In April, the New Jersey Supreme Court agreed to review the case of Waste Management of New Jersey, Inc. v. Mercer County Improvement Authority. The matter concerns a defect in a bid submitted under the New Jersey Public Contracts Law (“LPCL”). This case proves, yet again, that it is critical to pay close attention not just to the requirements of the public bidding laws, but also to the requirements contained in the bid specifications.
The LPCL has five mandatory items that must be included in a bid: (1) a bid bond, (2) a consent of surety, (3) a disclosure of corporate ownership pertaining to shareholders owning 10% of more of the corporate stock, (4) a list of certain required subcontractors and (5) an acknowledgment of the bidder’s receipt of any revisions to the bid documents. Failure to include any of these five items is considered a fatal defect requiring rejection of the bid. For all other bid defects, the New Jersey courts consider whether the defect is material and non-waivable based on a two-part test: (1) whether the waiver would undermine the public body’s assurance that the bidder will enter into and perform the contract according to its requirements and (2) whether the waiver of the defect would adversely affect competitive bidding by giving one bidder an advantage over other bidders?
In Waste Management, the bid specifications required bidders to submit a legal opinion regarding the enforceability of the contract to be executed by the Authority and the successful bidder. The Authority included a form for this legal opinion in the bid documents, which consisted of three assurances: (1) the bidder had full corporate power to execute the contract, (2) the contract was binding on the bidder and (3) the contract was enforceable.
Republic Services of New Jersey, L.L.C. (“Republic”) was the low bidder. Waste Management was the second lowest bidder. However, with its bid, Republic’s counsel submitted a letter that addressed the three legal opinions and did not use the provided form. Additionally, for the third opinion in the letter, Republic’s counsel concluded that certain provisions of the contract might be unenforceable but those questionable provisions did not substantially interfere with the intended benefits of the contract. Due to the letter format and the additional language, the Authority considered Republic’s bid materially defective.
Because Waste Management failed to include the required disclosure of corporate ownership, its bid was also rejected. The Authority then re-bid the contract and Waste Management was deemed the low bidder. Both Republic and Waste Management challenged the Authority’s decision to re-bid the contract and the trial court held that the Authority properly rejected the bids.
On appeal, the Superior Court, Appellate Division held that rejection of Waste Management’s bid for failure to disclose of corporate ownership was proper. However, it reversed as to Republic. Applying the two-part test for materiality, the court determined that Republic’s legal opinion did not deprive the Authority of its assurance that the contract would be entered into and performed according to its requirements. Further, the court determined that the different letter format of the legal opinion would have no effect on competitive bidding. As such, the court directed that the contract be awarded to Republic. The Authority has appealed the Appellate Division’s ruling to the New Jersey Supreme Court, and we will report on the Supreme Court’s ruling when it is issued.
As should be evident from this article, the parties, including the public body, have spent thousands of dollars litigating what, to the outside, may seem like rather inconsequential details. Because of the competitive nature of public bidding, any defect contained in a low bid, no matter how trivial, will likely result in a challenge from another bidder; especially when millions of dollars in new work are at stake. As a result, it is critical to pay close attention to adhering not just to the required items under all public bidding laws, but also to the requirements contained in the provided bid specifications.
