Appeals Court upholds ruling against NCDOT in IT contract dispute

cars traveling on Durham, N.C. highway. Image by Maya Reagan, Carolina Journal

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  • A unanimous North Carolina Court of Appeals panel has ruled against the state Department of Transportation in a dispute involving a DOT information technology contract.
  • The decision upheld a trial judge's decision to reverse DOT and award a contract to eDealer Services for North Carolina's electronic lien and titling system.
  • The decision highlighted Superior Court Judge Keith Gregory's ruling that state officials' decision about the contract "was arbitrary, capricious, and an abuse of discretion."

The North Carolina Court of Appeals has ruled against the state Department of Transportation in an information technology contract dispute. The unanimous decision upholds a trial judge’s 2023 ruling favoring an electronic lien and titling vendor named eDealer Services.

EDealer had operated the state’s ELT system since its start, according to court filings. But DOT decided in June 2020 to award the system contract to a competitor named Vanguard Direct.

When eDealer challenged the decision, an administrative law judge recommended that state regulators rule against DOT. The state’s chief information officer rejected that recommendation and issued a final agency decision favoring DOT. Then Superior Court Judge Keith Gregory overturned the CIO’s ruling in March 2023.

“We conclude the superior court applied the correct standards of review and did not make independent findings of fact, but rather utilized information contained in the official record to conclude the State CIO contract award to Vanguard was erroneous,” wrote Judge Julee Flood. “We further conclude the superior court had the authority to modify the contract award instead of remanding for further fact finding.”

The Appeals Court opinion highlighted disparities Gregory found between the eDealer and Vanguard proposals.

The judge determined that “no reasonable mind would find the parties to have the same degree of experience based on all the evidence presented,” Flood wrote.

“The superior court then proceeded to detail the evidence contained in the official record that shows eDealer had far more ELT experience than Vanguard. Contrary to the NCDOT and Vanguard’s arguments, we conclude this was not the superior court conducting a ‘new evaluation of the evidence’ but was instead the superior court determining that the Final Decision’s conclusion that Vanguard was the stronger applicant with respect to Criterion C was not supported by substantial evidence — a correct application of whole-record review,” Flood explained.

The trial judge also questioned state officials’ conclusion that Vanguard was the “stronger applicant” in its proposed project schedule.

“In its proposal, Vanguard listed a proposed schedule of 381 days whereas eDealer’s proposed schedule was forty-five days,” Flood wrote. “Despite this great disparity in the proposed schedules, the Final Decision concluded it was reasonable to evaluate both proposals as the same with respect to Criterion B. The superior court concluded, and we agree, that this conclusion was wholly unsupported by the evidence as eDealer’s schedule was more than eight times shorter than Vanguard’s.”

The Appeals Court rejected DOT’s argument that Gregory should have sent the case back for further proceedings, rather than awarding the contract to eDealer.

“Here, the superior court identified four illustrations of how the procurement process failed to follow proper procedure,” Flood explained. “The superior court then determined the Final Decision was unsupported by substantial evidence because it was arbitrary, capricious, and an abuse of discretion. Based on these identified errors, and the lack of evidence in the record to support the award to Vanguard, the superior court determined remand would be ‘futile,’ reversed the Final Decision, and awarded the contract to eDealer. The superior court was within its statutory authority to modify the order instead of remanding for further findings.”

The Appeals Court responded to DOT’s argument that the CIO and the Department of Information Technology had “sole discretion” to review information technology contracts. “An acceptance of this argument would lead to the conclusion that the NCDIT is exempt from the [Administrative Procedure Act], which would be an erroneous interpretation of the relevant statutes,” Flood wrote.

“The language of the APA makes clear that it applies to all agencies, except those that fall under very specific exemptions,” Flood explained. “The statutory provisions pertaining to Information Technology contracts apply ‘notwithstanding any other provisions of law.’

“[W]e are left with the conclusion that the APA is the controlling statutory scheme,” Flood wrote. “The superior court, therefore, had the authority under N.C. Gen. Stat. §150B-151(c) to modify the Final Decision, vacate the contract to Vanguard, and award the contract to eDealer.”

Chief Judge Chris Dillon and Judge Valerie Zachary joined Flood’s opinion.

In May 2023, a split Appeals Court panel had issued an order blocking Gregory’s decision from taking effect.