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PACIFICORP CAPITAL v. CITY OF NEW YORK

July 16, 1990

PACIFICORP CAPITAL, INC., PLAINTIFF,
v.
THE CITY OF NEW YORK AND JOSEPH A. MESSINA, EXECUTIVE DIRECTOR OF FINANCIAL INFORMATION SERVICES AGENCY OF THE CITY OF NEW YORK, DEFENDANTS, AND INTERNATIONAL BUSINESS MACHINES CORPORATION, DEFENDANT-INTERVENOR.



The opinion of the court was delivered by: Cedarbaum, District Judge.

OPINION

In accordance with Fed.R.Civ.P. 65(a)(2) and upon the consent of the parties, the evidence in this case was presented during a one-day consolidated preliminary and final injunction hearing. In addition, prior to the bench trial, PacifiCorp and the City submitted a stipulation of facts, and, as a result, most of the facts are undisputed. As will be discussed more fully below, after carefully considering all the evidence and evaluating the credibility of the witnesses, I find that the award of the contract to IBM was not in accordance with the requirements of the state and local law. Accordingly, the award of the contract is vacated, and the City is directed to award the contract in accordance with the requirements of Section 343 of the City Charter.

The Facts

PacifiCorp is a corporation organized under the laws of the state of Virginia and has its principal place of business in Virginia. PacifiCorp is a third party vendor of computers; it leases and sells computers it acquires from others. The City is a municipal corporation organized under the laws of New York State. Defendant Joseph A. Messina is Executive Director of the Financial Information Services Agency ("FISA") of the City. He is sued in his official capacity. Defendant-Intervenor IBM is a New York corporation with its principal place of business in New York. IBM is primarily engaged in the business of manufacturing, selling and leasing computers and computer parts, including software.

FISA is responsible for the computerization of all of the City's fiscal affairs. In addition to its original responsibilities, FISA's duties now include the management of the City's payroll system and the development and implementation of a comprehensive tracking system to monitor and report on all City contracts and vendors.

Recognizing its need to improve and modernize its computer mainframe central processing unit ("CPU") in order to carry out all of its responsibilities, on November 1, 1989 FISA issued a Request for Proposals ("RFP") that solicited proposals for an improved CPU, specifically an IBM model 3090-400E or equivalent, and for an optional upgrade of the IBM Model 400E to an IBM Model 400S or equivalent. An upgrade is a process by which additional features or equipment are added to an existing processor so as to enable it to perform greater or different functions.

The CPU was part of a procurement involving the purchase of hardware, software and maintenance. FISA concluded that it was not required to use competitive bidding for the CPU, and issued an RFP to facilitate the procurement.

The RFP invited proposers to offer either new or used equipment. Proposals were due November 21, 1989. The RFP contained detailed specifications for the equipment and listed the required hardware and software components and features. In addition, the RFP requested that the proposer state the environmental and technical characteristics of the CPU it was proposing.

Four vendors submitted timely proposals — IBM, PacifiCorp, Cashflow Design, Inc. and Amdahl Corporation. PacifiCorp submitted two proposals, one for IBM equipment and one for Amdahl equipment. PacifiCorp's IBM proposal offered an IBM 3090-400E for a price of $5,370,500, with trade in prices totalling $265,000 for FISA's current equipment. FISA evaluated the cost to it of PacifiCorp's IBM proposal based on the cost of the initial processor (excluding the upgrade) and found an adjusted total cost of $7,485,037 after adding costs for delivery and installation, five-year maintenance, energy cost and software.

FISA added the same $1,879,237 for "residual value difference" to Amdahl's proposal for the same machine, and FISA evaluated the total cost of the Amdahl proposal to it based on the initial processor (excluding the upgrade) as $7,483,157.

The basis for FISA's conclusion that there was a residual value difference of $1,879,237 to be added to Amdahl's proposal and PacifiCorp's Amdahl proposal was that that figure represented the difference between the price quoted by PacifiCorp for the IBM 3090-400E Processor Complex and the price quoted by PacifiCorp for the Amdahl 5890-400E Processor Complex. Since in FISA's capacity study, the necessity for an upgrade had been forecast, FISA treated the prices that PacifiCorp proposed for the IBM and Amdahl 400E units as representing what it could expect in a trade for them at the time of upgrade. The difference in price between the two units represented what FISA felt was the difference in trade-in value, or the "residual value difference."

FISA evaluated the total adjusted cost of IBM's proposal for an IBM 3090-400E as $6,606,279, after taking into account maintenance and energy costs. After FISA made the $1,879,237 addition to PacifiCorp's Amdahl proposal and to Amdahl's proposal, FISA determined that IBM offered FISA the lowest cost proposal.

FISA submitted a report to the Department of General Services, which in turn submitted a report to the Office of Management and Budget, which in turn submitted a report to the Board of Estimate requesting the Board of Estimate's approval of the award to IBM. After receiving and evaluating all the proposals, the City's budgetary constraints forced FISA to reconsider its upgrade plans and to eliminate the upgrade and limit the procurement to the purchase of the IBM 3090-400E or equivalent. As a result, FISA based its award decision solely on the "E" level processor and did not consider the upgrade. FISA did not announce this change to the offering companies, nor did FISA revise any of the reports that it had submitted to the Department of General Services and the Office of Management and Budget which it knew would go to the Board of Estimate. Consequently, the report ultimately submitted to the Board of Estimate by the Office of Management and Budget was both outdated and inaccurate. For example, the report to the Board of Estimate stated that PacifiCorp's Amdahl proposal had been eliminated because its proposed upgrade was not responsive. In fact, PacifiCorp's Amdahl proposal had not been disqualified.

On January 25, 1990, the Board of Estimate adopted a resolution approving the award to IBM. PacifiCorp was informed of the decision on January 26, 1990. FISA concluded that it was in the City's best interest to obtain delivery of the CPU by January 31, 1990. The IBM 3090-400E was delivered and installed by IBM at FISA's facilities on the weekend of January 27 and 28, 1990. ...


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