The New Jersey Supreme Court recently issued an important opinion providing clear guidance for companies seeking to do business with the state of New Jersey, that in public works projects, bid documents must be in full compliance with the contracting authority’s specifications and any material defect will be grounds for rejection of the bid.
This is the case even if the contracting authority previously accepted bid documents in a noncompliant form, the court wrote, providing contracting authorities with broad discretion in the bidding process when they are acting to ensure compliance with the law.
The opinion, rendered in In the Matter of Protest Filed by El Sol Contracting and Construction Corp., Contract T100.638, concerned a dispute over whether the New Jersey Turnpike Authority (NJTA), as the contract awarding authority in a publicly-bid bridge project, acted in an arbitrary, capricious and unreasonable manner by rejecting El Sol Contracting & Construction Corp.’s (El Sol) low bid.
Backdrop to the Dispute
The NJTA sought bids for a redecking project in connection with repairing bridges in the Newark Bay area. The bid specifications for the project required both that the proposals be accompanied by a proposal bond for 10% of the proposal, and that the proposal bond be accompanied by a power of attorney (POA) and a consent of surety (CoS). The CoS was also required to identify the surety company’s obligation to provide the contract bond upon award of the contract to the bidder. For context, the CoS is used as a guarantee of the performance of the contract. The successful bidder must provide a contract bond for 100% of the contract price within 10 days of being awarded the contract. This therefore is a critical aspect of any bid submission, especially one of more than $70 million.
El Sol’s bid packet included a compliant proposal bond that had been entered and executed by the attorney-in-fact appointed by the POA. That same individual also signed the CoS. However, the surety’s POA expressly “limits the acts of those named herein,” by making clear that “they have no authority to bind [the surety] except in the manner and to the extent herein stated.”
The NJTA received five bids in total, and El Sol was the low bidder at just under $71 million. The next lowest bid was nearly $10 million more, at roughly $81 million.
The NJTA determined that the POA from El Sol’s surety authorized the attorney-in-fact to sign the surety’s proposal bond, but not the surety’s CoS, both of which were required for the award of the contract. The NJTA rejected El Sol’s bid and instead accepted the next lowest bid. Notably, the surety for El Sol was also acting as the surety for two of the other bids that were submitted and the NJTA rejected all three bids for the same reason.
Several weeks after the NJTA identified this issue in the bids, it revised its own public bid specifications. The revised language now requires that a Proposal Bond and the CoS “shall be accompanied by a [POA] evidencing the signatory’s authority to bind the Surety to the Proposal Bond . . . and the [CoS].” The NJTA did not rely on this revised language to support rejecting El Sol’s bid. The NJTA stated the purpose for the revision was to ensure this issue did not occur again in the bid process.
The New Jersey Supreme Court
The New Jersey Supreme Court concluded that the NJTA did not act in an arbitrary, capricious and unreasonable manner. The court relied on prior caselaw in which it recognized that failure to include a CoS is a “material defect that can neither be waived nor cured,” to guide its opinion. Because the parties did not dispute that the POA did not authorize the attorney-in-fact to execute the CoS, this constituted a material defect that could not be cured by El Sol after the fact.
Having found this was a material defect, the court also concluded that the NJTA did not waive this defect by previously accepting bid documents in this form. The NJTA was required to ensure that all bid documents were in full compliance and the NJTA’s legal department did not have the option of ignoring this material defect, nor to allow the surety to correct the defect after submitting the bid. And, because the NJTA effectively admitted at oral argument it had “missed” these defects in the past, the NJTA was not aware of the 13 prior bids that had been submitted without issue.
The court’s decision, however, was not unanimous. Two justices dissented. The dissent emphasized that the revisions the NJTA made to its bid specifications made clear that those requirements, that a POA accompany a CoS, were not present in the specifications at the time of El Sol’s bid and that the NJTA’s acceptance on the 13 prior occasions of the same exact bid documents establishes that El Sol’s bid was compliant. And, that this arbitrary, capricious and unreasonable decision making by the NJTA in turn cost the taxpayers nearly $10 million by requiring the acceptance of a higher bid.
Dissent aside, the Supreme Court’s majority opinion provides public contracting authorities with broad discretion to enforce bidding requirements in compliance with the law.
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