Opinion 99 - 14
PERSONAL PROPERTY -- Disposition of (by exchange for work performed for municipality) PUBLIC CONTRACTS -- Contracts Requiring Bidding (removal and retention by the contractor of underground tanks constitutes a contract for public work) -- Bidding Monetary Threshold (exchange of removed underground tanks constitutes indirect expenditure)
GENERAL MUNICIPAL LAW, §103; TOWN LAW, §198(12): An agreement by a town on behalf of a water district for the removal and retention by the contractor of underground water tanks and related equipment, in compliance with a county health department order and in conjunction with the connection to a new water supply, constitutes a contract for public work subject to competitive bidding under General Municipal Law, §103 if it involves a direct or indirect expenditure in excess of $20,000. The value of the tanks and equipment exchanged as consideration for the removal work constitutes an indirect expenditure for purposes of the competitive bidding monetary threshold.
You inform us that a water district within the town has undertaken a project by which it will discontinue its underground water tanks and, instead, connect to a village water distribution system as its water source. In conjunction with this project, the county health department has mandated that the underground tanks and related equipment of the water district be removed. The town engineer has estimated the cost of the removal at $30,000. A contractor, who has the ability to reuse the tanks and equipment, has offered to undertake the removal at no direct cost to the town, provided the town permits him to keep the tanks and equipment. You ask whether this transaction is more appropriately characterized as a sale by the town of unneeded personal property, or as a contract for public work subject to the competitive bidding requirements of section 103 of the General Municipal Law.
General Municipal Law, §103 requires that, except as otherwise provided by an act of the Legislature or by local law adopted prior to September 1, 1953, all contracts for public work involving an expenditure in excess of $20,000, and all purchase contracts involving an expenditure in excess of $10,000, must be awarded to the lowest responsible bidder after public advertisement for sealed bids in the manner provided by section 103. There does not necessarily need to be a cash expenditure in order for the bidding monetary thresholds to be exceeded. The bidding statute applies both to direct expenditures, and indirect expenditures such as trade-in allowances (Citiwide News v NYCTA, 62 NY2d 464, 478 NYS2d 593; Signacon v Mulroy, 32 NY2d 410, 345 NYS2d 527; see also 1991 Opns St Comp No. 91-13, p 33; Hauger v Earl, 275 App Div 437, 90 NYS2d 637, overruled on other grounds by Signacon, supra; 1985 Opns St Comp No. 85-52, p 72; 9 Opns St Comp, 1953, p 447). Thus, the estimated gross cost of the public work or the purchase, without deducting for a trade-in allowance, must be considered for purposes of calculating whether the threshold is exceeded.(1) Contracts for public work and purchase contracts that are not subject to the competitive bidding requirements of section 103, either because they do not involve an expenditure in excess of the monetary threshold, or because they fall within another exception to competitive bidding, must be let in compliance with the town's procurement policies and procedures adopted pursuant to General Municipal Law, §104-b.
There is no requirement in section 103 or in any other State statute that unneeded property acquired for town water district purposes be sold pursuant to competitive bidding (see, e.g., 1979 Opns St Comp No. 79-146, unreported; but see Town Law, §198[a], containing a public hearing requirement). In describing a municipality's responsibility in selling unneeded property when competitive bidding is not required by statute, the courts generally have stated that municipal officials have a fiduciary duty to secure the best price obtainable in their judgment or the most beneficial terms in the public interest for any lawful use (see, e.g., Ross v Wilson, 308 NY 605; Orelli v Ambro, 41 NY2d 952, 394 NYS2d 636; Matter of New City Jewish Center v Flagg, 111 AD2d 814, 490 NYS 560, affd 66 NY2d 980, 499 NYS2d 395; Davis v Board of Education of the Hewlett-Woodmere Union Free School District, 125 AD2d 534, 509 NYS2d 612, lv den 69 NY2d 613, 512 NYS2d 1028; see also 1993 Opns St Comp No. 93-21, p 36; 1990 Opns St Comp No. 90-37, p 84; 1986 Opns St Comp No. 86-78, p 124). The method of sale chosen is within the sound discretion of the governing board, but should be the one which the board believes will yield the best price or maximum financial benefits (see, e.g., Feldman v Miller, 151 AD2d 755, 542 NYS2d 777; Opn No. 90-37, supra; Opn No. 86-78, supra; but see Creole v Guiliani, 167 Misc 2d 810, 636 NYS2d 547 affd 236 AD2d 272, 653 NYS2d 576 lv den 90 NY2d 802, 660 NYS2d 712). To fulfill its fiduciary duty, a governing board should take appropriate measures to ensure that the sale price is upon the best or most beneficial terms.(2) It is well established that competitive bidding requirements cannot be avoided by simply casting an agreement that is truly a purchase contract or a contract for public work as transaction which does not fall within the scope of General Municipal Law, §103, such as a sale by a town of personal property (see Exley v Village of Endicott, 51 NY2d 426, 434 NYS2d 922; Citiwide News, Inc., supra; 1991 Opns St Comp No. 91-13, p 33). When transactions are of a "hybrid nature" having characteristics both of a transaction subject to and exempt from competitive bidding, the "total character" of the arrangement must be reviewed and examined on its own merits to determine its "essential nature" or "focal point" (Exley, supra; Citiwide News, supra).
In examining the "total character" of the proposed transaction, it would appear that the focus and primary purpose is to comply with the county health department's order to remove the tanks and related equipment in conjunction with the district connecting to a new water supply. The fact that the town also may wish to sell the tanks and equipment appears to be merely incidental to the primary purpose of complying with the health department's order for the removal of these items and does not, in our opinion, alter the essential character of the transaction to that of a contract for the sale of surplus personal property (see, e.g., 21 Opns St Comp, 1965, p 251). Accordingly, if it is reasonably expected that the removal work would involve a direct or indirect expenditure in excess of $20,000, the contract would be subject to the competitive bidding requirements of section 103 of the General Municipal Law as a contract for public work.
Whether there is a reasonable expectation that the work here would involve a direct or indirect expenditure in excess of $20,000 is a question of fact, dependent on the value of the tanks and equipment. While this Office is not in a position to resolve this question, we note that the fact that the town's engineer has estimated that the cost of the removal work would be $30,000 and that a contractor is willing to perform the work solely in exchange for these items could suggest that the value of the tanks and equipment would be approximately $30,000, at least in the absence of evidence that the contractor would be making a gift of services to the town, in the form of a portion of the removal work (see 1987 Opns St Comp No. 87-87, p 129; 1982 Opns St Comp No. 82-324, p 413, concerning gifts of services).
December 27, 1999
1. General Municipal Law, §103 provides, however, that the gross bid price shall be reduced by the amount of an allowance for the value of used machinery, equipment, apparatus or tools to be traded-in, for purposes of determining the low bid.
2. For purposes of this opinion, we assume that the town board believes that it would secure the best price obtainable or most beneficial terms for the unneeded tanks and equipment by exchanging these items as consideration for the removal work, instead of using another method of sale.