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.  If you are unsure if your bid complies with either the public bidding laws or the bid specifications, please contact us before you submit it so that we can assist you in order to ensure that your bid is compliant.

 

By: Daniella Gordon and Jennifer M. Horn

The New Jersey legislature is considering a bill which would permanently bar contractors who are convicted of fraud in connection with work on government contracts from bidding on future public contracts in the State. Under S. 2167, contractors convicted of making false payment claims to the government will be permanently barred from:

  1. Contracting with a contracting agency;
  2. Subcontracting with a third party in furtherance of a contract with a contracting agency;
  3. Serving as a key employee of any entity that is contracting with a contracting agency of any affiliate of such an entity; and
  4. Serving as a key employee of any entity that is subcontracting with a third party in furtherance of a contract with a contracting agency or of any affiliate of such an entity.

Contractors submitting bids for public works contracts will be required to certify their compliance with the law.

The bill was proposed in the wake of sentencing of two construction company owners who were implicated in a bid rigging scheme under which the Township Engineer received kickbacks from the contractors in exchange for recommending approval of their contracts. The Township Engineer was sentenced to a prison term of three years for his role in the scheme; however, the contractors involved received probationary sentences and were only barred from bidding on public contracts in the State for five years following their convictions.

The period of temporary debarment was viewed as an inadequate consequence of the fraud conviction, which has been characterized as a grave violation of the public trust. The proposed measure is consistent with other penalties imposed by the State for similar offenses. For instance, under N.J.S.A. 2C:51-2, any person holding public office who is convicted of a crime of dishonesty “shall be forever disqualified from holding any office or position of honor, trust or profit” in the State of New Jersey.

It seems likely that the bill will be enacted given the analogous statutory precedent and the public interest concerns inherent in the award of government contracts.

Daniella Gordon is a litigation Associate in the Construction Group. She represents clients in a wide range of construction related matters, including public bidding contests, construction defect claims, and appeals.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

As many contractors know, Pennsylvania’s attempt to formulate and use innovative procurement methods has incurred a series of setbacks from the Commonwealth’s appellate courts. The latest setback came when the Pennsylvania Supreme Court found that PennDot’s Design-Build Best Value (DBBV) procurement method violated the Pennsylvania Procurement Code.

Unless there is a potential for harm to the travelling public, Pennsylvania agencies, such as PennDot, are prohibited from procuring construction contracts through DBBV. Traditional methods of procurement require that contracts be awarded to the lowest responsible and responsive bidder. DBBV, however, allowed agencies to pre-qualify a short-list of design-build teams, and then select a design-build team’s proposal utilizing a best-value assessment methodology, that includes subjective and objective factors, to determine which proposal supplies the best value for the cost of the bid.

In the case of Brayman Construction Corp., et al. v. Commonwealth of Pennsylvania Department of Transportation, the Supreme Court of Pennsylvania enjoined Pennsylvania agencies from using DBBV because the practice does not comply with the Procurement Code’s requirement that construction contracts be awarded through the processes of sealed competitive bidding or sealed competitive proposals.

What Is PennDot’s Design-Build Best Value Bid Procedure?

DBBV is outlined in PennDot’s “Publication 448, Innovative Bidding Toolkit” (Publication 448) Publication 448 describes various innovative bidding methods for selecting contractors for highway projects. It explains that innovative bidding seeks, among other things, to account for social costs, such as disturbance to the traveling public, in addition to taxpayer dollar costs.

According to Publication 448, DBBV provides the agency “with the most potential for multiple design solutions and innovation in the use of materials.” Its goal is to “reduce overall time from design start to completion of the project, which provides for a shorter project completion time at a lower cost.”

DBBV is a two step process. The first step is aimed at creating a “short list” of three to five design-build teams which will eventually submit proposals for the contract. Prospective design-build teams submit statements of interest detailing their qualifications, the resumes of key personnel, and organizational charts. The statements of interest do not include a monetary bid. From the statements of interest, PennDot picks a short list of three to five teams that it considers best suited for the project.

In the second step, each short-listed team submits a technical approach and a price, which becomes the basis for a negotiated stipend agreement. To accomplish this, PennDot enters into a separate stipend agreement with the teams on the short list to develop a proposed design for the project. Thereafter, the design partner for each team develops a proposed technical approach and submits it, along with a price bid, to PennDot. PennDot then selects a design-build team based on which proposal offers the best value, not on a lowest competitive price basis.

Why Did the Supreme Court Severely Limit DBBV?

The general rule for procurement under Pennsylvania’s Procurement Code is that “[u]nless otherwise authorized by law, all Commonwealth agency contracts shall be awarded by competitive sealed bidding under section 512[.]”. One notable exception allows a procuring agency to contract for design professional services through a two-step proposal process.

In the case of Brayman v. PennDot, Brayman challenged PennDot’s attempt to procure design-build services urgently needed for replacement of the Six Mile Creek Bridge in Erie county. PennDot had proposed to select a design-builder via the DBBV process. As part of DBBV’s first step, Brayman, and its design partner, submitted a statement of interest. However, PennDot did not select Brayman for its short-list, and therefore, Brayman was precluded from submitting a proposal for the project.

Brayman initiated a lawsuit in an effort to prevent PennDot from awarding the bridge contract through the DBBV process. Brayman claimed that DBBV violated the Commonwealth Procurement Code. PennDot argued that the Procurement Code did permit public procurement on a design/build basis, and did not prohibit best-value selection. Alternatively, PennDot argued that design/build services were professional services, which were exempted from the competitive bidding requirements of the Procurement Code. The Commonwealth Court rejected PennDot’s arguments, holding that design-build contracts, because they include construction and not merely professional engineering and architectural services, were subject to the Procurement Code’s requirement of competitive sealed bidding.

The Commonwealth Court’s order enjoined PennDot from awarding design/build contracts “using the best-value method or any other ‘innovative method’ that does not award the bid based on sealed competitive bids.” On appeal, the Pennsylvania Supreme Court agreed that the design-build contract was a construction contract and therefore its procurement must comply with the objective requirements of competitive sealed bidding.

However, both the Commonwealth and Supreme Courts refused to enjoin PennDot’s award of the contract for the Six-Mile Creek Bridge project because the new bridge was so urgently needed to prevent a potential catastrophe.

What Does the Curtailment of DBBV Mean for Contractors?

The bottom line is that Commonwealth procurement agencies must use the competitive sealed bid process of the Procurement Code for all construction-contracts, including design-build contracts, unless the contract or project falls within an express statutory exception to competitive bidding or where there is an imminent danger to the public. While the Commonwealth appears determined to utilize non-traditional methods of procurement which it believes allows for a more rapid and efficient project delivery, for now, bidding on public road projects will be business as usual until PennDot is able to develop innovative methods that comply with existing procurement laws.

This article is the first of a series on Pennsylvania bid procurement practices and protests. Please look for part two of this series coming in August.

If you are a contractor bidding on public projects in New Jersey, a recent NJ case sheds light on an aggregate rating requirement which, if violated, could cause your bid to be disqualified.

What Are Aggregate Rating Requirements Under NJ Law?

Most NJ contractors who bid on public projects are aware that their company’s “Aggregate rating” refers to “the limit of the dollar value of all contracts, public and private, that a firm may perform at any given time.” [insert link] Importantly, “[a] firm shall not be awarded a contract which, when added to the backlog of uncompleted construction work …[the value of which] would exceed the firm’s aggregate rating.” But are subcontractors considered “firms” that will be held to the “aggregate rating” requirements set forth in the regulation? That answer is a resounding “yes,” according to the recent NJ Superior Court Appellate Case.

If Your Subcontractor’s Aggregate Rating Limit Would Be Exceeded Upon Award of the Contract, Your Bid Could Be Disqualified

Recently, the Superior Court of New Jersey, Appellate Division, rejected a contractor’s claim that its subcontractor was exempt from the aggregate rating requirements discussed above.

For a detailed discussion of the recent New Jersey case, please read the attached PDF.

The recent decision means that prudent contractors must pay attention to their subcontractor’s ratings to insure that the aggregate limit will not run afoul of the legal guidelines.

Impact Moving Forward

In light of the Court’s decision, contractors bidding on public projects should be diligent in ensuring that their subcontractors rating limits will not throw off the aggregate rating calculation upon award of the subcontract. Contractors should be aware that such violations may cause their bids to be disqualified. In turn, subcontractors should also take precautions to avoid liability for errors which cause bids to be rejected, and the potential for resulting claims for damages.

The on-again off-again Graterford Prison project has just met another hurdle. Pennsylvania Governor Tom Corbett’s administration just announced that the Department of General Services will re-bid the project to include a new death row wing, and a women’s unit.

The new bidding process will likely further delay the project, which is considered one of the largest corrections projects in the country.

The prison, when complete, will be divided into sections, separating medium- and maximum-security inmates. A capital case unit will be added as well as construction of the state’s first, self-contained female transitional facility on prison grounds. Graterford is expected to hold up to 4,100 inmates. The project has yet to break ground.

In response to the re-bid, John Wetzel, acting Corrections Secretary, said that:

This is, by no means, a failure in design. It’s an opportunity for us to improve upon the design. Before we spend millions of dollars building a new prison, we need to ensure the money is being spent in an appropriate manner and that the prison design is in line with our department’s mission.

The news of the re-bid came hot on the heels of a lawsuit filed by contractors who accused the state of violating bidding practices and fair agreements. With the new bid, that case becomes moot, as the process begins all over again.

We will continue to closely monitor the situation as it develops and keep you informed of any changes.

Since public bidding began in the State of New Jersey, contractors have had to be especially diligent in the computation and review of their bid packages. This is because New Jersey has remained one of the few states that does not have an established procedure that permits bidders to request a withdrawal of the bid, under certain circumstances. Until recently, if, post bid, a bidder discovered a gross mistake in their bid, they could not rescind the bid without jeopardizing their bonding capacity and/or losing their bid bond.

On January 4, 2011, Governor Chris Christie signed S514 (now P.L. 2010, C. 108) into law. The new law goes into effect on March 4, 2011, and will permit a bidder, under certain circumstances, to withdraw a bid involving “public works”, due to mistakes in the bid, under the Local Public Contracts Law (LPCL).

Under the LPCL, “public works” is defined to mean building, altering, repairing, improving or demolishing any public structure or facility constructed or acquired by a contracting unit to house local government functions or provide water, waste disposal, power, transportation, and other public infrastructure. In other words, nearly all public projects fall under this definition.

Now, a bidder can request a withdrawal within five business days after either a bid opening or a scheduled pre-award meeting, whichever comes later, by certified or registered mail. The request for withdrawal must include evidence demonstrating that:

  • An error, clerical in nature and not judgmental, occurred in the computation of the bid, which is verifiable by written evidence;
  • The error is either an unintentional and substantial computational error or an unintentional omission of a substantial quantity of labor, material, or both, from the final bid computation; and
  • There is no gross negligence in the preparation of the bid.

Essentially, this new law injects the concept of fairness and equity in public bidding and recognizes that both the government and bidders benefit from bidding in good faith.

One note of caution:

A bidder who withdraws a bid under this new law is disqualified from submitting future bids on the same project, even if the government entity rejects all bids.

The Lancaster County Board of Commissioners announced on January 26, 2011, that they passed an ordinance banning the use of project labor agreements (PLAs) “on all county-funded construction projects.” With the passage of Ordinance 99, all Lancaster County projects will now have open bidding, instead of exclusively being available to only union contractors. Of course, union workers will also be able to bid on projects, but the hope is that Ordinance 99 will even the playing field.

Commissioner Scott Martin, of the Lancaster County Board of Commissioners, says:

As I see Project Labor Agreements starting to be utilized in other areas of the Commonwealth, I believe it is important that this action be taken to preserve fair and open contracting for government projects, ensure that we attain the most competitive costs for taxpayers and to offer a process that doesn’t exclude 85% of the workforce from competing for government projects.

This marks the first time that PLAs have been banned in Pennsylvania, at the county level. With this new ordinance in place, it should help to guarantee that local taxpayers receive the best construction work at the most competitive price.

Although entering the public bidding arena presents contractors with a plethora of opportunities, these opportunities do not come without risk. As many contractors can attest, oftentimes public bidding can seem more like gambling than bidding. This holds true not only when a contractor steps into the public bidding area for the first time, but also when experienced public bidders decide to cross state lines to pursue new opportunities.

Public Bidding in New York

Unlike the public bidding laws in New Jersey and Pennsylvania, the New York public bidding laws give contractors the option of withdrawing their bids after the expiration of a firm offer period. Under Section 105 of New York’s General Municipal Law, New York’s public bidding statute, a public agency must award a contract within 45 days of bid opening. During this period, which cannot be expanded by contract or local laws, a contractor’s bid is irrevocable. Once the 45 day firm offer period expires, however, a contractor may withdraw its bid if the public agency has not yet awarded and entered into the contract. Providing notice of the award is not sufficient. As such, contractors can withdraw their bids when the public agency has indicated its intent to award a contract, but has not yet bound itself to the contract within the 45 day firm offer period.

Guy Pratt, Inc. v. The Town of North Hempstead

The case, Guy Pratt, Inc. v. The Town of North Hempstead, is a long-standing example of a New York contractor’s ability to withdraw its bid when a public agency does not unequivocally enter into the contract. In Guy Pratt, the Appellate Division of the Supreme Court of New York held that contractor Guy Pratt, Inc.’s withdrawal of its bid after the expiration of the 45 day period was valid and effective. The Court upheld the withdrawal even though counsel for the Town of North Hempstead (Town) notified the contractor by letter within 45 days of bid opening that the Town had awarded it the contract, and even though Guy Pratt, Inc. had already executed and returned the proposed contract to the Town prior to withdrawal of its bid.

In issuing its ruling, the Court relied upon language in the subject contract that stated that a contractor was proceeding at is own risk unless and until:

an Award of the Contract to him is consummated by the delivery of an executed duplicate of the Agreement which has been approved by and filed in the Office of the Town Clerk.

The Court found that this language made it clear that the Town was not bound by the contract until it had delivered an executed copy of the contract to Guy Pratt, Inc. Since it was undisputed that an executed contract had not been delivered to the contractor within the 45 day period, and since the contractor’s notice of withdrawal of its bid came before the delivery of the contract, the withdrawal was valid and effective.

In this case, the Court held that an award must be unequivocal in order to bind a contractor within the 45 day period and to prevent a contractor from executing its right to withdraw its bid. The fact that this case is still good law demonstrates just how serious New York courts take the contractor’s ability to withdraw its bid after the 45 day period.

Graterfordf.jpg

The project to expand the State Correctional Institute at Graterford due to overcrowding has been cancelled. Currently, the prison houses 2,100 inmates, but it is so crowded that prisoners are being shipped to Michigan and Virginia. The project was originally slated to add 4,000 beds to the prison, 3,000 of which would have replaced existing beds. State officials had hoped to break ground this fall on the project site.

On August 31, 2010, Pennsylvania Commonwealth Court Judge Dan Pellegrini ruled in favor of a group of contractors who filed suit against the Pennsylvania Department of General Services (DGS) and the Pennsylvania Department of Corrections for violations of the Commonwealth’s procurement laws. The Graterford Prison Project Case effectively halted the bidding process on the $365 million construction project to expand the prison.

The case centered around 3 issues:

  • Whether DGS could limit the bidding to 3 bidders
  • Whether DGS should have posted bidders’ technical details on the internet
  • Whether the state must obtain separate bids for heating and air conditioning, plumbing and electrical work

In his opinion, Judge Pellegrini concluded that:

[B]udgetary concerns or expediency do not give the Department the right to ignore a legislative mandate. . . While granting a preliminary injunction may result in prisoners staying out of state a little longer (albeit, at no additional net cost to the Commonwealth), it will harm the public more if we allow the Department to willfully violate the law.

The attorney representing the contractors stated that they were only interested in making sure that DGS was following state law. Immediately after the ruling, Ed Myslewicz, a spokesperson for DGS, voiced the agency’s disappointment in the outcome, “[o]bviously, we are disappointed by the opinion, because it affects a tremendous amount of construction activity.” At that point in time, Myslewicz stated that DGS attorneys were reviewing the opinion but that no decision had been made regarding whether or not to appeal it.

On September 27, 2010, DGS issued Bulletin No. 10 cancelling bids for the project as currently issued, “in the best interests of the Commonwealth,” indicating its plan to take “immediate action to revise and re-issue the Request for Proposal for a Design Build Contractor for SCI Graterford East and SCI Graterford West.” As a result, companies interested in bidding on the project or those that have already prepared a bid, should not consider their efforts wasted, as a new round of bidding is approaching.

In addition to the lawsuit relating to the DGS bidding, a lawsuit is pending before the Pennsylvania Supreme Court over whether or not DGS can utilize a project labor agreement (PLA) on the project. The lawsuit is an appeal of the December 2009 decision of the Commonwealth Court in which Judge Pellegrini ruled that the PLA was appropriate for the project because it was critical that the project deadline be met “without disruption or stoppage.” In response to the recent bid cancellation, DGS filed a Motion with the Supreme Court claiming that the appeal was now moot since there is no bid. Counsel for the non-union contractors, who are seeking a determination that a PLA should not be utilized at the project, plans to move forward with the appeal because it is anticipating that DGS will reissue the project for bid with a PLA.

Cohen Seglias will continue to monitor and report on the issues surrounding these cases as they emerge.

Prompted by criticism relating to inappropriate perks, nepotism, and corruption, the Delaware River Port Authority (DRPA) hDRPA.jpgas recently enacted reforms that will affect DRPA’s construction projects. The DRPA is responsible for operating 4 toll bridges between Philadelphia and New Jersey, as well as the Port Authority Transit Corporation (PATCO) commuter rail line.

The DRPA first came under scrutiny last month when it was revealed that its public safety director, Michael Joyce, had allowed his daughter to use a DRPA EZ-Pass account for free. Soon after, DRPA raised eyebrows again when it revoked certain employee perks, including the use of a free EZ-Pass, on August 18, 2010, and then backtracked and attempted to reinstate the perks on August 30, 2010, less than two weeks later. Last week, New Jersey Governor Chris Christie vetoed the DRPA’s attempt to restore the perks.

Public scrutiny arising from the discovery of employee perks and other corruption resulted in a push for reform not only from Governor Christie but also from Pennsylvania Governor, Edward G. Rendell. Substantial changes resulted, including the institution of regular audits and rules prohibiting nepotism.

Elimination of No-Bid Contracts

One notable reform is the elimination of no-bid contracts. Generally, no-bid contracts on government projects are permitted only in limited circumstances. No-bid contracts may be permitted where there is only one source for a product; for example, if only one manufacturer produced the materials necessary for a project. Similarly, for projects where time is of the essence, such as when repairs to a bridge must be done within a matter of hours to prevent harm to commuters, a no-bid contract may be appropriate. Prior to the recent reforms, assertions were made that the DRPA allowed no-bid contracts for projects that should have been open for bidding.

The elimination of no-bid contracts is great news for Philadelphia and New Jersey contractors. Bridge and rail line projects that otherwise would have been funneled to regular DRPA contractors without any open bidding will now be made available for public bid. Open bidding means more opportunities for area contractors. Area contractors should become aware of all of the new DRPA requirements to ensure that their bids will be eligible for consideration for newly available projects.