NEW JERSEY LOCAL UNIT PAY-TO-PLAY LAWS

9

ARTICLES AND REPORTS

NEW JERSEY LOCAL UNIT PAY-TO-PLAY LAWS

9a.

CHRISTOPHER S. PORRIN·o & MICHAEL

T.G. LONG, PAY TO PLAY DEADLINE NEARS, 289

N.J.L.J. 1187 (2007)

BY CBRJSTOPIIElt JI,J'ORRlNli'AliD MlCIIAEL'tG. UING

Pay~to~Piay DeadUna: .Nua.rs A~ep~by,t.te,p.guidefor . o!l$iP~~~~:s~Pi~~tto1hl SQpt'2H$>ttin9 raquir~ment ·B .... · u5iilcsse··.·.··._·"thiit.·' n:c;bt\'lld.· .$SO •. oo.· 0 or , '.!fi(>n:. <J.!4illg cuJLii(!ar, ~ .2lJ06

· . ;Jium:.£(lJllr1l~IJ!;•with New 1<'t51:)' piiQ!ic ·en~ n.Jist lite a 5tati:m<llt'settlrig fQ®..Jlll 'JlQl\iicilt :s:omniMiuns qf ..note :t)l!I•L$3.00 !llnde'~y the ln'~""" anq ~~ lilin o~ ~ bllsiijess'i' fb:Y pt:"""""'I .and

· :all\li~kl! em~\cs: l'lii ;liolcmcnl-l<oown ·~ :.~: ¢11apldf ;!71 iB•fsinc!ll< ,E~!ilY J:lillclooun>SU!1CI\ll:nt.(F~.BE}.c_ntll5t b<Jilei! wmi'thiiNew 1""'!')-.ElcctinnLnw .EllfO~ttt ·,"ronini<Sjon (ELEC) no lall;rdt:JnScp~bcr ;!8.

.. Ei.amp]es ofbUS:iDcsscs like!~ sUhjeci .l<Uhe pay-!<>i>l~y requitcnu.'llts illl:lude law fint1.\. ~011Janlll; nonpmfJ! orgttni-2lltions. 1111.idical jlrofussional<. blJ3ri!als, . priv;jtJ: • si:boPIS and 'Univtrsitje>;, illvl.."ll'­mClll managcmCllrfltlll!l; banJ,:,., construc­.lion <~ril~ :.!~llin<eiiiig 'fiiill.< ·...r $ate doV.lajl<.'Ts,•and 'ilnY other indi vidoal or O!JliUii:altion that proviq~goods or set· :\·ic.cii ~t otherwise Cn~gbs· jn busif!CSS wiili New Jer.;ey go\'emniental entities.

Tfte· foll(l)\liilg i,; a slep,by-step guide fur bu.<incsscs :ru_!rleci _to thi< reporting. ·Itqtlm:mcilt.. ' ',,.. . ~; . , ..

~·l'a)"'q.pla)~;re(<,'llltio.ifll>~lillll .iliit.&c><¢ifufuittt.w..irl<.U:~ii\\led·o,..tlli1 bils~ af'l!'. lfusif@$1!- !ll>lillRII cunlfitit.l­tiiins,:rl\thl,'f.,ittan:meiil. .To oombat that po;t\.'tjitiari mNt:W>.,;scy,acoiliPJJ:i fci; • .:s {If J#s W.IL~ 'tffil~led ll!:nigu1~ !lnliJnol!ic 1<Jr ~!~ ~Jlllo~•l!1Bdei\'Y ·ll!<!se cOIIlJlll"'es dolhll ·biJS.mOS,• with :New Jt!rney.jiov~1)111li'Jlt'l!l lhe st.¢, 'aurity or

~ot;!Iilf:]~rem~·2004··,··llimJ-OovemQr Jl\fuesM~an:cre¥wiled'F .... ci:utivebidi:r . I ~,)l')li>h W!'JIJ!!~rt~(!djfjed 1!S ·~ITJOI)tled !>Y !cgi<l!l.lion lipownras ~ll!mter51,.I.,. 700$; di.'.Sl (C!ldi!ied lit'N.J.SA.!9:41A-20 .. 13.:!P "2D.2;i). Un((er F.lttll;\l®e Onlcr p4·imd Ci]apter Sl. a businel<.:1hnt hns

curiifibtiu.'d .· 10 "m, 'cUii.int g'ni"'J''r. '·nnY ~date. for goY<;m\ir; <if. any :;tate or Cotlt\!Y P<>litical part)' <'OlTIIJlUtoe iii batted from cnt<'ting colrtnlct> \villi >11lf<~icvcl e.'tcclltiwagcn<:ics'forutleil>t 18 months. NJ.S.A. 19:44A-20J4. !'XC!!ltti~ Orner 1_34Jmd ChapfurSlalso requireS!lch bu.,i­nCSSO!f· 10 di.Wli>;c t'ontribirtlons niade to any P<>lincal llCtion commjuecs• {PAC.<) within d1.e pijor four. Y=· N.r.s.A. 19'44A-20 18 . . .. · . . . .

· .~110.ih~r i,w, ~110yvn us chapter 19, Je;tric~<husin""""' .lhat ma<Jc=trin polit· ic;il-'ctintnbutiolls liom cniering 'ctintracts -~V,ith .. ~1e ~xecutiv~ .iin.d lcgisJative. bran.;h--cspfsta~~,ovctnment, as "~II asagen.i"' counties and murti<;ipalilics. L. 2()()4, clu

Porrin.o i.'r 1'!-luembcr o[Lowensrein Sandfer of Rd~~land,Long iS au a.:tS!!.9iafe cj /be j;i-m. Bot II wvfk in 'lite jiritt J_ UtigaliOJHI11d ~~·hit'! collar tT_iminal di:ftns~ groups.

t9(<1ldifi.;d~ :ti..IM !'f.t.IA:•20,ilw~; 20.!ZJi : · ·.r,.y, .Iii play lilt?$ :hlive '\!fro. ~ cilllcli:dlllth\<>Jg~~h<IJ~ l~•-et,.fot ·~e. :'l!)u :S111te · Jnv~'&IJu•'ltt··Cqumit blsui<~Ngiililtior1S •••«in!\ fortl>.d&!oi.\lJ!: .

:tijjd ·disqu(lifi!iili•ft ptm'i:<loiis 11PJ'Iiellbk •w :itwl:st!"<:nl.tltt!nt1gCmel1 t fmns engaged ey'il•e New J~ DiV i>ion of liiV\:sttrient. ,Jil:1.A.C 1~1 ~,:Mdititm;llly, rniln::dian :eigh!YIIIU!1)~iualit(cl<, ln~pcitd•:ntUJl.lhor, · iticli. and booniS of .-duciuiott lia\'e enact­od pa~laplriy onlimuire$il!ld ~ftitU\i,;.

·. Finol!y,un~an,S,~(;.'Cl!a~PI, the .most =n~ add4ion to;l)lew lcr.;cy'$

:Jllil'tO pfey law.,lvas.criactcd.h 2[)()5, elL 27J :(~ified at N.J.S:A. 40r\:IT-Sl,

.19:44A,2,0.26 to -illa1), ~pt<,'t" .27 I ·requlreu lht>'disclo;'ll"' of •:btl!lincss's 'politicaleontribUtion.~~de wi(!URJlie .l;!c ;m9'~ths;l"irirm tht!am)td or~rwi'n ~on-·· ·va-· 1'/J.S.A: J9;44A"20.26; Adifi!iot>illly-lll.tdfQr.ilieptirpQscS:oftll<i upcoming Sopt<mbcr 28 dt:;Idline. ·­·chapter 271 requires busittt:~!I•.S tfmr. n:Cci'ied $50,000. or. more iioin goVl:ni­nl!'fll <Qntlll<!S in .2006; to file ·an ·annual dist:losur.- statement providi~ dctn_iled contract-- and. ContnDutiOn 'infonnation:. NJ.S.A .• l9;44Ac20.27.

JYhomusrji!e? i\. Forni BE ni~~>t. be illed'by every

. h~< that received $50,000 or more in aggregate p,~~cnts from ~ntrncts :with New Jersey'puhlic rntitfus during calendar year 2006. Ch@ter 27! 's n:quiremen~< · apply 10 !loth for-profitand nonprofit OJll3·

ni:a!Jim«._NJ.A.C. 19:25-26 .. 1, In determining whether the $50,000

threshold lmS been me~ evay conln!ct with a N:cw !c..-r;.;cy public entity must be

2

.inl:l~ .ill: '(i!!jor woids: -tlu:iC. ~ li~ :~•"lll'tio!lil ~ m.~ rn~lhDlfliY wlif~tr. tbli.'Cclriitac\ wtO>·aMJJ1k<!-Ur: ihninin]uta <!ill!ai:11'inillilitftraollliiicL · _ .

'f'i>_t:~l!lWfS$1t_Sl)!lli!IJUhipl~;~ OliJy · · · · · · lhaf U..:busio · :receh'l:il in 2006~~.r<d'lnibf'ssf.ooo<iafiiula:. t1Pi!-,Hfl\lj..'Vet;:Uii>: ll1liY -_wc1lincil1il¢' flln'

~.:S~Jt'!".t:t~~t!~'\h,~~ Fll!'llll:nlton;, _ljrl4!;i'cs;hlljStet: 271.1110.'\t Sl"!'"'. fill!ll' Jl!llillp tljli1ia.<• ~!". ~d!'l'>d govctnmern:. ···vn~and mw.-r bo u;.,1\ldoom~kl.Calclll.rtlbii.i5.w~

1~1i!!>!(~llfri/!!)!W_tts rln!:n-f¢1'"1'1~ o-: -bu:!ioes:o d~ Umt it

rt;cj:iv.:.r·J!~cnis'of$5!l:OOO or mm ftnm .1\!.YC<ilfnti!\'@.I!J!Will in c;dCi!<lacyf""' 20C6; _q!o.bllliiQCS~<.;tllliSl dotenplnot w!Jic!l J>Olilil;aJ.colit®i•liOp~~~ritiiy.:shi>UldbodJ&. c1~f!id ll!I.!boF~i!l!ollf'• . ,

({ndcr•Chapllrr 27l• <ontribuliops "" llltnhu!Cd,IO the bli<iini:ss.if.miiao by:nny of !he b~rle~·s_ ldgh,l~V\ll J'li!>l.lill¢1 ';jljl\ :ifflliatcd omili<:Si incl_lidf~~g: (I J;any ~lptin­cijlai'~ ,(2)~ ')iai1il<.'f~ (3)1itij"olt teei"; (4) any "~iliiclof' ·~~t·"lruiili:O'?; (5)· die Splll,lSC !lf ::)l11( p_ri~Jpal, ~ .<>ffill\lt, dmiii~ cr. \iUs~J:<~; (6) . any '.'subsidia!y dii\:cdj' rn- iadhectl)!i:ollliol!rotljtthe tiusi­~·;·(7) any_'~Crit>finilitigpulitiailtrim­mi_ll!-.., [Le,; P.A,t;:J ~YW inilin:clly ~n­titill<'>f' tiy lliGilUSinl:s.;llnd (S}'iflhe busi-111i!\1 is ~ -nanuall!<lsOii (i:e, u stile Jll!)pri­~torship).1ha~~)~prl!lly<hlld n:siding,with.Um JlO!lli>IL _]'IJS.A.l9:44A· 2Q.26.A;l'fJ>AC• 19!2$-26,~. "

A• only th($0 cnntn'l>!nons made dur• ing ;;aferitlar ~c:ar 2006 . ani relevant, ih• busiorss n<:edionly flX;ll$ on tbose'p;er,;onS mxt.elltiliesl!Sii9Ciuled'Wiib !he businll$ in 2006:· . . .. . . . . .. - - .· .

f}l!Jich (otrlrib/likJIIf · m11s/ lie dis~ dorciJ:! _

Once 'ihe rol•"'llliiJm:;om wd entities llavc. bCcn .identified; !he bUSi!it¥ mbst SS~;CS.<"'hclhcrJliiJ! ¢pottablccontnbutions' w= made by tho,., pmon• or entities.. \\'nether' .a given cantrlbUtion L' ropottable. is diivcn liy twa key C011'!idcrotions: l) tho· recipient or ib.,. contnbUjjon;,_ uDd 2) the, ainotint of lhc contribution. _

. Conlri!luliohS'to lhe following fi>;t of ~ipicnts. ma'\r be, ~iscloscd:

1.- governor; 2. ~ta:te ~c.>'na~r;, . 3. m.mbcrof genernl =•bly; 4. COunty ~ccuiive;

NEW JERSEY LOCAL UNIT PAY-TO-PLAY LAWS

9b.

CHRISTOPHER S. PORRINO, MICHAEL T.G.

LONG & KERSTIN SUNDSTROM, READ THIS BEFORE MAKING YOUR

NEXT POLITICAL CONTRIBUTION, 194

N.J.L.J. 683 (2008)

,l;:STAJlLISHEP 1878

LOCAL GOVERNMENT •Read··· Ihis•·.·a:etoPa.~Ma~kin_u·.···Jour NaxfBdlltlcar ·coutr:ibulion ~ay;to.,playlegislaticm expanded

• ,, <'' "

:ilf t~~h&J:#, ~a. Ml!if!ao~j;~. l.linfl .. dri~.IIAitsiiJfF/1. Silnlldliilrit

0 .. ~~~,·~;;\~~;(;: ~t .. . . r.Cr IJim e;nii!Jld tfu: SC011C of dlt:u'mstattec~-~in whidb a bUSinCsB~t~r: th~kcs politicp( t)Jil1r\biltion{muy · h«

. disqUall fi.>J. froiTl. d~i~ \hirk i'o r #tO· · 1<•1>1:c-iec&itiv.<'i11JenLics·in N~·~'- Je<Scy. BusiiWSS.S.thlu c-nl!ngi\.ilit (ol''conllli. pfoile >CI:kiri!ll stic'li liQv.<niml:lll:wotk

. 01uit 'limitodiatiily.llet!itmdamlliur witl1 th cs~ nC\•··••p;>:y-to,pill)"'laws til p!l! vent di:;qualifid)t.lpn f<>r,c~ptribllliOils ·m:uJe. ,qnof~fl!;r ~si:v<Jilbt:r;tS.. .

. • .Among o!llcr, chang<s. F.>t<c!J' . fivo Ol)ll!f .JJ1.t:~J'Oild.S:tild' ~coP". ofin· · dividual~. w~·;c(ll\ttiblltipns .;un diir . quulify a business to include aU pi1I!llcrs. · LLC mcmbt:rs, and anpor4tc ufti<:cJS; as. o,yciJ_,:.as-thcjr_~('OUs;s(_!fivll llDFt pa~ps and chUdrcn resic.ling_at __ h(lmi:· B:'t';'CUtivc:

•Order .i 17 als<> widen• the. categories of .di,;qurili(vm& po!ltlt:al·eonnibutlaas. EX­ecutive Order 113 cl<tends Jl'•y-<o·pluy .tcStri~Hons to stuc n:dcvclopmcnt pmj, eels. Firuilly. kgisl:ilion haS Jx;cri pro-.

Pqrritw L~:vir.e! clw.imuitl uf tmd Long und .Srmdstrom are -asso.dmes wi~lt, lhtr l.iiigatimt Dri:uir(p{ellf of 'Low_riJ:;feiiJ Smtdlet hz Rosdtmtf.

po:«:4 ihur 11'<!~1~ cl~:l\'"lJum~~pfpet­<;ei v¢ '~I.(J()pltolos ~-,ill ;'li)l''" ;)lti-Y·IC>-p(ay Jaw•. · · Th~ following is a~~ qt

.the' ne-w oxe<utiv~ on!cr•. l!J1d Plll]XJSC~ l.egililntion,

·A Brllil lfiVfBW all'rD-axfsllng PRr-ti;;P!.Y 4JYis .

'fo undCJitiuld the frlOditfcati\:ins ·bmught aooutlty' lite DCIV· executive: ai­rlcrs1_ ttbricfte:vic\V i"J. Witrfdlllcil ur tW:· ... pl'l>'tWsting paJI'IC>-pl;l}' laws ~llPlidlltlo! to stll!~-l~v<!l '""~ .Under !l•ot®Yi; Or7 <!or .134 ond.Chupter Sl, a.bu~iri.;~s ihut ha•· mado 'U eqnttibUQOIT ot' ·¢011l. lhun $300 to the .c~~nr o!w~mor.,lll)y~ .. uai­.d.ttc for Gqt'cml:lr,_ o~ ~ny·sru~l,! ·?n:o~nty polilic1!J.patty commiUCI! is disqualified from can~o1cts wir_h: sta:tc--lt:Vel c_xccuti\'c: ~gCnciCs-ft'lr-atle?st I~ fOoDtilS: __ - · _ ·

inaddition.uDdcrfuccU.tiv-e-Qr­dcr I 34ICtmplcr. 5i. conuibuiim.:; 1na~c to politiciil action eoliunittces C''PACs') formed .undcf New Jersey. low are not au!OmaliC'.illy disqilillifylng. Rathet,:any such con)ribmitili.modein)ho. piiot four yeats inust: be di:;closcd in- ,ad ~ari~-c _of corttract Jlcg9fiations. The Ne~V_ Jciscy Dt.:panmcnt of lhc Treasury mtiY di~til­low -ahY _(.-ontrt~ct il\\llrd. if it ijnds that a

.. .. E>;i:<;ulive:.oltlor m ~~P~IY · mrii!Ul~ the' Jct~ti< of E\!IC~Uvli Qrsfc>­i~4iC81l4 p:~Jmll).61)~. Clmptct 51) lllld ~~)'.~~@o!li<Jhe ~cY p<r.;!>JIIICI ofth~ .DU.!\i!ie$ \Vhi/!J' \-jlnlqb\lli<ll1$ c:ill ,rc~'Jl!, in.lllm\1Mift~tl~9· J'Qr.c'"mpjc. urtde{ . E.•~!Jve,. ~r .134/cbnprer ~ 1. orily c'1lnfribution.~by: v.ntito.rn ;md LLC.mcm­

' ~~-~~n~_JO- ~~nJ- t; .m~ -~ th~ bus1n""' caul<f:.bc nltributcil!P tlu: b!lsi· 'n~is::l'low. t)D\JciE,~cCUJivc Order 117, the 10 ]lliiceri<:rui~ i~ iri>!'licablc.only 1tY

. sbufultnldeis of .<llrlitmy corpotlllion.< .(i#'C'i:iiril<ili\1itiifs'ai1d s-<mporinioil;); llius,.thu cbrurihutiDns• rif uny partnc~ ILC.mcinbt:r,;;ur slilireltiil<ler of a pro. f~slon;d oorpomtion. - n:'gardfc.<s o(

,!¢vel of o)VIJ!!I>bip ~ are anribotc4 10 tl)c·.b~sincs.• and· wi1(rcsuit in disqualio 1ie>1lion. A<!Pitiodally; fur the 1irst time, -tiibllll®s made by corpomte offi· 'OCts ll[C' disqUa!if)'lPg,. fjllllil)', for C'4Cli individual. include-d in Executive Order Jl7 (c.,~ •• JlD!Int-rs, member;_ oorf)Or.r)c officers). the conmbutions or that iadi· Vidu~·s ~~~:~_sc or~ivil .unior!' pan_nt.-rund

.chitdn."TJ' who reside wHh Ihc individual also nu•y be ann'butcd 10 the business. Such spom;alichild coniributiorw un: ex­t.."nlprir oiurle_- t0.at Ca:tldidntt:: for \Vhrim~ the 5p0Uscfcbi1d is .cntirJed ro. vOte rir ro a political ~'Omriiitti;'c-loc;..Hcd hl thc'juris­<licU!in\vhcrc the spou•clchlid o:sid~>.

1\'""Ci!Jive Ordo' I ITs exp•ndt"d attri_bi.J'tion rulcsct>uld Have a drJmruic cf·

. - - - -. -- . -Fllriah:lllll.tlld.Cdi.!ITJJS-Um 11 Uina.P•AmftlttiadlilllllltiliU:Nit ALAI b. MWlla:biPO Mri:t.. ~~t*W.lm:hl~mu·

.re.;~(JJ) ~~11tli It !ll!s.hwsscj!.<=$J>Ccidl!y: ui~ w1lll ... WU JXI!lftiliO:s <\ftst~t<i l'"'k, A~ingty,. sue)! hi!Sl~cs ;ll!S. '!;sll• ·~tl_viscj:! If> ij¥l~mcJit!lS~!II.io!"'llli~ ·.')~ lf.IIL:cde;i• .:UD!!"J !~~>;:JlO}iJic;I!JPI'· h!g byth\llr~y ~Dill'l··.t~cir ~~ or l:ivH uniun J!llltit•(S•J!114'~illi.•nJ ~Jiilc diliit.

'Reli:.f'mu •lboctpJi'il~ J.:~. eil:In'lilldifio!lttii:.l/lilnd(n!(the #iJWe&l .of t)iJevlinl contti11utilisl Eliccitlivi: Ol1lcr Jl7#tspc"'po)fd~ thc~hfli:dp1cnl•to 11'1fl>llfdClqualifY.iniJO.~l\alllbltti.Oiis.nu~·J•; ~· 1'1\Wi\illsl)··unlllli' &ti:lilirl!Oider tiW' •• oJilr ti!Q~! iz(lqlrilil\tim~s;tc:t'ili\: c.ov~ :~mor,cc~li>~l:on>r;orJ!n.Y S.lli!o, ~-!".•.!'l.l!Y:l'!?W•~·~tt~n.iiJtillcJi ~Jil!l . ~~ tr..<!i!i<lo;itiHi;t!i!<•J~.l.'io"X'Ill@er ~· ••••uiive;fit!!er 1 t!],:<!I8:!Jwififyit!g q>ll)ribjl• t!pll.~ illclutl~ thffiW 10: l"l!isln!h'\''~•1" $ipclimmit)lie't,lll\lrilclll"lPillili"'!fwrtY cuiniltinee5, '•1r. the J;.;WJitWl!"'t l':lp~"'!'l"' nrdwdfilatl:for:S6cb.Or&c: cruilri mi ~""" to mcs wu$£ stli~ .,.; ws;,,,;;,-d will an: subjcl:t to.~c'Orlflict·ili'in!Cicsl'· h:vicir by tJtC :r&ll:iuty; . · ' ·

SCekirig R<fund dtlniultertelit Contrilltilid!Ui: In .Ill<: .J!>Cnt tliliJ; ;(:'tJi.,. qlll\lll)~ C'c:i.Dttillutkil\,: IS in:ldvcitcolly ma,J~. \i ~-•~in·~ l;illl:{a~ $t!'p>tb. bb'lliin "•.terund <Jf:•tb<:; <.v~!rlb.uJioJl;urtd.'ll•Qill <JisqiUllilil'llfibn, bUI,tll¢.tl111efUm~:is ~­<ll!l!fingly ~hn(f. 1'11t! jmsin~~ !t).!JSI is,<ub ~ 1\'fi\tcn rtqu;<\Jil t!l<!}""ipiOhtC',il1~\fal!l .uro~llld7ll!lnn forJt rof!l(ld of tb~·co~tri· bution ;md jlhysig~Uy ...;,;.., the .l)!fp)UI ,,.;lhln rliirtr da~. ~f'C!ll'dinc '" ""'""' •uscJaw; rhclhirty-dayfun!'J"'riod wiU be strictly int<l]lr<wd ..0 thlUa bUsiness \Yill fncc ilisquhlification "''''11 if _·ir S,Onght u lll(Und befoli! thii'IY day•hiitJ etupScil. bUt

ttui "~ '"""dC!ayodilitl: totliii.liiattiiih' isbltr.=c,_. itlunl,r nt'muiliclpi!f !>;l_nd(tijllc' Of!IIC~"C>ipleiiliilJlili~iiijl_•Jnif.tlib6. oi o1litelfuitltr ln tfu:· lcgisl~til'c,diS!ri'Ct.

.~nlll!iy; tic:' miihicipalily •wlicreilhe redi>-~~!IOa{!n\ir11!i-P.!lr~n 'VcW_p_· tliehl_i>ltJ. . .'.· c¢U:Uoi::ued.

Jtlslrlr:itdns:llp~llat!-IDA · $emllhlsW!ill ' l!btta; lll!t!""lppalir~ e.1111~. · · N li@.itlq~Jill'llr*~'v l1IWS Pllll!h~

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NEW JERSEY LOCAL UNIT PAY-TO-PLAY LAWS

9c.

STATE OF NEW JERSEY OFFICE ·OF THE STATE

COMPTROLLER, A. MATTHEW BOXER,

COMPTROLLER, PROCUREMENT REPORT:

WEAKNESS IN THE PAY-TO­PLAY LAW'S "FAIR AND OPEN" CONTRACTING

SYSTEM (2011)

State of New Jersey

Office of the State Comptroller

A Matthew Boxer, Comptroller

Weakness p a'''-.. ·"""-

September 15, 20 I I

·'

TABLE OF CONTENTS

I~ IntrodUction ································-················-······················-I

II. How We Got Here: No-Bid Contracts and New Jersey's Pay-to-Play Response .................................... 2

Ill. The FairQand-Open Exception and its Flaws ••••••.•..•..••••••••• 6 ' -

' . '

IV. Conclusions and Recommendations ................................. 14

l:llcill~t!!i •••••••••••••••••••••••••.•..•.•••••••••••••••••••••••••••••••..•••••••••.••••••••••••• 11r

.. ...,:..... .•

I. Introduction

Public contracting laws in New Jersey

generally are premised on. the notion that

the State benefits from promoting fairness

and competition in the award of public

contracts.' Exemptions from State. bidding

laws represent a departure ·from .that

approach and result in the award of what

commonly have been referred to as "no-

effect imposing a nearly wholesale ban on

the award of such contracts to vendors

that have made disqualifying contributions.

At the local government level, however,

the law created a significant exception by

permitting such contract awards whenever

the contract is awarded pursuant to a "fair

and open" process, which is specifically

defined in the law,4

• " _ .. , .................. _ ...... ~••;-1 • •, --·-.:· ....... .... .

bid" contraCtS:' Such no-bid contracts have The ,statutory mandate of the Office of the

been at the core of multiple public scandals State Comptroller (OSC) includes the relating to government entitles awarding

contracts to campaign donors as a means

to reward them, a practice known as "pay

to play."2

Against this backdrop, in 2004 the State

I began enacting · IP<ri•latlon Legis ature -o-

directed at controlling the exchange of

campaign contributions for contract

awards and at promoting transparency in

the award process.' -These new laws were

designed to limit the ability of government

entitles to award contracts to vendors that

had made disqualifying campaign

contributions. The law ultimately imposed

substantial restrictions on contracts

awarded by the State of New Jersey, in

responsibility to "audit and monitor the

process of soliciting proposals for, and the

process of awarding. contracts made by''

government entitles throughout the State.'

In the course of those contract reviews,

OSG has encountered a series of flaws and

shortcomings in the· fair-and-open

· and in local contractmg process

governments' administration of that

process. We issue this public report to

document those weaknesses and offer

recommendations for systemic

improvement.

This report is not aimed at analyzing

particular contracts that have been affected

Office of the State Comptroller Weolcnes:sesln the Pay-to-Play law's "folr and ()pen" Contracting System

by campaign contributions. Rather, the

report seeks more generally to illuminate

important vu[nerabilities in the fair-and­

open system of contracting that was

designed to address corruption in the local

public contracting process. 6

The report begins by providing background

concerning New Jersey public contracting

, , ,. . . . .. laws. and pay-to-play legislation, and then

.~-- .... -

foCuse5 on the fai~-and-open exception and

its flaws as identified in the courie of our

audits and other reviews. The final section

of the report sets forth conclusions and

recommendations aimed at systemic

change.

... · -n. How We G()l: Here: No-Bid Contracts and Newjersey's

Pay-to-Play Response

Predicated on the notion that public funds

are best protected th!ough a competitive

system of government contracting, New

Jersey law generally requires that

government entities award contracts

through use of a formal bidding process!

For example, the state's Local Public

Contracts Law (LPCL) requires all New

Jersey municipalities to publicly advertise

and seek bids on all contracts above . a

monetary threshold, unles"s the subject

matter of the contract entitles it .to a

bidding exemption.8 Non-exempt

contracts may be awarded only following

formal, sealed bid submissions and public

opening of the bids, and are to be awarded

to the "lowest responsible bidder."9

... . The grounds for exemption from bidding

requirements are set forth in New Jersey

law. Most important for purposes of this

report is the exemption for contracts to

provide "professional services," which

includes, for example, legal services,

engineering services and financial services.'0

This ~emption from bidding requirementS ~

recognizes that the determination of the

most desirable professional services

vendor may involve subjective analysis of

legitimate factors other than price. Thus,

these contracts may be negotiated and

awarded without public bidding, and are

therefore not subject to the procedural

safeguarcfs as..oociated with foriilai; seale<f

bids.

Office of the State Comptroller Weolcnessesln the Par ~o-Piay Lmor's ~Folr end Of>mt' ContToctlng System

' .. '

,.-.,.

,.

Removed from the system of sealed bids,

contracts for professional services

traditionally could be awarded through

nearly any means and on nearly any

conceivable basis. The absence of bidding

or other requirements created an

environment where campaign contributions

theoretically could serve as the exclusive

basis for a contract award, resulting In both

·atttiiil arid perceived awardfng of contracts · · · •

·"basecr on· 'politTcil .. 'niotivations or other"

types ·of favoritism. This unregulated

system permitted those with hidden

moi:ives to easily direct public funds to

their vendor of choice. Such a system may

have comported in some sense with New

Jersey's notion of home-rule in that it . . . ~- . ~· ...

the award;11 Known as "competitive

contracting." that methodology involves

advertisement of the contract opportunity,

development of evaluation criteria,

including cost, technical, and management­

related criteria, submission of vendor

proposals, application of the criteria

resulting in a ranking of vendors, and a

public report detailing the basis for the

ranking:" ·· 'for· "'professional services

contracts;• "however, the 'law presents

"competitive contracting" only as an

option, not a requirement. As a result,

OSC's reviews have found its use in those

contracts has been exceedingly rare in

practice, resulting in a generally

unregulated system in which government

vested local officials with nearly unlimit~~ _entities may simply negotiate with. their '.. ... ..... . .. . .. _ ..... , discretion in contracting. In so doing.

however, it permitted those officials to

make contract-award decisions, without

oversight, that were _contrary to the

interests of the general public.

Since 2000, the LPCL has set forth an

· 'a1wna'ti~·Ycf sealiid-·bids for those local

government contracts where lowest price

is not necessarily an appropriate basis for

vendor of choice. While calculating

precisely the amount of public money spent

on such unregulated local government

contracts is difficult, based on our contract

reviews we estimate it easily exceeds $1 00

million annually in New Jersey.

In view of public concerns regarding pay-to

-play in the unregulated environment of

professional services contracting in New

~ .- ...

Office oftha·Stare Gnmptroller Weolmessesln the Poy-to-Piay I.Gw's "Folr arid Oj>en" £'ontractlng Syste=. -

, How WE GOJC HERE;,No-ai[) cq~TR~cTs ~No"";,"" ', -, , , , ,

, NEW JERSEY'S PAY:1'0-P£AY RESJ;lON_SE - : _' •', • _'

Page4

Jersey, in 2004 State officials began taking

steps to address the pay-to;llay issue..

Pay-to-play legislation was initially signed

into law on June 16, 2004 and took effect in

January 2006. As it applies to

municipalities, counties and other local

government entities, the Jaw generally

prohibits government agencies from

awarding a contract with a value in excess

'of $17,500 to a vendor that has mad~ a-

contribution exceeding $300 to specified

types of political committees within the

preceding year.13 The primary exception to

that restriction is that a vendor that has

made such contributions may nonetheless

receive the government contract if the

local government agency has awarded the

contract. "pursuant to ·a fair and open

process."14

The pay-to-play statute defines "fair and

open process" as one ~n which the contract

is:

(I) "publicly advertised in newspapers

or on the Internet website

.maintai!l.ed b-t thm-j:>ullir. erltity ·in.

sufficient time to give notice in

advance of the contract";

(2) "awarded under a process that

provides for public solicitation of

proposals or qualifications";

(3) "awarded and disclosed under

criteria established in writing by the

public entity prior to the solicitation

of proposals or qualifications"; and

(4) "publicly opened and announced

when awarded."15

The statute further provides that "[t]he

decision of a· public entity as to what

constitutes a fair and open process shall be

final." 16

The pay-to-play statute thus presents local

government entities with two general

options. They may use a "fair and open"

award process anil'then accept proposals

from vendors that have made what

otherwise would have been disqualifying

campaign contributions. Alternatively, if

the agency is seeking to award the contract

to a vendor that has not made disqualifying

contributions, it may award the contract as

it had before the enactment of pay-to-play

restrictions, that is, without advertisement

and through a process of simple

negotiation. Such a process has become

Weoknesses In the ,..,.,.._,ay Law'• "Fair and Open" Ccmtract/ng System

'--·

known colloquially among local government

officials as the "non-fair and open process."

While the pay-to-play statute initially

applied in a similar manner regardless of

whether. the contract was being awarded

by a state agency or a local government

agency, within a year of its enactment the

fair-and-open exception was eliminated as

contracts at the local level unless a fair-and­

open process is used. Thus, New Jersey's

pay-to-play legislation has the practical

~ of lowering campaign contribution

ceilings from the typical $2,600 to $300 in

some instances, depending on the

government entity in question and the

process it uses to award its contracts.

• ·an·eptionJor state government contracts,··- .... ·While- the-State's public contracting laws

first througlt gubernatorial· executive order····· • -arid pay-to-play· restrictions are obviously

and ultimately by statute.17 Thus; .vendors

that have made disqualifying contributions

are entirely precluded from receiving

contracts with any state department,

agency or authority so long as the value of

the contract exceeds $17,500. At the local

· govenunent ·level, however, the fair-and­

open exception remains. Vendors thus

confront very different regulatory systems

at the state and local levels, especially

considering the broad _scope of the fair-and

-open exception as explained later in this

report..

interrelated, they are set forth in separate

statutes and administered by different State

agencies. This contributes_to a complicated

legal environment for government agencies

as well as the vendor community in

addressing public procurement issues. For

example,· the LPCL is administered by the

Division of Local Government Services

within the State's Department of

Community Affairs (DCA).18 In contrast,

the State's pay-to-play requirements are set

forth within the New Jersey Campaign

Contributions and Expenditures Reporting

Act, which primarily addresses the

In sum, qualifying contributions of $300n:w; · "'":-:-~.g·6f:eallij)aign contributions and is

greater preclude the receipt of contracts at administered by the Election Law

the state level and preclude the receipt of Enforcement Commission (ELEC).19

Office of the State Comjrtn>l/er - Weo~ote,.., In the Par-to-Play l.crw's "Fair ond Oj>en" Contracting System

~.,- ••' -·-

.T

''

... ::. .

In a technical sense, the LPCL continues to

operate as it had before the enactment of

pay-to-play legislation. Contracts

previously exempt from formal, sealed

bidding remain exempt and, more

importantly, those subject to bidding

requirements still must be advertised and

formally bid. Formal bidding procedures,

by. definition, satisfy the requirements of

· .. the pay-to-play law's.fair-and-open process.·· ~

'So, for local government contra~ the pay· . ..

-to-play law. does not. affect the vendor

-evaluation process for contracts awarded

on a low-bid basis.

However, the award of contracts involving

bid-exempt goods and services, once

largely unregulated· under' the LPCL, is now

subject to pay-to-play regulations.

Qualifying for the fair-and-open exception

returns the local government entity to the

traditional, unreg~ated system of

contracting. As a result, the impact of the

local government pay-to-play reform

efforts hinges to a great extent on the

·· · scope-of-this exception.

Ill. The Fail'"and-Open Exception and Its Flaws

OSC's contract reviews have revealed that

a confluence of factors result in fair-and­

open requirements presenting few, if any,

real obstacles to a government entity

seeking to award a contract to a politically

favored vendor. We discuss these factors

below.

Uni;,;;~,(Dis~fu~ in the ... . . Yeric(or seliictioii Pi'ocess

One of the hallmarks of New Jersey's

traditional no-bid contracting system was

the nearly unlimited discretion of the

agency awarding the contract in selecting a

politically favored vendor. In practice, fair­

and-open requirements do not materially

change that substantial discretion.

The only

directed at

fair-and-open requirement

that discretion is the

requirement that government entities

award contracts "under criteria established

in writing by the public entity prior to the

soJi.citatic;m .ofpr~ajs or Q!l~lifiptigns."20 ~So~·.::-"" --~··! .......... ~~...:~· ... , ·~ . ,,.-•..

That provision requires government

agencies to set forth criteria, but it does

not ensure that appropriate criteria are

Office a( the Stme ComptrOller Weaknesses In the Payo-to-Piay Law's !'Falr.Gnd Op.,.. Co,..,ctfng System

'~"- 0 " ' ~

_ JIBE= EA.IR'AND·OeEN EXCEe;mo~ AND tfi;s"EEAW:S~ ~'

selected, that those criteria are in fact used

in the ultimate selection process, or that

they are applied In a fair and. appropriate

manner. Even under fair-and-open,

government entities are not required to

adopt a prescribed, formal selection

process." Nor does the fair-and-open

process require that government entities

justify their rationale for selection of a

· particular vendor. '

In the course of recent OSC · contract

reviews at three separate municipalities,

local officials acknowledged to OSC the

absence of any formal, criteria-driven

process in awarding their professional

services contracts under fair-and-open .

. .. Our . interviews and revieWS of available

d0:cuments confirmed that these

municipalities had not evaluated vendor

submissions in any meaningful way. As one

municipality stated in )Vriting to OSC, "no

formal process was used since none was

required by law, rule, or regulation."

-,~· · '··-~ As ·roG":e<l previously, the LPCL itself sets

forth a "competitive contracting'' process

for instances when the nature of a contract

OIJI<eoftheStmeGemptroller

?'~w ~ ~ ~ ~z ~ ~ 0

calls for a vendor-selection methodology

beyond simple consideration of price. The

competitive contracting model requires a

systematic evaluation and ranking of

vendors, which includes a public report

detailing the basis for .the ranking.22 It also

requires use of certain. minimal criteria,

such as cost, technical and management-

related criteria. However, State law

-presents- use- of -"competitive contracting~' '

·· procedures· only as an option for fair-and­

open contracting, not a requirement. In

short, none of these protective measures

need to be used in order to comply with

fair-and-open.

A related concern is the absence of

requirements under fair-and:Open that

would specify what per-Son or group of

persons is to evaluate the competing

proposals. In the conteXt of OSC's

contract reviews, some local governments

have claimed to award contracts by

evaluation committee, but documents

specifying individual committee participants

and their relevant expertise' oftt.~ are>

absent or lacking in substance. For

example, in an OSC review of four

municipalities, we found that only two of

the municipalities were maintaining records

concerning which municipal official(s) had

evaluated the competing proposals from

prospective vendors. Despite the benefits

of using a review committee, 23 such use is

not required under fair-and~open, thus

permitting . informal and individual review

and an analysis of vendor documentation

·~ '- ..... ;, · .. "absent any formal review protocols.

"". -, ..... '.' . -··· ··. No le~:al enforcement mechanism

The weaknesses associated with these

vendor-evaluation requirements are

compounded by the provision in the pay-to

-play law that states that "[t]he decision of

a p!Jblic entity as to what constitutes a fair

af!d open process shall be final."24 Through

this provision, local governments are

granted the exclusive authority to

determine whether their own selection

process complies with the law. This

provision has the effect of rendering a

contract award beyond scrutiny or

challenge by an aggrieved vendor or local ' ·- , _ _,..,..,.;_.,_, ....... ,·.:_,_:.-~-··"'--•:'~;>- ·-·-~_,_ .... resident, even m a court of law.

Given the absence of a challenge

mechanism,. fair-and-open's "requirements"

are. in practice, essentially advisory.25 The

entities intended to be regulated by the law

simultaneously act as their own regulator.

As long as the_ contract opportunity is

minimally advertised and selection criteria

are drafted, there is no means to contest

an award to an undeserving vendor. In

contraSt, in the . context of sealed bid ·

awards. established case· law relating to bid

challenges shows that judicial review of

contracting procedures provides a real and

meaningful incentive for legal compliance

and for correction of unlawful practices.>•

Fair-and-open's undemanding vendor­

selection requirements, in combination

with the absence of judicial or other review

concerning those requirements, essentially

results in a return to the traditional system

of unlimited discretion concerning selection

of professional service vendors.

No requirement to memorialize selection rationale or maintain documentation

The ·absence of legal requirements for

government agencies to memorialize their

vendor-selection rationale or retain related

Office of the State Comptroller ·--- - - • Wealcnesses In the Pay-to-Play Law's tifalr and Open" Controcrlng System -

.; •,

; ,•

~ 4 ~_, ~

"~ ~ "''~"'"~ ~ " , ilifiE EA.IR-AND-OREN EXG:ERiliiON A.ND lwS Fli'A.WS ,

documents in connection with fair-and­

open compounds the weaknesses

previously described. In OSC's contract

review and audit capacities, we routinely

request fair-and-open award rationale

documents and rarely have found such

documents to be maintained. Entities have

responded to such requests by noting that

~ ~ ~'"' ' ~ " - ~~,~~~ - » ~

Page9

recommendation should explain the factors

that led to the award decision, offer

qualitative discussion concerning the

leading competing proposals and describe

the specific characteristics of the winning

vendor's proposal that resulted in its

selection over the others.211 No such

documents are required to be created or

written award justifications and retention maintained in the fair-and-open contracting

of such docuniellts are not required under • • ·· '"system: · · .... Sure·· law:,., ... If' ls'" difficult, and often

impossible, for aggrieved vendors to amass

arguments concerning the validity of a

purportedly fair-and-open process when

documents underlying the selection

decision either never existed or were not

maintained.

Best practices in contracting call for

contracting agencies to ensure that every

step in their evaluative process be

documented through:.. (I) scoring sheets;

(2) a written record of what transpired

during any permitted negotiations between

vendors and procurement officials; (3) a

written comparative analysis of compeoi;g

proposals; and (4) a written award

recommendation.27 The award

Consideration of cost not required

Although fair-and-open requires that

selection criteria be established, it does not

dictate the types of criteria that are to be

considered or provide guidance concerning

such criteria. Significantly, for example,

there is no requirement that an agency

consider a vendor's rate or cost among the

evaluative components. While the LPCL's

exemptions from bidding recognize that the

award of some types of contracts should

not be based solely on price, to exclude

price entirely as an award criterion

frequent(y is inconsistent with the interests •-• •,,,., '• ' • ,,-,- _.•w _, • <>(•

·of taxpayers. Taxpayers generally would

consider cost as a factor in their own

financial affairs and government should

Office of the Stare ComjrtroDer Weolcnesseslq the Payoto-l'lay Law'• nFalr and Open" Contnrctlng System

r ..

.. . ~ ' ..

~ -~~ --~/* """ ~

THE EAIR-ANE>-OeEN EXCEB'-J;loN.ANE> liliS!EI.:lA:v'ls " .• •• '~ ¥ :" ,, y" 5 - ~ ' ,,

f'a&eiO

exercise no less fiscal responsibirJty in

spending the public's funds. DCA itself has

similarly recommended that a vendor's

"compensation proposal" be considered as

a factor in the vendor-selection process.29

Nonetheless, OSC frequently has found

that cost Is not included among fair-and­

open award . criteria. We have identified

this deficiency in contracts . for services

ranging from legal services to audit

services. The absence of cost as i criterion

may facilitate the awarding of a contract to

a porrtically favored vendor charging above­

market fees.

Use ofinqppropriate selection criteria

. In adcl[tjpn .to ~ling to include cost as a

criterion, government entities applying fair­

and-open often use vague selection criteria

that may easily be manipulated. For

example, agencies semetimes include a

generalized "catch-all" award criterion,

such as "these and any other

considerations the agency deems

necessary," · or "the agency reserves the

right to consider criteria both inside and

outside the proposal." Although fair-and-

open states that selection criteria must be

"established in writing," agencies essentially

avoid that requirement by setting forth

these ·nondescript, catch-all considerations

as criteria. Reserving the right to· consider

anything that may eventually . be deemed

relevant results in vendors not receMng

appropriate notice of award criteria and

greatly increases the likelihood of criteria

being applied in a discriminatory or unfair

manner.'0

OSC contract reviews have found that

even when specific fair-and-open criteria

are stated in advance, the criteria

sometimes are set forth in the form of

simple requirements, such as a requirement

that the vendor have requisite experience,

or employ sufficient staff or maintain the

appropriate license(s). This approach

appears to stem from historical use in New

Jersey of vendor solicitation documents

such as a "Request for

Qualifications" (RFQ) or a "Request for

Information" (RFI). While a statement of

generic- require!XIE!nts in an RR1 CJr RH is­

entirely appropriate, such requirements

have far less meaning when adopted as

Office of the State Comptroller Wealmesses In the Poy-to-1'/oy l.ow'-s "fo1< and. Oper." Conln!ct/ng System

ultimate vendor-selection criteria,

particularly when ·such requirements are

the only criteria stated. Where more than

one vendor meets the stated requirements,

the government entity is left without true

selection criteria through which it may

determine which vendor is the most

qualified.

origins. That is, while fair-and-open speaks

primarily to contracting issues, it is

contained not in State contracting statutes,

but rather in the State's campaign finance

law. The agency empowered to adopt

regulations under that law, i.e., ELEC, is

particularly experienced in the area of

campaign finance. but is not otherwise

charged with. expertise concerning the

· Nevertheless, it appears that RFI and RFQ · · many. o:ontract-related issues that arise at ......

methods have become so firmly·

entrenched among local purchasing officials

that many entities view. them as a substitute

for specific selection factors. By using such

easily satisfied, generic requirements, the

ability to ultimately select politically favored

vendors is maximized.

· ·Absence q[regplator:y requirements

Some of the weaknesses in fair-and-open

might have been addressed through the

issuance of strong administrative

regulations. There has not, however, been

official regulatory action further defining

the statutory fair-and-open directive. That , .. _~"r ... -:-Y ~, . ' stems in part from the practical

problem mentioned previously in

connection with fair-and-open's statutory

government units throughout the state.

DCA, which is the State agency charged

with administering the LPCL, has sought to

assist by providing written guidance

concerning fair-and-open. Specifically,

DCA has issued a number of instructive

reference materials intended to e:q>and

upon, explain and refine the statUte's

provisions. Most prominent among these

materials is DCA's "Guide to the New

jersey local Unit Pay-to-Play law," which

has served as a primary reference resource

for local government units in implementing

the law.31 DCA's website contains

numerous other, similar- goidanr.i!

materials.'2 From a legal perspective,

however, none of those materials are

Office ofthe State Comptroller Weol<nessesln the Pay-to-Play Low's "FolrondOpen"ControctlngSystem ·•

' ·:FHE FAIR-AND-OPEN EXGEPiiON AND I:FS FllAWS ~

;r ~~-n "-~ - " ~0

authoritative in that they do not carry the

weight of law. They reflect DCA's advisory

guidance, not regulatory mandates.

Perhaps as a result, OSC has found that

many local fair-and-open processes remain

undefined, and that there is substantial

confusion among local officials as to the

law's requirements. For example, in one

documentation concerning the difference

between a fair-and-open process and a non

-fair-and-open process. Moreover,

municipal purchasing manuals, intended to

educate local officials, often fail to provide

appropriate direction. For example, the

purchasing manual for one large

municipality we reviewed noted the

existence of pay-to-play and included

·' . .,instance,· this office reviewed a contract, , disclosure forms-for the non-fair-and-open. ··. ,. -

··' ,. · award that ·under State law was subject ·to · process, but· omitted any reference to how ·.. • ·

sealed bidding requirements. That is, it was

not a bid-exempt item. Nonetheless, the

municipality's lawyer mistakenly advised the

municipality to use a non-fair-and-open

contribution disclosure process instead of

formal bidding procedures. The attorney

thus misunderstoOd the law's basic

requirement that the subject of a contract

must first be bid-exempt to trigger pay-to

-play processes. In other words, the

absence of disq_ualifying political

contributions by the winning vendor does

not provide an exception from legal bidding

requirements that otherwise would apply.

In an OSC audit of another municipality, we

noted similar confusion in municipal

the fair-and-open process should work.

We found similar voids in purchasing

manuals at smaller municipalities as well as

housing authorities. We also have seen in

those manuals conflicting information about

the interplay between fair-and-open and

the LPCL In short. we have seen

widespread confusion about fair-and-open

even among those officials personally

responsible for implementing its provisions.

Varying pqy-to-plqy rules and regimes

The confusion concerning fair-and-open

may result, in part. from the varying state

, and local pay-to-play regimes. As noted

previously, vendors that have made

disqualifying contributions are entirely

Office of the Scare Compcroller- Weaknesses In the Pay-to-Play Law's "Fair and OjJen» Controctlna- System

precluded from receiving contracts from

state government agendes as long as the

value of the contract exceeds $17,500. At

the local government level, however, such

vendors may continue to receive contracts

through use of the fair-and-open exception.

Especially in view of the broad scope of

that exception, in practice the pay-to-play

system at the state level is significantly

diffi!reiif than· me· system in effect ai: tlie ·

lociillevel. · ·· · · • · ·

This disparity raises both philosophical and

practical concerns. One result of the

disparity is that there is no unified

I!Xpression of New Jersey policy

concerning the practice of pay-to-play. For

purposes of state government operations,

the practice has been deemed

inappropriate. Policy-makers essentially

have expressed a zero tolerance policy

concerning such contract awards, in effect

declaring them to be contrary to the public

interest For local government operations,

however, pay-to-play is permitted through

use of the fair-and-open exception. The· · result is two systems that function

differently, each with its own set of

complications that confront vendors, public

offidals and their legal counsel.

The resulting confusion is compounded by

differences in pay-to-play practices even

among local government units. A January

2006 amendment to the LPCL permits local

government entities to pass ordinances

adopting more restrictive local pay-to-play

'procedures thari those set forth· in State

law." The re5ult, according to ELEC, is

that five counties and 159 municipalities,

school districts and local authorities now

have adopted their own pay-to-play laws.34

Some, for example, have adopted a system

more akin to that in effect at the state

government level. Other munidpalities,

rather than formalize any local policy, use

ad hoc procedures on a case-by-case basis.

While local governments should not be

discouraged from strengthening local laws

to regulate the practice of pay-to-play, the

varying rules among local government

entities can be difficult to navigate. ELEC's

executive director has himself noted that

· "[ c]orit:r3C:tors."candidates, "treasurers and

others find the current system highly

confusing."35

Office of the Stale Comptroller Weolmesses In the J>ar-to-P/ay LAw's "Fair and Open" Contrnctl~ System

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CONC!LUSIONS AN~D RECOMMEND~illiONS ' , ~- '"'/~ ~,

IV. Conclusions and Recommendations

In practice, the system of fair-and-open has

multiple weaknesses. As a result, it

presents few, if any, real obstacles to a

government entity seeking to award a

contract to a politically favored vendor. As

long as the contract opportunity is

minimally advertised and selection

parameters of any kind ate drafted, the

~ ultimate award is within the entity's

discretion and immune from outside

review. In effect, no-bid contracts may be

awarded. to favored local vendors much as

they had been prior to the passage of the

pay-to-play law, and without regard to

issues such as vendor cost. While no

legislation can eliminate all risk associated

with political corruption and donor

influence in the government procurement

setting, it is apparent nearly six years into

its implementation that the fair-and-open

system offers notably few hurdles for

wrongdoers to overcome.

In arriving at that conclusion, we

acknowledge that campaign contributions

are an appropriate and necessary part of a

robust democratic process.36 We further

acknowledge that the award of contracts to

vendors such as attorneys, auditors and

other professionals naturally involves a

degree of discretion and subjective

preference. It is not unreasonable for local

administrations to seek their own "cabinet"

of trusted professionals. To the extent,

however, that pay-to-play laws were

Intended to address harmful effects of

campaign contributions on the contract­

award process, the weaknesses of the fair­

and-open system as discussed in this report

are particularly germane.

The Governor, State legislators and ELEC

itself all have called for changes to or.

eliminati(ln of the fair-and-open system.

The following are offered as avenues to

explore in attempting to bring about such

reform and effect the sweeping change

originally suggested by the pay-to-play law:

(a) One option is simply to eliminate

the fair-and-open exception that currently

may be' invok~ by local- ~vb-nment

entities. Such an approach has the benefit

of simplicity in that it would reflect a bright

Wealmessesln the Pay-to-Play Law's "Fair and Oj>en" Contracting System

--'~

-line rule without exceptions~ disqualifying

contributions preclude vendors from

obtaining government contracts. In

addition, this approach would harmonize

local pay-to-play law with the rules already

governing state government entitles. This

would have the benefit of presenting a

unified State policy concerning pay-to-play,

and have positive practical implications in

. · . - ·· terms··of reducing the confusion associated

with the current system. The fact that this

concept already has been tested, ·generally

successfully, at the state level is an added

benefit.

(b) Alternatively, rather than eliminate

the fair-and-open exception, fair-and-open

requirements could be strengthened so

that they have greater effect. Strengthening

as opposed to eliminating fair-and-open

may be a more comfortable result for

those concerned that _stringent pay-to-play

requirements could starve the political

process of needed campaign contributions,

thereby making elected office the exclusive

,., - provln.:.e- ~!'·'the wealthy.37 Specifically, to

strengthen fair-and-open, the State could

require use of the statutory "competitive

contracting" process to qualify for the fair­

and-open exception!• Procedural

safeguards should include requiring that

government entities use a qualified

selection committee whose members

certify that they are not subject to any

conflict of interest in recommending a

contract award.39 Requiring the use of

such committees and some form of scoring

of vendor submissions kelps to ensure that

a verifiable competitive process is being

used. Government entities should be

required to document and justify their

application of the stated selection criteria

and maintain those documents for a period

of years."" The law should further provide

for a means to contest the manner in which

fair-and-open is applied in a particular case.

In addition, DCA could be empowered to

adopt supporting regulations that ensure,

for example, development and application

of appropriate selection criteria.

This option would, however, still allow for

distinct pay-to-play laws at the state and

local government levels. Perhaps · morP;.

importantly, if fair-and-open requirements

were not strengthened in a way that

Weolcnesses In the Pay-t<>-Piay Lnv's "Folr ond Open" Conlrdctlng System

eliminateS the flaws detailed in this report,

significant deficiencies would remain in the

pay-to-play law.

(c) An additional and perhaps more

comprehensive approach to reform would

be one that addreSses the underlying

deficiencies in State contracting laws as

they apply to local no-bid contracts

generally, ·State-law currently provides

numerous broad- ·exceptions to bidding

requirements and, as noted p'reviously,

once a contract is removed from the

LPCL's formal bidding process it becomes

entirely unregulated, historically resulting in

contracts being awarded to vendors for a

variety of inappropriate reasons. While

simply eliminating the fair-and-open

exception might prevent contract awards

specifically to campaign contributors, other

problems created by no-bid contracting

would not be cured. That is, hidden

alliances could still be rewarded,

transparency would not be ensured, and

government units could continue to award

no-bid contracts-:;!Nithout ,-·use • of· the, • .,,.

competitive practices that typically

promote containment of costs.

There are middle grounds between strict,

low-bidder contracting regimes and those

systems In which contracts may be

awarded through any means and on any

basis. Use of the "competitive contracting''

system previously referenced41 is one such

option. Umiting the award of no-bid

contracts across government would,

without any specific reference to pay-to­

. play, ·address. many of the problematic

issues arising· from contracts being awarded·

on the basis of political favoritism. It would

simultaneously result in a procurement

process that would be more professional,

less prone to scandal and more in line with

the public interest.

Office of the State Comptroller --.--·. Wea/m....,.ln the Pay-to-Play Law's "Folr and Open" Contn2ctlng System

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• ~" ENDNOTES ~~' " \ / ~ 0 - ~ --"

ENDNOTES

'See. e.g. NJSA 40A:II-1 etseq.; NJ.SA40A:II-13 ("Any specifications for the provision or perfonnanceof goods or services under this act shall be drafted in a manner to encourage free, open and competitive bidding."). 25ee. e.g. United States v. Weldon, U.S. Dlst. Ct. (D.NJ. 02-750) ·(former Ocean T ownshlp mayor guilty of extorting cash fi"om developers in connection with approval of building projects); United States v. Schoor, U.S. Dlst. Ct. (D.N.J. 06-964) (founder of engineering firm Indicted for payment of bribes. to local officials to secure government business for his com­pany); United States v. Salahuddin, U.S. Dlst. Ct. (D.NJ. 10-104) (former deputy mayor of Newark indicted for using his influence to benefit his business partner and himself In connection with city demolition contract). 'See P.L 2004, ch. 19; P.L 2005, ch. 51. 4 N.J.SA 19:#A-20.7. 'N.J.SA 52:15C7. 'P.L 2004, ch. 19 (Sponsor's Statement). This report focuses on county and munldpal government entities and their authorities, agendes and Instrumentalities and does not specifically address contracts awarded by boards of education, which are subject to separate regulations. See NJAC. 6A:23A-6.3. 7SeeNJ.SA40A:II-1 etseq. 8 N.j.SA 40A: 11-'1. 'ld. . .. . . . "'' .

"('!.)SA 4QA:II.-5(l)(a)Q), . 11 N.j.sA 40A: 11-'1.1 to -45. 12 N.J.SA40A:II-'1.4; N.j.SA 40A:II-•1.5. "N.J.SA 19:44A-2o.4; N.j.SA 19:44A-20.5. 14 N.j.SA 19:44A-20.5. IS N.j.SA 19:44A-20.7. 16 /d. 17 Executive Order No. 134 (2004); P.L 2005, ch. 51. 18 N.j.SA 40A:II-37; NJ.SA 40A:II-37.1. "NJ.SA .19:44A-38. "'NJ.SA 19:44A-20.7. 21 Eg. New jersey Department of Community Affairs, Guide to the "New jersey 1.tx:a1 Unit Pay-tJ>-Ptay'' Law (Nov. 2005), ht!;jl:l/www.state,nj.us/dca!lgsq,lp/rer.Jp2pguide pdf. at 7 ( "[A] f.!Jr and open process Is not the same as .conventional. pubhc bidding or competitive contracting.'). ' n See N.j.SA 40A:II-4.5(d) ("The purchasing agent or counsel or administrator shall evaluate all proposals only in ac• · - .. cordance with the methodology described in the request for proposals. After proposals have been evaluated, the pur­chasing agent or counsel or administrator shall prepare a report evaluating and recommending the award of a contract or contracts. The report shall list the names of all potential vendors •.. [and] shall rank vendors in order of evaluation • • • • The report shall be made available to the pubhc at least 48 hours prior to the awarding of the contract ..•. "). "See. e.g. Kelly LeRoux, Semce Contraaing: A Loco/ Guvemment Guide 109-11 (ICMA Press 2007). 24 N.J.SA 19:44A-20.7. "See. e.g., State v. Standard Oi/·Co., S NJ. 281, 295 ( 1950) f'The abrogation of the remedy Is equally a violation of the right. for a right without a remedy is a mere shadow."). 26 See. e.g., Jen Electric, Inc. v. County of Essex. 197 N.j. 627 (2009) (finding that suppber has standing to challenge illegal brand name spedficatlons); CFG Health Sysrems v. County of Hudson, 413 NJ. Super. 306 (App. Div. 2011) (ordering re­bidding after unsuccessful bidder challenged material changes to contract following award to another vendor). 27 See, e.g., Federal Acquisition Regulation 15.305(a) (''The relative strengths. defidendes, significant weaknesses, and risks supporting proposal evaluation s~all be documen;¢ ilJ.~ g)ll!T.2¢ file.")~. __ . •'" "'See. e.g. Federal Acquisition Regulation 15.308. " ' • -- · "New jersey Department of Community Affairs, Guide to the "New jersey l.tx:aJ Unit PO)'-tD-I'Iay" Law (Nov. 2005), .imJl;ll www.state.ni-us/dca!Jgs/p2p/rer.Jo2pguide.pdf, at 29. 30 See. e.g, Township of HU/side v. Stemin, 25 NJ. 317, 322 ( 1957) (''The conditions and specifications must apply equally to all prospective bidders. Otherwise, there Is no common standard of competition. Every element which enters into the competitive scheme should be required equally for all .•. ). "The guide can be found at htm:llwww.state.nj.us/dca!!eyp2plre[slp2pgujde.pdf.

Office of the State Comptroller • Wealcn..,..!n the Pa)"tt-Piay Law's "Fair and Open» Controc:tlng System

. '

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ENDNOTES (CONT.} , , , , ' ,, , , y ~ ~" ' '« ~ '

ns.e, e.g;, DCA's pay-to-play "Decision Tree" flow chart describing which process to follow based on the nature and amount of the contract, at ht!;p:l/www,state,nj usldcall&'4>2Jllrefsldegs!on tree,pdf and DCA's "Frequently Asked. Questions and Answers" posted at htt;p:/lwww.state,ntus/dca/l""p2plre!S!p2pfaq,pdf. An Index of other

• relevant matetials can be found at ht!;p:!/www,state nj.usldgll&'4>2pl!ndex,:;h!ml. n See P.L 2005, c. T/, now codified at N.J.s.A. 40A: 11-5 I. 34 Elect! on Law Enforcement Commission, News Release (April 22. 20 I 0), avallable at htt;p:llwww o!ec.state.nj.us/ pdfflles/press releases/pr 0422201 O.pdf. "ld. "See. e.g. N.J.SA 19:44A-20.13; Otizens Unitedv. Fetkrol Election Comm'n, 130 S. Ct. 876, 898 (2010); Mo!anie D. Reed,· Election I.Dw: Regulating PolitiCD! Contributions by State Controcturs: The First Amendment and State Pay to Play Legislation, 34 Wrn. Mitchell L Rev. 635, 645 (2008). » Kevin Webber, Comment, UnsuccessfUl Campaign Finance RefOrm: The Failure of New Jersey's 2004-2005 Pay-to­Play Reforms to Curb Corruption and the Appearance afCo11Uptian, 38 Seton Hall L Rev. 1443, 1474 (2008). 38N.J.SA 40A:II-4.1 to -4.5. "See, e.g. NJAC. 5:34-43. 40 See, e.g. N.J.SA 40A:II-4.5; NJAC. 15:3-2.1. "N.j.SA 40A:II-4.1 to-4.5.

~- Offlee of tile State Comptroller Weolcnessesln the ~'a)<-to-Piny Law's "Fol.• ond Oj>en" Contnrctlng System