New Jersey Appellate Division Issues Two Opinions Clarifying Local Public Contracts Law

In recent months the New Jersey Appellate Division issued two opinions clarifying aspects of the New Jersey Local Public Contracts Law, which generally mandates that contracts above a specified amount be awarded by municipalities to the lowest responsible bidder after public advertising for bids and bidding, N.J.S.A. § 40A:11-4, and also sets forth specific, non-waiveable bid requirements, the absence of which will result in a per se disqualification of the bid. N.J.S.A. § 40A:11-23.2.

An exception to the lowest-responsible-bidder mandate is recognized when the municipality has publicly advertised on two prior occasions but was unable to obtain reasonably-priced bids, in which case a municipality is permitted to negotiate a public contract without public advertising and bidding. See N.J.S.A. § 40A:11-5(3). In C&H Industrial Services, Inc. v. City of Vineland, the court considered whether defects in proposals submitted pursuant to the LPCL’s negotiated procurement process set forth in N.J.S.A. § 40A:11-5(3) can invalidate proposals in the same manner as defects in bids submitted pursuant to the public advertisement process.

In C&H Industrial, Vineland decided to negotiate a contract for the construction of a power plant after twice rejecting all bids obtained through the public advertisement process. Two of the previous three bidders, C&H Industrial Services, Inc. (“C&H”) and Industrial Energy, LLC (“IIE”), participated in the negotiations and submitted proposals pursuant to specific instructions from Vineland. These instructions included a requirement that any proposal include, pursuant to N.J.S.A. § 52:25-24.2, a corporate disclosure document containing certain specified information. IIE’s corporate disclosure statement was incomplete, but Vineland nevertheless accepted it. C&H then filed an action asking the court to declare IIE’s proposal non-responsive and to compel Vineland to award the project to C&H. The trial court ruled in favor of C&H, and IIE appealed.

On appeal, IIE argued that because N.J.S.A. § 52:25-24.2 and N.J.S.A. § 40A:11-23.2 only address the corporate disclosure requirement in the context of bids, this requirement did not apply to its proposal submitted pursuant to the LPCL’s negotiated procurement process. The Appellate Division rejected this position and affirmed the trial court’s decision. The Court determined that it did not need to decide whether compliance with the corporate disclosure requirement was statutorily required by the LPCL as a general matter because Vineland’s instructions as part of the negotiated process mandated that parties submitting proposals comply with that requirement. Because Vineland’s instructions had extended the requirements of the disclosure statute to the negotiated procurement process, the Court held that IIE was required to comply with it and its failure to do so was a material, non-waiveable defect.

In Suburban Disposal, Inc. v. Township of Aberdeen, the Appellate Division considered the scope of the statutory bid requirement of “[a] document provided by the contracting agent in the bid plans, specifications, or bid proposal documents for the bidder to acknowledge the bidder’s receipt of any notice or revisions or addenda to the advertisement or bid documents,” N.J.S.A. § 40A:11-23.2(e) in holding that Aberdeen properly rejected a bid submitted to it by Suburban Disposal, Inc. (“Suburban”).

This case involved the award of a solid waste hauling contract pursuant to a public bidding process under the LPCL. Following the issuance of the bid specification packets, Aberdeen issued General Clarification No. 2 (“GC2”) which revised an answer Aberdeen had previously provided to a question posed by a prospective bidder. The GC2 document stated that it was “issued to provide additional clarification and information to prospective bidders,” advised that prospective bidders should replace Aberdeen’s prior response to the prospective bidder’s question with this document, and included an “Acknowledgement of Receipt of Changes to Bid Documents” form that identified the GC2 document as one that prospective bidders needed to acknowledge receipt of pursuant to N.J.S.A. § 40A:11-23.2(e). Suburban and another company, Future Sanitation, Inc. (“Future”), submitted timely bids. Although Suburban was the low bidder, its bid was ultimately rejected by Aberdeen because Suburban failed to include the “Acknowledge of Receipt of Changes to Bid Documents” form indicating receipt of GC2. When Suburban filed a complaint alleging that its bid was improperly rejected, the trial court dismissed the lawsuit on the ground that GC2 was a “notice or revision or addenda” that needed to be acknowledged.

On appeal, Suburban argued that a “clarification” is not a “notice or revision or addenda” within the meaning of N.J.S.A. § 40A:11-23.2(e), and, as such, its failure to acknowledge receipt of that document was not fatal defect in its bid. The Appellate Division disagreed, focusing on the nature of the document at issue rather than how it was labeled by Aberdeen. Stating that the ordinary meaning of “notice” is a “written or printed announcement,” the Court found that the language in N.J.S.A. § 40A:11-23.2(e) encompasses a wide range of documents and provides public entities with discretion to identify as mandatory items those things it considers important. Because GC2 was issued to all prospective bidders and because it contained specific instructions that acknowledgement was mandatory, the Court held that it fell within the scope of N.J.S.A. § 40A:11-23.2(e) and, as such, Suburban’s failure to acknowledge receipt of this document was a fatal, non-waiveable defect in its bid.

The Suburban and C&H Inudstrial decisions highlight the importance of closely scrutinizing any bid specifications or instructions — including any documents issued by the entity after the initial bid — to ensure that any bid or proposal contains all of the information required by the LPCL and requested by the public entity. Even where the procurement is proceeding outside the context of the LPCL’s public advertisement process, proposals should comply with all of the requirements identified by the public entity as part of the negotiated process. While the failure to fully and completely comply with the instructions may not always invalidate a bid or proposal, the “better to be safe than sorry” maxim applies.

Damian V. Santomauro is a Director in the Gibbons Business & Commercial Litigation Department.
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