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In re Protest of Award of New Jersey State Contract A71188 for Light Duty Automotive Parts

April 14, 2010


On appeal from the Division of Purchase and Property, Department of Treasury, State of New Jersey.

The opinion of the court was delivered by: Cuff, P.J.A.D.



Argued: October 21, 2009

Before Judges Cuff, Payne, C.L. Miniman.

In this appeal we review a challenge to an award of a contract by the Acting Director (the Director) of the Division of Purchase and Property (DPP) for auto parts and accessories to respondent AutoZone, Inc. Appellants are three vendors of automotive parts who held the previous State contracts for these items and their industry association. Their challenge presents several issues of first impression because the Director awarded the contract pursuant to N.J.S.A. 52:34-6.2, which permits the Director to enter into cooperative purchasing agreements with one or more states or political subdivisions of those states for the purchase of goods and services.

Appellants do not argue that the Director lacked the authority to enter a cooperative purchasing agreement awarded by another state or political subdivision. They do argue that the Director deviated from the terms of the statute authorizing such cooperative purchasing agreements by negotiating a separate contract with AutoZone that does not adhere to the terms of the AutoZone agreement it purportedly adopts; failed to properly review the out-of-state bidding process, and the specifications, terms and conditions of the cooperative bidding agreement; and entered into a contract with unclear pricing standards.

AutoZone and the Director argue that the Director's actions were proper and that appellants lack standing to challenge the award.

We hold that appellants have standing and that the Director negotiated a contract within the terms of the competively bid and awarded contract by the out-of-state public entity. The absence of specific findings of fact and the scant record, however, do not allow us to determine whether the out-of-state contract adopted by the Director is the most cost-effective means of procurement of auto parts and accessories. We, therefore, remand for further proceedings consistent with this opinion.


In 1996, the Legislature authorized the Director to enter into cooperative purchasing agreements, N.J.S.A. 52:34-6.2. These agreements allow participating states or political subdivisions to standardize and combine their requirements for certain goods and services to the end of obtaining a more advantageous price or quality of service or both. N.J.S.A. 52:34-6.2a. The Director may elect to purchase goods or services through a cooperative purchasing agreement "whenever the director determines this to be the most cost-effective method of procurement." N.J.S.A. 52:34-6.2b(1). Therefore, the Director must "review and approve the specifications and proposed terms and conditions of the contract" prior to entering any contract awarded through a cooperative purchasing agreement. Ibid. The Director is also authorized to solicit bids and to award a contract for goods and services that other states or political subdivisions may join as parties to a cooperative purchasing agreement. N.J.S.A. 52:34-6.2c.

In 2005, the Legislature authorized the Director to purchase goods and services through a contract already awarded by other states or cooperative purchasing groups that utilize a competitive bidding process. N.J.S.A. 52:34-6.2b(2). Here, too, the Director must review and approve the specifications and the proposed terms of the contract prior to entry of any contract awarded in this fashion. Ibid. When the decision is made to enter a cooperative purchasing agreement, the Director is not required to comply with the law of this State governing the award of public contracts other than the requirement to purchase all articles or supplies manufactured or produced by institutional labor.*fn1

Although the concept of state cooperation in obtaining goods and services is not new and has been utilized for many years, there has a been a recent surge in cooperative purchasing contracts at the federal and state levels. National Association of State Procurement Officials (NASPO), Strength in Numbers, An Introduction to Cooperative Procurements 2 (February 2006), available at There are three types of cooperative purchasing: true cooperatives, "piggyback" options, and third party aggregators. Id. at 3. In using a piggyback option agreement, "one or more organizations represent their requirements and include an option for other organizations to 'ride' or 'bridge' the contract as awarded." Ibid.

The federal government formally began an attempt to implement and regulate the cooperative procurement process at the international level in 1979. World Trade Org., General Overview of WTO Work on Government Procurement, http://www. (last visited Mar. 29, 2010). In 1994, it expanded the cooperative procurement process to cover goods as well as services and to cover subnational as well as central government authorities. Ibid.

States began to attempt to streamline their national procurement processes at about the same time as the federal government. Many states, including New Jersey, adopted legislation to authorize and regulate national procurement and cooperative purchasing agreements. N.J.S.A. 52:34-6.2b(1) and (2), in particular, are piggyback methods of cooperative purchasing. The Legislature anticipated that "cooperative purchasing agreements would enable New Jersey to benefit from procurements which are more cost effective because of volume purchasing, standardized specifications, and increased leverage in the marketplace." Assembly Appropriations Committee, Statement to A. 182 (Feb. 15, 1996). The stated purpose of the 2005 amendment was "to increase the state's range of purchasing options and enable the state to realize cost savings by eliminating the need for a separate bidding process for goods and services that have already been competitively bid by other states with similar interests and fiscal restraints." Senate State Government Committee, Statement to S. 2194 (Jan. 31, 2005). See also Sponsor's Statement to S. 2194 (Dec. 13, 2004).

In March 2006, the city of Charlotte, North Carolina, issued a request for proposals (RFP) on behalf of the U.S. Communities Government Purchasing Alliance (U.S. Communities) and other yet-to-be-named participating public entities for a five-year "Master Purchasing Agreement" supplying automotive parts and accessories for light duty vehicles. U.S. Communities is a non-profit sourcing association that offers, coordinates and administers competitively solicited master purchasing agreements through lead public entities to other participating public entities nationwide. Other participating public entities include states, counties, cities, school boards, and non-profit organizations.

To take part in this purchasing format, national suppliers and public entities, both the lead and participating public entities, register with U.S. Communities. Lead public entities, like Charlotte, conduct a competitive bidding and selection process and then sign a master purchasing agreement with the winning supplier. That supplier can then offer the master purchasing agreement as its "primary contract" to other government agencies nationwide, while agreeing to comply with the state and local laws in each locality where its product is provided.

A participating public entity signs a "Master Intergovern-mental Cooperative Purchasing Agreement" (MICPA) with the lead public agency in order to piggyback on its master purchasing agreement. According to each MICPA, the participating public entity agrees not to negotiate new or better terms or conditions, such as price, than those negotiated by the lead public agency, "except as modification of those terms and conditions is otherwise allowed or required by applicable law" of the purchasing state. A MICPA also states that "[t]he procuring party shall not use this agreement as a method for obtaining additional concessions or reduced prices for similar products or services."

The stated intention of the Charlotte RFP was to achieve, among other things, "cost savings for [s]uppliers and participating public agencies through a single competitive solicitation" and to "[c]ombine the volumes of participating public agencies to achieve cost effective pricing." Consequently, it stated that bidders had to give due consideration to the potential national market, and provide product offerings "TO ENSURE THE BEST POSSIBLE SOLUTION FOR ALL PARTICIPATING AGENCIES." Only suppliers who met identified minimum qualifications could submit a proposal. Those qualifications were:

A. A strong national presence easily recognized by government agencies nationwide;

B. A national sales force easily accessible by government agencies nationwide;

C. A national distribution network having capacity to deliver Products nationwide, free of charge, in a timely manner;

D. A full range of Products to meet varying requirements of government agencies;

E. Demonstrated market with bulk purchasing power, capacity and commitment to guarantee lowest government pricing.

F. Existing capacity to provide toll-free telephone and state of the art electronic, facsimile and internet ordering and billing;

G. A support system to provide assistance to government agencies nationwide[; and]

H. The ability to fully implement all necessary activities to effectively promote the program nationally....

The RFP also clearly stated that any subsequent contracts with participating entities would be governed by and construed in accordance with ...

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