Quanta Services files suit challenging LIPA board's rejection of contract bid

Quanta Services on Thursday filed a lawsuit in State Supreme Court challenging LIPA’s "unlawful" decision to reject Quanta’s bid to operate the Long Island electric grid and requesting an order barring LIPA from awarding the contract to PSEG Long Island.

The lawsuit is Houston-based Quanta’s latest attempt to challenge LIPA and its board of trustees' decision in April to reject its own internal committee’s "strong" recommendation that Quanta be awarded the contract to operate the grid. Most LIPA board members decided instead to go forward with PSEG, despite the finding that PSEG’s bid "did not satisfy certain minimal requirements," according to LIPA.

The lawsuit throws a potential last-minute wrench into ongoing negotiations between Long Island Power Authority and PSEG for a contract extension of up to five years, an agreement that is expected to be announced at a LIPA board meeting next week. PSEG has operated the grid for LIPA since 2014, under a contract that expires at year's end.

“LIPA does not comment on active litigation,” said spokeswoman Jen Hayden. Quanta through a spokesman declined to comment.

In addition to asking for an injunction to stop the award of the LIPA contract to PSEG pending the outcome of its lawsuit, Quanta is also asking that the court declare "void and unlawful" the LIPA board’s vote in May to cancel the entire bidding process. Quanta also is asking the court for fast access to LIPA documents and communications that it had sought in advance of the suit, but has not yet received.

"In essence, this case is about power, but not just the provision of energy services and grid operation vital for Long Island residents who would have benefited from Quanta’s demonstrated expertise and experience," the suit said. "It is a case that calls for this Court to exercise its power ... to restore fairness and public confidence in LIPA’s Request for Proposal process, to annul LIPA’s abuse of discretion, and to restrain LIPA from unjustly wielding its own power to the detriment of its customers."

The lawsuit comes against the backdrop of a state Inspector General’s investigation of the utility, Newsday has reported. It also comes amid a recently launched internal ethics probe by a law firm recently hired by LIPA after two people connected to the procurement initiated an ethics complaint.

In papers filed with its complaint, Quanta said it entered the bidding for a 10-year contract with LIPA with the "reasonable expectation that there would be a fair playing field ..."

But the "process run by LIPA was anything but fair," and the outcome rejecting Quanta after its superior bid "reflects a deeply flawed process, one that former LIPA board members have rightly called ‘a tragedy,’ that ‘demands swift correction,’" according to the lawsuit.

As Newsday first reported in April, a special committee at LIPA, including former Public Service Commission chairman and then-acting LIPA chief John Rhodes, "strongly recommended" Quanta to take over the contract to manage LIPA’s grid. Rhodes has since departed, replaced by Carrie Meek Gallagher, former director of the state Department of Public Service-Long Island.

Quanta "demonstrated experience and qualifications across the required range of operations services, as well as experienced leadership with a strong track record of operating and financial discipline so as to best position to reduce risk and deliver the strongest performance on storm preparation and restoration, reliability and minimized electric rates and bills," the LIPA committee found.

But six members of LIPA’s board, most of them appointees of Gov. Kathy Hochul, cited news accounts of problems with Quanta’s joint venture managing the Puerto Rico grid, among other issues, in rejecting Quanta.

The board resolution also made reference to ownership by one member of the procurement committee (later revealed to be Rhodes) of Quanta stock in explaining why the procurement was canceled. But the board had rejected Quanta before news of the stock sale becoming public. Quanta’s lawsuit called the “pretextual” rationale concerning the stock sale “abruptly conjured.”

In addition to LIPA, the suit names the board members who voted against Quanta and to cancel the RFP, including chairwoman Tracey Edwards, Valerie Anderson Campbell, Vanessa Baird-Streeter, Claudia Lovas, Mili Makhijani and Mary Ellen Mendelsohn.

A newly formed committee that for the first time includes three LIPA board members, including Edwards, is now negotiating to PSEG’s contract. Even if LIPA announces an agreement with PSEG as soon as next week, the contract still must undergo reviews by the state Attorney General and Comptroller before final approval at year's end.

Quanta alleged in its court papers that Edwards “repeated inaccurate media reports about Quanta’s operation of Puerto Rico’s electric grid,” and “injected several unstated evaluation criteria ... as a basis to downgrade Quanta’s proposal” and reject its bid.

In June, attorneys for Quanta at the law firm Steptoe LLC filed an exhaustive request for information from LIPA.

The Freedom of Information Law request contained 11 categories of documents, communications and reports from LIPA around the board’s cancellation of the bidding process, including actual bidding score sheets, communications related to the board’s decision to move ahead with PSEG and “all records and communications regarding any actual or alleged violation of ethics obligations or procurement rules” related to any investigation of the bidding process.

Quanta this summer said it had yet to receive substantive documents from LIPA, and said it has not received a response from Hochul’s office after the company asked her to intercede in the matter.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.