the agreement is competitively bid and awarded by one of the jurisdictions on behalf of the other participating jurisdictions. The statute also contains a “piggyback option” which allows the Director to purchase goods pursuant to a cooperative agreement when the Director, after reviewing and approving the specifications and proposed contract terms, determines that it is the most cost-effective method of purchasing goods. The statute does not require obtaining bids for goods and services that have been competitively bid by other states with “similar interests and financial constraints.”

Here, the Court found that the Director had not exceeded her authority by requesting additional discounts not included in the cooperative’s agreement. It noted that New Jersey’s statute permits deviations from the common contract and that the Director was authorized to negotiate terms more favorable to the state. In addition, the cooperative agreement, by its terms, even allowed the national supplier to offer lower prices or more favorable terms to any of the cooperative’s customers (which included New Jersey).

The Court, however, found that the Director exceeded her authority by attempting to extend the discounted pricing to SWMBEs. While the Director is permitted to extend the pricing to volunteer fire departments, rescue squads, school districts, and other public entities, the Director is not authorized to extend the pricing to private businesses. The Court, however, held that the Director’s actions did not invalidate the entire contract, only the portion that extended discounted pricing to SWMBEs. It noted that when a contract contains an invalid provision, and that provision is severable, the remainder of the contract remains enforceable. A provision is severable when it is merely one component of the contract and is not integral to the rest of the contract. In this case, the provision was only a part, but not a key part, of the entire contract. The Court also noted that the cooperative’s purchase contract provided that an invalid provision would not vitiate the entire contract.

Lastly, the Court rejected the vendors’ claim that the Director had not properly reviewed or approved the contract, finding that the Director clearly had done so. This was evidenced by the Director’s ability to obtain lower pricing than originally provided for in the bid.

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