Construction Firms Sue New York and MTA for Unfair Contractor Regulations

A set of “emergency regulations” for New York construction firms and contractors happened to find their way into a city budget proposal earlier in the year (N.Y. Senate Bill S1509c, January 18, 2019) and extended twice by Mayor Cuomo, and the reception has boiled from cold and reserved tension to heated contempt for some builders in the state. 

The apparent aim of the regulations is to penalize firms and contractors for delays and expenditures that go over budget for infrastructure projects. In late November, the Alliance for Fair and Equitable Contracting Today (AFFECT), a not-for-profit organization that represents engineering and construction firms, filed suit against the state and the Metropolitan Transit Authority, alleging the unconstitutionality of the new regulations. 

The Emergency Regulations and the Issue, Explained

The regulations in question create a debarment statute, which would obligate the MTA to enact 5-year bans on contractors from bidding on future projects if the firm in question didn’t finish the project in what is deemed a “timely manner” or if production costs exceed their budget by greater than 10 percent. 

As outlined in the full text of AFFECT’s suit, the issues with the regulations are as follows: 

  • The regulations in question, despite two renewals, were not published until November 6, 2019. This adds up to nearly a year of these rules being legally enforceable, with no public commentary or debate before they were even proposed, a possible violation of Due Process. 
  • The regulations affect contracts signed and established before they were legally in effect, which allegedly violates the Contract Clause. 
  • Debarment becomes a possibility if contractors don’t complete a project within a proposed timeframe or appears they might fail, when budgets are exceeded by 10 percent, or when a contractor only tries to claims costs that exceed that 10 percent. 
  • AFFECT cites that there is no discretion granted in the application, even if there’s evidence that the firm “acted in good faith, or that the debarment would be unfair or contrary to public interest.”
  • Debarment can also affect any affiliates of the firm, even if they had absolutely nothing to do with what brought about the issue in question (another possible violation of Due Process).

AFFECT states that debarment is a “death penalty” to contractors because it doesn’t just affect their work in the state of New York; it can also blackball them from projects nationwide. Project bids are frequently considered alongside a bidder’s debarment history, which means a firm banned from further bids in New York might be unable to secure public works projects anywhere. The group further argues that these regulations substantially harm construction firms’ First Amendment rights by making it dangerous to petition their government and make claims in good faith without repercussion. 

Is There a Ready Solution?

As CISLeads discussed and reported in early October, delays and budget overages are more likely to be the case for open-ended infrastructure projects, which:

  • Have no set deadline and are to be completed with as much time is needed;
  • Are shown to take an average of 500 days to complete;
  • On average, can finish up at nearly double the proposed budget; and
  • Despite these long timelines often have set bids and budgets. 

The findings reported suggest that structuring infrastructure projects around single and bundled projects can reduce costs and are likely to finish in a more timely manner. Mayor Cuomo also suggests that a “design-build” policy for future projects, which privatizes not only construction but also the designs for infrastructure projects, will save money, though there is some argument that it is not more effective. 

The data might be suggesting overall, however, that stopping budget overages and completing projects in a timely manner begins in the planning stages before firms even step in to make their bids, yet the first legislated solution to this issue has been to punish the firms. They will have to wait and see if the courts agree with this move. 

 

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