Lawsuits Seek to Void $1 Billion New York City Deal
for Bus Shelters, Newsstands and Toilets
By CHARLES V. BAGLI
August 24, 2006
Three successive New York mayors struggled over the last quarter-century to transform the city’s ramshackle bus shelters, newsstands and public toilets, and failed as the efforts succumbed to politics, scandal or inattention.
Small wonder that the fourth mayor, Michael R. Bloomberg, gleefully announced last fall that a little-known Spanish company, Cemusa, had agreed to pay the city more than $1 billion over 20 years for the rights to build and install 3,300 bus shelters, 330 newsstands and 20 public toilets.
City officials said the structures — commonly called street furniture — would be comfortable and distinctive additions to the city’s sidewalks, and Cemusa would sell advertising panels on them.
But two losing bidders — NBC Decaux and Clear Channel Communications — have filed lawsuits over the bidding process, saying it was marred by “unfair” favoritism and coaching by city officials that put a highly valuable franchise in the hands of "an inexperienced undercapitalized foreign company." Oral arguments in the cases are scheduled for today in State Supreme Court in Manhattan.
Citing e-mail messages from city officials, Decaux contends that it submitted the highest cash offer to the city, until Cemusa — at the city’s urging — raised its offer after the bidding deadline.
The chief executive of Cemusa North America, Toulla Constantinou, calls the allegations a “frivolous” tactic adopted by “sore losers.”
The city denies all the allegations and has expressed confidence that the lawsuits would be dismissed. But if successful, the lawsuits could result in another delay — and another round of bidding — in the quest for the kind of modern shelters, newsstands and toilets seen in other major world cities. It would also be another setback for Mayor Bloomberg’s much-ballyhooed plans to take advantage of marketing opportunities.
Cemusa, a relatively small subsidiary of the giant Spanish company Fomento de Construcciones y Contratas, has already given the city $50 million, the first installment on a $118 million down payment, and has begun to repair existing bus shelters. Once everything is approved, it plans to install 650 bus shelters, 110 newsstands and 10 public toilets in the first year.
There is little question that the stakes are high, for both the city and the companies involved. The companies are chasing one of the most lucrative contracts for street furniture in the world, one that could generate more than $2 billion in advertising revenue. For the city, the franchise provides the city with comfortable and attractive furniture, as well a large and steady income that does not involve raising taxes.
“A lot’s at stake here,” said Scott Stringer, the Manhattan borough president, who has closely followed the matter. “We need 21st-century street furniture and the revenue. It’s ridiculous that it’s taken 30 years.” Mr. Stringer, who initially raised questions about the bidding process, said that he had concluded that Cemusa won fairly.
J C Decaux, based in France and arguably the largest street furniture company in the world, had teamed up with NBC Universal for the bidding and came in second to Cemusa, prompting Decaux’s stock price to fall.
In court papers, Decaux offers no explanation for why it thinks the city would steer the contract to Cemusa. But Clear Channel, which was eliminated in an earlier round, did offer a highly charged explanation in a separate suit: Deputy Mayor Daniel L. Doctoroff’s “Olympic fixation.”
The company claims that Mr. Doctoroff, who was spearheading the city’s failed bid for the 2012 Olympic games last year, wrongfully “hijacked the evaluation process” and steered the contract to Cemusa in order to obtain free advertising in 10 South American countries to “advance his Olympic quest.”
Mr. Doctoroff dismissed the allegations as baseless, saying he had not been involved in the selection process, although he did push for the legislation to establish the franchise and did help devise the bidding rules.
“I didn’t know who won until the committee made its selection,” Mr. Doctoroff said. “The allegation I had any particular favorite is offensive and completely contrary to the history of the transaction.”
The legal battle pits Randy M. Mastro, a former deputy mayor under Rudolph W. Giuliani who represents Clear Channel, against another Giuliani-era deputy mayor, Anthony P. Coles, who represents Cemusa. Mr. Mastro has become one of the biggest legal thorns in the side of the Bloomberg administration, challenging and winning several contract disputes.
The bidding for the franchise started in March 2005, when the city’s Department of Transportation solicited offers. Five companies competed and a committee of city officials assessed their responses in a couple of important areas, including each company’s ability to perform the work, the design and maintenance program for the furniture, and the monetary value of the offer.
A month later, the committee eliminated the two contenders with the lowest scores, Clear Channel and Viacom. Cemusa made the highest cash offer, $831.5 million, followed by Decaux, at $680.6 million, and Van Wagner. But according to city records, Cemusa came in fourth on design and maintenance, the single most important category, and in corporate viability.
Decaux topped the list in both areas. The company, which has contracts in 36 countries and 1,500 cities, including San Francisco, Los Angeles and Chicago, has spent more than 16 years chasing the franchise in New York.
Both Decaux and Clear Channel have seized on an e-mail message that a city official sent to Cemusa a week after the April deadline, asking if it would assign a dollar value to its offer to provide the city with free advertising in Latin American markets. Ms. Constantinou responded within hours, saying that was worth $396 million, effectively pushing the total offer to $1.04 billion.
The losing bidders contend that the e-mail message was an example of unfair and improper coaching, since they did not receive similar prodding.
Bidding rules, the city contends, allowed companies to offer advertising or in-kind services worth up to one-fifth of the total bid.
In documents submitted before the deadline, Decaux said it was difficult to value the free advertising in its offer because about 30 percent of most companies’ advertising panels are vacant at any one time and deeply discounted.
Decaux contends that the city’s decision to value Cemusa’s advertising offer was irrational and unfair under the city’s bidding rules, and therefore, the court should void the franchise award.
In court papers, the city defended its action, saying it sent the e-mail message after discovering that it had asked the same question of the other bidders before the deadline, but not of Cemusa. Further, the city said it was free to ask clarifying questions of any bidder to get the highest offer.
Clear Channel contends that it was improperly eliminated from the bidding after the city underestimated the value of its offer, a claim that the city rejects, saying it was worth no more than $588.8 million. The city also rejected a subsequent higher offer from Clear Channel.
Decaux and Clear Channel contend that the city intervened again on Cemusa’s behalf after the three remaining bidders submitted final offers. Cemusa offered $924 million in guaranteed cash and nearly $400 million in free advertising, compared with a “guaranteed” $1 billion from Decaux.
But the city once again sent an e-mail message to Cemusa — and only Cemusa. It asked the company to consider converting $91 million in contingent compensation to guaranteed cash if the city allowed it to use 200 scrollers — devices that allow for highly lucrative multiple ads on a panel, rather than just one.
Cemusa quickly agreed, guaranteeing 95 percent of the $91 million, which pushed the value of its final cash offer to $1 billion, the same as Decaux’s, as well as the $400 million in advertising. But based on Cemusa’s written response to the e-mail message, Decaux contends that the Spanish company never removed one of its prime conditions: that it would have the right to select the “most advantageous advertising locations” for the scrollers.
The city counted the money, Decaux adds, even though zoning regulations and local community boards would bar the scrollers from potentially choice locations.
Decaux says that it had hoped to get approval for even more scrollers than Cemusa, but did not get the same assurances from the city that Cemusa did.
Decaux says it nevertheless expressly eliminated all contingencies and guaranteed its $1 billion offer anyway. It says it would have offered hundreds of millions of dollars more if it knew for certain that it could get the valuable scrollers in prime locations.
Copyright 2006 The New York Times Company