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In the Matter of Challenge

August 25, 2011


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

Per curiam.


Argued January 26, 2010

Before Judges Skillman, Gilroy and Simonelli.

In this appeal we review a challenge to an award of a contract by the Acting Director (Director) of the Department of Treasury's Division of Purchase and Property (Division) for office and classroom-related supplies and paper to Staples Business Advantage (Staples)*fn1 pursuant to N.J.S.A. 52:34-6.2 (the Staples Contract). Appellants are the National Office Products Alliance (NOPA), eight incumbent vendors who previously contracted with the State for the above-mentioned items, and other NOPA members who sought to be contract vendors. The Division procured the Staples Contract through the National Joint Powers Association (NJPA), a national cooperative purchasing alliance operating under Minnesota law. The NJPA had awarded a contract to Staples (the NJPA Operating Contract) pursuant to an Invitation for Bid (IFB) published in a Minnesota newspaper.

On appeal, appellants argue that: (1) the Director exceeded her authority under N.J.S.A. 52:34-6.2 by negotiating a separate contract with Staples that included terms not found in the NJPA Operating Contract (specifically, new discounted pricing terms and a provision requiring Staples to extend the contract's pricing terms to private New Jersey-based "Small/Women/Minority Business Enterprises" (SWMBEs)), and violated N.J.S.A. 52:34-6.2b(2) because there is no record she reviewed and approved the NJPA Operating Contract specifications and determined the contract was the most cost-effective method of procurement prior to awarding the Staples Contract; (2) the NJPA's IFB did not use a competitive bidding process because the IFB was only published in a Minneapolis newspaper and Staples was the lone bidder, it was unduly restrictive because it limited the pool of bidders to vendors with multi-national distribution and marketing plans, and it did not comply with N.J.S.A. 52:34-6.2 and N.J.S.A. 52:34-12; (3) the Director acted arbitrarily, capriciously, and unreasonably and abused her discretion by using a market basket analysis to conclude that the Staples Contract provided savings to the State; (4) N.J.S.A. 52:34-6.2 does not authorize, and N.J.S.A. 52:34-15 prohibits, payment of an administrative fee to the NJPA; and (5) the Staples Contract is not in the State's best interests because it does not adhere to the principles of New Jersey procurement law and policy. The State counters that appellants lack standing to challenge the award because they were not bidders or prospective bidders on the NJPA Operating Contract.

We hold that appellants have standing to challenge the award of the Staples Contract. Cf. In re Protest of Award of Contract A71188 for Light Duty Automotive Parts, ___ N.J. Super. ___, ___ (App. Div. 2011) (slip op. at 23-24) (hereinafter, AutoZone) (holding that current suppliers have standing to challenge a contract awarded through the cooperative procurement process because of their financial interest). We also affirm the Director's decision to award the contract to Staples, except we reverse and sever the provision requiring Staples to extend the contract's pricing terms to SWMBEs as ultra vires.

Cooperative purchasing agreements allow participating governments to share procurement contracts to obtain quality goods and services in an effective and efficient manner to meet their requirements. Nat'l Ass'n of State Procurement Officials (NASPO), Strength in Numbers: An Introduction to Cooperative Procurements 3 (Feb. 2006), available at documents/cooperativepurchasingbrief.pdf. There are three types of cooperative purchasing agreements: (1) "true cooperatives"; (2) "piggyback options"; and (3) third-party aggregators. Id. at 3. In using a piggyback option, "[o]ne or more organizations represent their requirements and include an option for other organizations to 'ride' or 'bridge' the contract as awarded." Ibid.

The New Jersey Legislature determined that "[c]ooperative 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, at 1 (Feb. 22, 1996); see also AutoZone, supra, slip op. at 31. Accordingly, in 1996, the Legislature enacted the cooperative purchasing agreements statute "as an alternative to the procedures concerning the awarding of public contracts . . . ." N.J.S.A. 52:34-6.2a. The statute permits the Director to "enter into cooperative purchasing agreements with one or more other states, or political subdivisions thereof, for the purchase of goods and services" so long as the agreement is "competitively bid and awarded by one of the jurisdictions on behalf of jurisdictions participating in the contract." Ibid.

N.J.S.A. 52:34-6.2b(1), which is a piggyback option, authorizes the Director "to purchase goods or services through a contract awarded pursuant to 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). Prior to entering into such a contract, the Director must "review and approve the specifications and proposed terms and conditions of the contract." Ibid.

In 2005, the Legislature amended N.J.S.A. 52:34-6.2 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, at 5 (Jan. 31, 2005); see also S. 2194, 211th Leg., at 16 (Dec. 13, 2004) (statement of Sens. Karcher & Scutari); AutoZone, supra, slip op. at 31. The Legislature authorized the Director "to purchase goods or services through a contract awarded pursuant to a nationally-recognized and accepted cooperative purchasing agreement that has been developed utilizing a competitive bidding process, in which other states participate, whenever the director determines this to be the most cost-effective method of procurement." N.J.S.A. 52:34-6.2b(2).

Pursuant to N.J.S.A. 52:34-6.2b(2), which is also a piggyback option, prior to entering into a nationally recognized cooperative contract, the Director must assure the contract was developed using a competitive bidding process and "review and approve the specifications and proposed terms and conditions of the contract." N.J.S.A. 52:34-6.2b(2). "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." AutoZone, supra, slip op. at 5.

For a two-week period from the end of June to July 2005, the NJPA published the IFB in the Minneapolis Star-Tribune requesting bids from national vendors for a national line item purchasing contract to supply office and classroom-related supplies used by qualified NJPA customers or members. The IFB required bidders to provide a complete discount listing of all available products offered by the vendor, as well as, a specific selection of most commonly used products defined as a 'market basket' or 'hot list.' This list of products is to be items most commonly used by NJPA qualified customers and must be discounted deeper than that of the general listed discount.

The IFB also required bidders to provide "[t]he stock number/item number, product description, manufacturer, list price, hot list/market basket price and any other product information deemed relevant by the vendor . . . ." The IFB did not restrict the chosen vendor "from offering lower prices in the future to others, or from lowering prices on this contract," and permitted the vendor to provide "greater benefits or terms that are more favorable directly to [any of its NJPA] customer[s] . . . ."

Staples responded to the IFB. As part of its response, Staples agreed to pay the NJPA an administrative fee of two-percent of net sales in exchange for contract facilitation and marketing. On August 18, 2005, the NJPA awarded the NJPA Operating Contract to Staples, the lone bidder.*fn2 The NJPA Operating Contract included Staples's agreement to pay the administrative fee, and provided for annual periods of renewal (from the date of authorized signatures), required at the end of each year, up to a five-year maximum period as permitted by Minnesota law.

Prior to August 2009, the State of New Jersey had entered into Term Contract T0052 (T0052) with approximately twelve vendors for stationary and office supplies for an original contract period from September 1, 2004, to August 31, 2006. After several extensions, T0052 expired on November 30, 2009, as did Term Contract T0038 (T0038), a related contract with other vendors for office paper.

Before these contracts expired, the Division evaluated options for obtaining office supplies from other sources. The Division conducted a cost-effectiveness study using a market basket analysis comparing costs under T0038 and T0052 to those in the NJPA Operating Contract with Staples, the National Intergovernmental Purchasing Alliance cooperative purchasing contract awarded to Corporate Express, and the U.S. Communities cooperative purchasing contract awarded to Office Depot. The Division created an initial market basket of the State's purchasing needs using data from WB Mason, Action Office Supplies (an incumbent vendor), and the State's Distribution and Support Services (DSS).*fn3 The Division then sent the initial market basket to Staples, Corporate Express, and Office Depot, who all submitted prices for the items contained in the initial market basket. After reviewing this information, the Division concluded that a cooperative purchasing contract could produce cost savings to the State, and decided to take a "wider look at the supplier base."

In order to assemble a more accurate market basket, the Division asked DSS and all incumbent vendors on T0038 and T0052 to submit usage reports setting forth item prices, quantities ordered, and manufacturers' part numbers. Because some incumbent vendors submitted market baskets containing thousands of items, the Division limited the market basket to items the State had purchased fifty or more of from each vendor in a year. However, if a vendor's market basket contained less than two-hundred items, the Division included all of the items regardless of the amount the State had purchased. The Division then compared the incumbent vendors' reports to the NJPA Operating Contract, and the Corporate Express and Office Depot cooperative purchasing contracts. The Division concluded the NJPA Operating Contract would save the State approximately $1.2 million per year, the Corporate Express contract would save approximately $780,000 per year, and the Office Depot contract would cost the State approximately $713,000 more per year.

The Division also concluded there were other benefits to choosing the NJPA Operating Contract, including smaller required orders, next-day delivery of items, simplified ordering by one-stop shopping, fewer accounts payable, on-line ordering via punch-out and e-cataloging ...

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