PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Addition of Part 206 to Title 2 NYCRR.

Submission and approval of State Authority Contracts to the Comptroller.

To set forth standards and procedures for submission and approval of State Authority contracts to the Comptroller.

Part 206 is added to Title 2 of NYCRR as follows:

Nonsubstantive changes were made in sections 206.2(a), (m), 206.5(a), (b) and 206.7(c).

August 25, 2010.

Jamie Elacqua, Esq., Office of the State Comptroller, 110 State Street, Albany, New York 12236, (518) 473-4146, email: [email protected]

No revision is necessary because there are no material changes to the rule. Non-substantive changes have been made whereby the definition, and references to, the “State Authority Contract Manual” has been deleted from the rule and the definition of “Competitive Procurement” was further clarified and explained. The State Authority Contract Manual does not have the force of law and will generally encompass directions as to format and interpretive and explanatory materials for State Authorities. Accordingly deletions of such definition and references are non-material and need not be addressed. The definition of “Competitive Procurement” was clarified to explicitly reference certain elements of a competitive procurement that OSC believes are inherent in such statutory term. The clarification does not impose or eliminate any obligations imposed by the rules and is therefore non-material in nature.

No revision is necessary because there will be no substantial changes, if any, upon small businesses and local governments relating to the effect of the rule, the compliance requirements, compliance costs, the economic and technological feasibility, and adverse impact that were previously identified in the first Regulatory Flexibility Analysis for Small Businesses and Local Governments. . Non-substantive changes were made whereby the definition and references to the “State Authority Contract Manual” have been deleted from the rule and the definition of “Competitive Procurement” was further clarified and explained. Such Manual will not have the force of law and will generally encompass directions as to format and interpretive and explanatory materials for State Authorities. Accordingly such directions and materials are not required to be included in the regulations; and the deletions of such definitions and references are non-material and need not be addressed. The definition of “Competitive Procurement” was clarified to explicitly reference certain elements of a competitive procurement that OSC believes are inherent in such statutory term. The clarification does not impose or eliminate any obligations imposed by the rules and is therefore non-material in nature.

No revision is necessary because there are no substantial changes, if any, upon the types and number of rural areas affected, the compliance requirements, the costs associated with the rule, and adverse impact upon rural areas that were previously identified in the first proposed Rural Area Flexibility Analysis. Non-substantive changes were made whereby the definition and references to the “State Authority Contract Manual” have been deleted from the rule and the definition of “Competitive Procurement” was further clarified and explained. Such Manual will not have the force of law and will generally encompass directions as to format and interpretive and explanatory materials for State Authorities. Accordingly such directions and materials are not required to be included in the regulations; and the deletions of such definition and references are non-material and need not be addressed. The definition of “Competitive Procurement” was clarified to explicitly reference certain elements of a competitive procurement that OSC believes are inherent in such statutory term. The clarification does not impose or eliminate any obligations imposed by the rules and is therefore non-material in nature. The Comptroller has issued a press release relating to the adoption of these rules which shall insure rural participation.

In response to the proposed revised rule making, OSC received comments from the Dormitory Authority of the State of New York, the New York Convention Center Operating Corporation, Battery Park City Authority, Assemblyman Richard L. Brodsky, Empire State Development Corporation, Metropolitan Transit Authority and New York Power Authority (hereinafter the "responders"). For the most part the responders simply reiterated their comments made when the rule was initially proposed. Such comments were previously addressed when the revised rule was submitted and therefore no response is included in this filing. New comments are addressed below.

206.2(a). One responder opined that insurance contracts should be considered competitive even if published notice is not given. The responder reasoned that insurance contracts are solicited through selected brokers (whom have been competitively selected) from insurance carriers. The responder notes that such procedure is utilized in lieu of published solicitation because in the insurance industry only qualified brokers may approach insurance carriers for quotes. We note that the revised rules provide that the notice requirements of section 206.2(1) are satisfied where the authority provides notice by soliciting bids, proposals or offers through some other method expressly authorized by statute, where such statute has deemed this other method competitive. To list each potential statutory exemption or alternative publication scheme in the rules is not feasible and would require constant amendment in order to produce a comprehensive up-to-date list. As the rules prescribe, we would urge any state authority that believes such a statutory exemption or alternative method of publication exists to provide all information to the Comptroller's Office which will then provide guidance on a case by case basis or categorical basis. Accordingly, if the responder believes that such insurance procurements meet the criteria set forth in 206.2(a)(1)(ii), it should submit documentation to the Comptroller for further review.

Another responder felt that 206.2(a)(iii) portion of the definition of competitive procurement (that the contract was "awarded … as result of a balanced and fair method of evaluation and selection developed before the receipt of offers or bids") was vague thus causing a large "loop hole" for state authorities to avoid the Comptroller's pre approval. We would disagree that such language creates a loop hole. The term competitive procurement has an inherent meaning based upon the Legislative intent of section 163 of the State Finance Law and the past and present practices of the Comptroller's Office. This term has a well understood meaning in the procurement world. Therefore OSC did not expressly state, or elaborate on, these inherent elements in the revised regulations. However, OSC agrees that it may be helpful to expressly reference these elements in the adopted regulations. Accordingly, OSC has provided a clearer description in order to insure greater ease of compliance; however, OSC stresses that this amendment is intended to simply clarify the existing language in the adopted regulation, consistent with the generally understood meaning of a competitive procurement. Specifically this paragraph will now provide expressly that to be a competitive procurement, a procurement must have been: "awarded on the basis of a balanced and fair evaluation and selection method developed before the receipt of offers or bids; that is rational, objective and utilizes a quantified scoring system, which evaluated all relevant factors such as cost (revenue), technical merits, or qualifications, and was applied equally to all qualified offerers..." As such amendment is merely clarifying and descriptive, it is a non substantial revision and does not require an additional comment period.

206.2(b). One responder noted the inclusion of employment contracts to the definition of contract. The responder ponders if an employment contract would include a consultant. We would note that the rules expressly state that the term "contract" includes "any agreement". Therefore, consulting contracts and employment contracts, as well as all other agreements are within the purview of these rules and any distinction is not relevant.

206.2(c). One responder questioned the insertion in the definition of "eligible contract" of the language "including all reasonably anticipated renewals and amendments" The responder thought this was ambiguous and difficult to apply. We disagree. This language was added in order to eliminate a loop hole whereby an entity may keep its contracts below the dollar threshold by bid splitting. This concept was extrapolated from various statutes and regulations. See: State Finance law section 163 (6-b), Printing and Public Document Law section 3(5); 9 NYCRR section 250.2(h).

206.2(d). Some responders felt that the definition of "eligible contract amendment" is too broad in that it included in the definition any modification to an eligible contract. The responders express fear that such inclusion could cause significant delays. OSC understands the State authorities' concerns that the rules will significantly impact their day-to-day operations, and these rules are not intended impede the contracting process. OSC would stress, while such amendments may be subject to OSC's pre-approval, it does not mean that OSC will exercise such discretion with respect to every eligible amendment. In response to the State authorities' initial comments regarding the term "eligible contract amendment" OSC attempted to further refinine the definition of "eligible contract amendment" but found that capturing every situation where review would be appropriate was nearly impossible, and would require definitions too complex to be easily understood. Accordingly, it was concluded that determinations of which specific amendments would be subject to Comptroller pre-approval would best be dealt with through the Written Notification process. OSC would note that in most instances, discretion would not be exercised for general house-keeping, non material amendments to eligible contracts. Finally, OSC emphasizes that our offices will continue to work in conjunction with State authorities to address workload issues while maximizing the transparency intended under the enabling statute.

206.4. Several responders took exception to the insertion of additional criteria for approval of eligible contracts, specifically "whether the terms of the agreement are reasonable and in the best interests of the authority." The responders assert that this language will provide for OSC to inappropriately substitute its judgment for that of the duly appointed board. We disagree. Historically the Comptroller, in the exercise of his authority under section 112 of the State Finance Law to approve state agency contacts, has considered whether such contracts are reasonable and in the best interests in the state. See Laws of 1995 Chapter 83, section 32. It may reasonably be assumed that in enacting the Public Authorities Reform Act, the Legislature envisioned that the Comptroller would review public authority contracts applying standards of review similar to those utilized with respect to state agency contracts, and, therefore, that the Legislature intended that the Comptroller could apply such criterion. Finally, we would note that in the exercise of his contract approval authority, the comptroller generally does not substitute the expertise of OSC for that of the contracting entity as to technical issues solely within the expertise of the contracting entity.

206.5(a). One responder asked if OSC would consider "concurrent review" of the contract in order to avoid perceived costly delays during the 90 day period OSC has to approve or disapprove an eligible contract. "Concurrent review" would entail the Comptroller reviewing the contract prior to its final approval by the State authority board and execution of the contract. OSC would not review a contract that has not received final approval by the State authority board. We are sensitive to the fact that State authority may have to begin the procurement process in farther in advance and there is a fear that OSC approval may cause bidders to escalate their bids. However, OSC does utilize such a practice with state agencies, and does not believe concurrent review is a feasible option with respect to state authorities. However, consistent with our practice for state agencies, OSC will be available to answer questions and provide consultative services to state authorities prior to formal submission of the contract.

206.5(b). One responder questioned the language revising the regulations to clarify the authorities' obligations with respect to Vendor Responsibility. The rule requires that a certification be included with each eligible contract or contract amendment. The responder is concerned that such language could be misconstrued to require that a new responsibility determination must be performed for the contractor and every significant subcontractor each time there is a an amendment to the Contract. This is not a misconstruction of the regulation. Best practices dictate that a vendor's responsibility be affirmatively reviewed each time a new agreement or amendment is entered into. Accordingly, a certification that an affirmative Vendor Responsibility review has been conducted and the vendor has been deemed responsible must be accompanied with each eligible contract and eligible contract amendment is submitted to OSC for pre-approval.

Additionally, a responder requested that the term "significant subcontractor" as referenced in 206.5(b) not be defined in terms of a fixed dollar amount to be paid. Rather the responder suggested that preferably such determinations be made solely on the basis of whether those subcontractors were a material factor in the award; but that in if a monetary standard is necessary, such standard be stated as a percentage (i.e. 25% of the total contract).

OSC agrees that a fixed dollar amount may not always be an appropriate measure of a subcontractor's significance; that is why the rules state a that "value" will be established, not a dollar amount. OSC anticipates that it will state a percentage as a guiding factor for determining if a subcontractor is significant. Further direction will be given in the format of the State Authority Contract Manual.

Section 206.7. Some responders stated that the filing requirement for eligible contracts and eligible contract amendments is unduly burdensome. Additionally, one responder noted that filing requirement for eligible contract amendments appears to include construction contract change orders that do not exceed $100,000 and agreements to extend the duration of the contract for which there is no change in the contract amount. While the responders accurately state the requirements of the revised regulations, OSC does not agree that any change is necessary or warranted. Filing of these contracts is authorized under the Comptroller's audit authority under the New York State Constitution. The purpose of requesting the filing is to maximize transparency and to assist OSC in determining future contracts that may be subjected to OSC's prior approval. OSC is sensitive to the fact that these are new obligations placed upon the State authorities; however OSC believes that it will not be unduly burdensome particularly since all filings will be electronic. Again, OSC will work with State authorities to minimize adverse impact upon operations of the State authorities to the extent possible.

State Authority Contract Manual. One responder, both in their comments on the original proposed regulations and in their comments on the revised proposed regulations, noted that the proposed regulations reference the State Authority Contract Manual, and the authority stated that the Manual should be included in the rules because the guidance provided in such document may constitute a collection of rules of general applicability. Generally, the Manual will include forms and instructions, interpretive statements and statements of general policy which in and of themselves do not have the effect of law but are merely explanatory or ministerial. Such type of guidance is specifically exempted from being included in the rule making process pursuant to section 102 (b) (iv) of the State Administrative Procedure Act. Since the references to the Manual in the revised rule relate to matters that we do not believe need to be included in the regulations, such references, and the definition, have been deleted and where applicable language has been inserted stating that formatting instructions, and/or interpretive and explanatory material will be prescribed by the Comptroller. We do not believe these changes are substantive.