This opinion is uncorrected and subject to revision before
publication in the New York Reports.
-----------------------------------------------------------------
No. 182
In the Matter of ACME Bus Corp.,
            Appellant,
        v.
Orange County, et al.,
            Respondents.




          Richard C. Hamburger, for appellant.
          Carol C. Pierce, for respondents Orange County et al.




FAHEY, J.:
          In this CPLR article 78 proceeding to annul Orange
County's award of transportation contracts to Quality Bus
Service, LLC (Quality) and VW Trans, LLC (VW), the question
presented is whether the award was arbitrary and capricious.     We
hold that it was.   We address whether evaluation criteria for

                               - 1 -
                               - 2 -                         No. 182

public bids submitted pursuant to General Municipal Law § 104-b
must be followed as set out in the requests for proposals or if
the criteria may be changed, after the receipt of proposals, by
the government agency responsible for evaluating them.
                                I.
           In May 2013, the Orange County Department of General
Services issued a request for proposals (RFP) from companies to
provide transportation of children receiving preschool special
education services in three transportation zones in Orange
County.   The County solicited proposals for three-year contracts
for each zone, with options for two successive one-year
extensions.   The RFP evaluated proposals in nine categories, with
a certain number of points assigned to each category, for a total
of 100.   The first eight categories measured performance by
various criteria, while the ninth, worth 20 points, evaluated
cost.
           The RFP stated that "[t]he Offeror submitting the
lowest cost proposal will be awarded 20 points.   Awarding of
points to the remaining Offerors will be based on percentage to
points ratio."   In the same sentence, the RFP explained by way of
"example" that "if the total cost [difference] between the lowest
Offeror and the next lowest Offeror is 10% then Offeror two will
have 2 points deducted from the maximum score of 20."
           The RFP further provided that "[t]he submission of a
proposal implies the Offeror's acceptance of the evaluation


                               - 2 -
                                - 3 -                        No. 182

criteria and Offeror's acknowledgment that subjective judgments
must be made by the Evaluation Committee . . . .    The County
reserves the right to: accept other than the lowest price offer,
waive any informality, or reject any or all proposals, with or
without advertising for new proposals, if in the best interest of
the County."
           Quality submitted a cost proposal for each of the three
zones.   VW submitted a cost proposal for the third zone only.
ACME Bus Corp. (ACME), which held the contract at the time,
submitted two alternative proposals, one containing pricing for
each of the zones, and one providing an estimate for all three
zones combined, at a discounted price.   Under both proposals,
ACME had the highest cost for the three zones.
           In July 2013, Orange County awarded transportation
contracts for the first two zones to Quality and for the third
zone to VW.    Transportation services pursuant to the contracts
commenced on September 1, 2013, and continued until August 31,
2016; the County then exercised its first option to extend the
contracts, which now expire on August 31, 2017.
           After it was notified of the award, ACME commenced this
article 78 proceeding against the County, Quality, and VW,
seeking to vacate the award of the contracts "as arbitrary and
capricious, . . . affected by an error of law, and . . . made in
violation of lawful procedure."    ACME alleges a number of defects
in the County's process of choosing its transportation providers,


                                - 3 -
                                 - 4 -                        No. 182

only one of which is pertinent here.
          The County disclosed the proposals submitted by Quality
and VW, as well as the score sheets used by the County to
evaluate the proposals.   As the parties interpret these
documents,1 Quality had the highest overall scores for the first
two zones, while VW had the highest total score for the third.
In the cost category, ACME had been awarded only 8 points out of
20, i.e. a 12-point deduction.    ACME contended that if it had
been awarded the RFP's "percentage to points ratio" deduction for
cost, it would have received only a 5.4-point deduction and
achieved a higher total score than VW in the third zone.
          The County, seeking dismissal of the proceeding,
submitted an affidavit of the employee of the County's consultant
transportation management company who had been responsible for
scoring the RFP's cost category.    The employee wrote that
          "[i]n evaluating the cost proposals and
          determining a point to percentage ratio upon
          which to evaluate and score the three
          offerors, it was determined that we could not
          use the example as set forth in the RFP . . .
          because in Zone 3, there was only a 7%
          difference in price between the lowest bidder
          VW and the next lowest bidder Quality. . . .
          Therefore, if we used the example set forth
          in the RFP i.e. 2 points per 10% difference,
          we would not have been able to deduct any
          points from Quality."
          The transportation management company employee then

     1
          We are troubled by the fact that the County, in seeking
to demonstrate to the Court that VW had the highest score for the
third zone, cites pages from the record that contains single
score sheets for that zone, and not the average of the scores.

                                 - 4 -
                                - 5 -                      No. 182

stated that "it was determined that the County, in scoring the
offerors on price . . . would use a 2 point deduction for every
4% difference in price, rounding to the nearest whole number,"
instead of a 2-point deduction for every 10%.
          Supreme Court dismissed the proceeding, ruling that
ACME "had failed to sustain its burden of demonstrating that the
[County's] determination lacked a rational basis or that actual
impropriety, unfair dealing or some other violation of statutory
requirements occurred."   The court "decline[d] petitioner's tacit
invitation to redo the . . . scoring of the proposals," stating
that "the scorers had a rational basis for their determination
and the court's inquiry there ends."
          The Appellate Division affirmed (Matter of ACME Bus
Corp. v Orange County, 126 AD3d 688 [2d Dept 2015]).
          We granted ACME leave to appeal (26 NY3d 906 [2015]),
and now reverse.
                                 II.
          ACME contends that the County's scoring mechanism in
the cost category deviated from the formula stated in the RFP,
and that its award was therefore arbitrary and capricious within
the meaning of CPLR 7803 (3).   We agree.
          The contracts at issue here, "requir[ing] the exercise
of specialized or technical skills, expertise or knowledge"
(Matter of Omni Recycling of Westbury, Inc. v Town of Oyster Bay,
11 NY3d 868, 869 [2008]), were not subject to the competitive


                                - 5 -
                               - 6 -                          No. 182

bidding statute (see General Municipal Law § 103), but were
awarded under General Municipal Law § 104-b.   That statute
requires contracts to "be procured in a manner so as to assure
the prudent and economical use of public moneys in the best
interests of the taxpayers of the political subdivision or
district, to facilitate the acquisition of goods and services of
maximum quality at the lowest possible cost under the
circumstances, and to guard against favoritism, improvidence,
extravagance, fraud and corruption" (General Municipal Law §
104-b [1] [emphasis added]).
          To further these objectives, the statute specifies that
the County "shall adopt internal policies and procedures
governing all procurements of goods and services which are not
required to be made pursuant to the competitive bidding
requirements . . . or of any other general, special or local law"
(id. [emphasis added]).   The written policy adopted by the County
pursuant to this requirement specifies, in Part V (Procurement of
Professional Services), that the County's award of a contract
pursuant to an "RFP must be made in accordance with the
evaluation criteria specified in the RFP" (emphasis added).
          Here, the County deviated from the criteria specified
in its RFP when it evaluated the proposals received pursuant to
its request.   The emphatic language used in the RFP's paradigm of
a percentage to points ratio -- stating that if a 10% cost
difference exists between the lowest offeror and the next lowest,


                               - 6 -
                              - 7 -                        No. 182

then the latter "will have 2 points deducted from the maximum
score of 20" -- makes clear that the "example" was meant to
explain that a percentage to points ratio is one in which a one
percent cost difference translates to one percent of the total
number of points allocated to cost.   Instead, the County used a
2-point deduction for every 4% difference in price.2   Applying
this new formula, a one percent cost difference corresponded to
2.5%, rather than one percent, of the number of points assigned
to cost.3


     2
          As the transportation management company employee's
affidavit revealingly states, this was "a point to percentage
ratio," rather than the "percentage to points ratio" contemplated
by the RFP.
     3
          The County, in trying to explain why it deviated from
its own specification, provided contradictory explanations that
lack a rational basis. In an email, the transportation
management company employee claimed that she had awarded points
in the cost category by deducting a certain number of points for
every $10,000 difference between the cost proposals. Such a
method bears no resemblance to a percentage to points ratio.
Shortly thereafter, the same employee submitted the affidavit in
which she stated that the County deducted two points for every 4%
difference in price. In an attempt to justify this change, the
employee alluded to "a 7% difference in price between the lowest
bidder VW and the next lowest bidder Quality" in the third zone,
and suggested that no points could have been deducted from
Quality had the RFP's formula been used. The reasoning is
spurious. A 7% difference between VW and Quality in the third
zone would have equated to a 1.4-point deduction to Quality, the
second-lowest offeror, not a zero deduction, and this number
could have been rounded down to a 1-point deduction.
     Additionally, the record reflects that the County awarded 18
points to Quality for cost in the third zone. Under the formula
that the County purportedly used, a 7% difference would have
equated to a 4-point deduction or 16, rather than 18, points for
Quality in the third zone, bringing into question whether the

                              - 7 -
                                - 8 -                        No. 182


          The County abandoned the cost formula it had promised
to apply and instead created a new formula that disfavored ACME.
This was arbitrary and capricious for two, independent reasons.
          First, the County's failure to follow the cost category
evaluation criteria outlined in the RFP was in violation of the
County's own procurement policy, stating that the "award . . .
must be made in accordance with the evaluation criteria specified
in the RFP" (emphasis added).   We have repeatedly held in a
variety of contexts that an agency acts arbitrarily when it fails
to comply with its own rules (see e.g. Vukel v New York Water &
Sewer Mains, Inc., 94 NY2d 494, 497 [2000]; Frick v Bahou, 56
NY2d 777, 778 [1982]).   The same principle applies to the County
here.
          The second reason has significance that extends beyond
the present case.   In Matter of AAA Carting & Rubbish Removal,
Inc. v Town of Southeast (17 NY3d 136 [2011]), we held that a
municipal contract, awarded pursuant to the competitive bidding
statute, should be vacated if the municipality "accept[ed] a
higher bid based on subjective assessment of criteria not
specified in the bid request," because such an action "gives rise
to speculation that favoritism, improvidence, extravagance, fraud
or corruption may have played a role in the decision" (AAA
Carting & Rubbish Removal, Inc., 17 NY3d at 144).   We conclude


County used that formula after all.

                                - 8 -
                                - 9 -                        No. 182

that the policy grounds articulated in AAA Carting with respect
to the competitive bidding procedures of General Municipal Law §
103 apply to the procedures under § 104-b at issue here.
          We now hold that an award of a contract under General
Municipal Law § 104-b is arbitrary and capricious if the
municipality evaluates a proposal using a standard that deviates
from a standard expressly set forth in the RFP.   Such a deviation
betrays a lack of "sound basis in reason" for the determination
(Matter of Murphy v New York State Div. of Hous. & Community
Renewal, 21 NY3d 649, 652 [2013]; see generally Pell v Board of
Education, 34 NY2d 222, 231 [1974]).
          Our holding promotes the goals of fairness and the
prevention of fraud and corruption in the bidding process.     The
offeror is given notice of the standards to be applied and acts
accordingly.    When different standards are applied, the process
is subverted.   Changing the expressly defined rules mid-way gives
rise to speculation of fraud or corruption.
          The County would have us distinguish General Municipal
Law §§ 103 and 104-b in this regard.    The statutes, however, are
alike in a fundamental legislative purpose.   The primary purposes
of competitive bidding under General Municipal Law § 103 "are the
(1) protection of the public fisc by obtaining the best work at
the lowest possible price; and (2) prevention of favoritism,
improvidence, fraud and corruption in the awarding of public
contracts" (AAA Carting & Rubbish Removal, Inc., 17 NY3d at 142


                                - 9 -
                              - 10 -                         No. 182

[internal quotation marks omitted] [emphasis added]).   Similarly,
under General Municipal Law § 104-b, services that are not
required by law to be procured by competitive bidding must
nevertheless "be procured in a manner so as . . . to guard
against favoritism, improvidence, extravagance, fraud and
corruption" (General Municipal Law § 104-b [1]; see also Assembly
Sponsor's Mem in Support, Bill Jacket, L 1991, ch 413 at 22).     It
is true that, pursuant to General Municipal Law § 103, the
contract must be awarded to the lowest responsible bidder,
whereas under General Municipal Law § 104-b a contract may be
awarded to one other than the lowest responsible dollar offeror
if the municipality can justify the award (see General Municipal
Law § 104-b [2] [e]).   However, insofar as the prevention of
favoritism, fraud and corruption is concerned, the purpose is
identical.   The policy reasoning underlying our decision in AAA
Carting & Rubbish Removal, Inc. -- "guard[ing] against such
factors" (AAA Carting & Rubbish Removal, Inc., 17 NY3d at 144) --
is equally applicable in the General Municipal Law § 104-b
context under the circumstances here, where a municipality
evaluates a proposal by a standard which is not consistent with
that set forth in the RFP.
          The County emphasizes that it was changing its
standards to ensure that the lowest cost proposal was accepted.
If the County believed that the RFP's methodology did not
adequately reflect the importance of the cost consideration, its


                              - 10 -
                              - 11 -                         No. 182

only option was to reject all the proposals and start over with
an RFP that better reflected the weight to be given to cost (see
AAA Carting & Rubbish Removal, Inc., 17 NY3d at 144).   The County
could not change its own rules mid-game, no matter the benefits.
Indeed, to allow such conduct would be an invitation to
impropriety.   It would give any corrupt municipal employee a
blueprint for avoiding judicial review of bid-rigging: first,
advertise one set of standards in the request for bids; then,
after the proposals have been received and the sealed portions
opened, devise new standards to enable selection of your favored
company, while making sure that your selection seems
superficially reasonable from an economic point of view.
          The dissent's suggestion that it is improper to
overturn the County's award where there is no evidence of
"improper motives" (dissenting op at 5) fails to recognize that
awards may be overturned even without evidence of actual
impropriety.   The test is whether the award is "irrational,
dishonest or otherwise unlawful" (AAA Carting & Rubbish Removal,
Inc., 17 NY3d at 142, quoting Matter of Conduit & Found. Corp. v
Metropolitan Transp. Auth., 66 NY2d 144, 149 [1985]).   We
overturn actions in which agencies fail to comply with their own
rules not only to combat actual unfairness, but also to uphold
the public's perception that these agencies act fairly in
awarding contracts.   Moreover, the dissent's hypothesis that
"[h]ad Orange County provided no example, it could have justified


                              - 11 -
                             - 12 -                         No. 182

its choice of the actual formula as rational" (dissenting op at
6) lacks merit, because the meaning of a percentage to points
ratio is commonly understood, with or without an example.    The
new formula used by the County in the dissent's hypothetical
scenario would still represent a material change from the RFP
criterion.
          In sum, the County acted arbitrarily as a matter of law
by accepting proposals based on a method of evaluation that is
inconsistent with the standard set out in its RFP.   Its
determination must be set aside.   There is no necessity for us to
consider ACME's remaining arguments.
          Accordingly, the order of the Appellate Division should
be reversed, with costs, and the matter remitted to Supreme Court
for further proceedings in accordance with this opinion.




                             - 12 -
Matter of ACME Bus Corp. v Orange County
No. 182




GARCIA, J.(dissenting):
            ACME, an unsuccessful bidder, seeks to vacate a
contract that Orange County awarded to the lowest bidder after
evaluating all proposals pursuant to a proper RFP.    ACME bore the
burden here of demonstrating "actual impropriety, unfair dealing,
or some other violation of statutory requirements when
challenging an award of a public contract" (ACME Bus Corp. v Bd.
of Educ. of Roosevelt Union Free Sch. Dist., 91 NY2d 51, 55
[1997]).    Because ACME has failed to demonstrate that this
contract was awarded arbitrarily and capriciously or without
rational basis, I would decline to set aside Orange County's
decision.
            ACME submitted two proposals, one with pricing for each
zone separately and one with combined, discounted pricing for all
three zones.    There is no dispute that in terms of cost -- under
both proposals -- ACME was the most expensive.    Nevertheless, the
majority faults Orange County for awarding the contract to the
lower bidder because of what it characterizes as a wholesale
"deviat[ion] from the criteria specified in its RFP" (majority op


                                - 1 -
                                - 2 -                       No. 182

at 6).   A review of the language of the RFP and the review by
Orange County of the proposals shows that this was not the case.
            The RFP stated that the cost category would be worth 20
percent of the overall score, demonstrating Orange County's
assessment of the weight to be given to this important factor.
Further, the RFP noted this category would be scored on a
"percentage to points" ratio and provided an example of how this
ratio would be applied: "The Offeror submitting the lowest cost
proposal will be awarded 20 points.     Awarding of points to the
remaining Offerors will be based on percentage to points ratio;
example: if the total cost between the lowest Offeror and the
next lowest Offeror is 10% then Offeror two will have 2 points
deducted from the maximum score of 20" (emphasis added).     The
majority describes the example's language as "emphatic" (majority
op at 6).   But the language is far from emphatic, nor does it
contain any language that supports the majority's interpretation
of the example as mandatory.   The RFP could have stated that "the
percentage to points ratio will use the following formula."
Instead, the RFP stated that it would use a percentage to points
ratio, and then provided a hypothetical example of its
application.   While Orange County did not apply the formula given
in the example, a rational basis existed for applying the ratio
used, and the failure to do so is not equivalent to changing the
RFP's criteria (see Awl Indus. v Triborough Bridge & Tunnel
Auth., 41 AD3d 141, 142-143 [1st Dept 2007]).


                                - 2 -
                                - 3 -                       No. 182

            The scorer of the cost category explained that the
formula actually applied differed from the example provided in
the RFP in an attempt to "establish a point to percentage ratio
that could be applied to each and every cost proposal in each
zone fairly and accurately representing the proposed costing
impact to the County" in light of a very small difference in
price between the lowest bidder VW and the next lowest bidder
Quality.    The record supports this argument.   Orange County
rationally decided that had it applied the ratio as demonstrated
in the RFP example, the significant price differential between
ACME and the other proposals would not have been adequately
reflected and so the differential in the points awarded would not
have accurately reflected the weight to be given to this cost
consideration.    As the example was just that -- an example -- the
decision to deviate from the hypothetical was not a failure to
follow the agency's own rules (see majority op at 8) and was not
arbitrary and capricious.    Moreover, the formula actually used by
Orange County ensured that the final awards accurately reflected
cost.    Had the formula in the example been used instead,1 the
proposals would have been scored in a way that did not
appropriately "assure the prudent and economical use of public


     1
       Even if the proposals had been scored in complete
compliance with the descriptive example provided in the RFP, ACME
still would have scored lower in the cost category than Quality
in Zones 1 and 2. While ACME would have had a higher total score
than VW in Zone 3 under that formula, VW's proposal still cost
approximately $68,000 per month less than ACME's in Zone 3.

                                - 3 -
                               - 4 -                        No. 182

moneys in the best interests of the taxpayer" (General Municipal
Law § 104-b [1]).   Accordingly, Orange County's decision not to
apply the percentage to points ratio in the exact manner
described in the RFP's example had a rational basis and ACME has
failed to demonstrate "favoritism, improvidence, fraud [or]
corruption stemming from the process used to award the subject
school transportation contracts" (ACME Bus Corp., 91 NY2d at 56).
          Orange County's actions here were entirely consistent
with the guiding principles of General Municipal Law § 104-b
governing the RFP process, which is intended to be less stringent
than section 103's competitive bidding procedures (see Matter of
Quest Diagnostics, Inc. v County of Suffolk, 21 Misc 3d 944, 951
[Sup Ct Suffolk County 2008] [noting that the Legislature
intended by means of General Municipal Law § 104-b to "afford[]
the municipalities a measure of discretion in determining what
constitutes their best interests"]); Awl Indus., 41 AD3d at 142-
143 ["(W)hile it is true that all who submit proposals (under
RFPs) must be treated fairly, there is no legal requirement that
a final contract must conform to the original RFP"]).   The
majority relies heavily on cases discussing contracts awarded
pursuant to General Municipal Law § 103, which is inapplicable to
the RFP process here.   The fact that section 104-b bestows the
counties with increased flexibility in the conduct of their RFPs
than that which applies under section 103 is unacknowledged by
the majority.   Even the cases applying section 103 on which the


                               - 4 -
                              - 5 -                          No. 182

majority relies, however, focus on preventing municipalities from
awarding a contract to a "higher bid" (majority op at 8-11 citing
AAA Carting & Rubbish Removal, Inc., 17 NY3d 136, 144 [2011]).
While we agree with the majority that section 104-b, like section
103, focuses on protection of the public fisc and prevention of
fraud, the majority's holding undoes an award that protected the
former without any evidence at all that Orange County acted with
improper motives.
           In addition, the majority's analysis of Orange
County's procurement policy overlooks the fact that, had Orange
County awarded the contract to ACME, it would have had to address
the requirements of section 104-b.    Section 104-b mandates a
written justification when an award does not go to the lowest
priced proposal that must address "how such an award furthers the
public good; assures the prudent use of taxpayers' money; ensures
that the purchased goods are of the best quality at the lowest
possible cost in light of the circumstances existing; and guards
against favoritism, extravagance, fraud and/or corruption."      An
award to ACME, as a higher bidder, would have required Orange
County to submit such a written justification addressing those
factors, yet the record does not demonstrate that Orange County
would have been able to articulate proper justifications
sufficient to comply with this policy, in light of the $68,000
per month cost difference between ACME and VW.    Its only
justification would have been its inability to deviate from an


                              - 5 -
                               - 6 -                       No. 182

example of the formula provided in the RFP despite the fact that
it did not accurately account for cost differential.
           It seems unfair to suggest that refusing to overturn as
arbitrary and capricious a county's use of a ratio that more
accurately reflects the cost differential among bidders, and
results in the award of the relevant contract to the lowest
bidder, will result in a green light for municipal employees to
engage in impropriety (majority op at 11).   Rather, the
majority's holding empowers losing bidders to sue counties
immediately upon the award of the contract to a lower bidder, and
will require counties to factor into their budgets the cost of
article 78 proceedings and FOIL requests following the conduct of
any RFP process (see e.g. ACME Bus Corp. v County of Suffolk, 136
AD3d 896 [2d Dept 2016]); Wilson Omnibus Corp. v Fallsburg Cent.
Sch. Dist., 167 AD2d 803 [3d Dept 1990]).
           Had Orange County provided no example, it could have
justified its choice of the actual formula as rational, indeed
prudent.   Perhaps the only lesson from today's decision is that
counties should leave themselves the flexibility afforded by
section 104-b by not providing any such guidance or by making
clear that any example is just that and not an invitation for
costly litigation that ultimately undermines the very purpose of
that statute.




                               - 6 -
                                - 7 -                           No. 182

*   *   *   *   *   *   *   *    *      *   *   *   *   *   *     *   *
Order reversed, with costs, and matter remitted to Supreme Court,
Orange County, for further proceedings in accordance with the
opinion herein. Opinion by Judge Fahey. Chief Judge DiFiore and
Judges Rivera, Abdus-Salaam and Stein concur. Judge Garcia
dissents and votes to affirm in an opinion in which Judge Pigott
concurs.

Decided November 22, 2016




                                - 7 -
