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Trap Rock Industries Inc. v. Kohl

Decided: November 23, 1971.


For reversal -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Schettino and Mountain. For affirmance -- None. The opinion of the Court was delivered by Weintraub, C.J.


The issue before us is whether the State Commissioner of Transportation (herein Commissioner) improperly "suspended" the respondents (herein contractors) from bidding on contracts to be awarded by the Department of Transportation, a principal department of the executive branch of the State government. Both contractors had been "classified" to bid. As will presently appear, a statute provides that prospective bidders shall establish their qualifications prior to bidding rather than after the bids have been received and the low bidder ascertained. In the cases before us, the suspension was based upon the fact that indictments had been returned charging criminal offenses, without proof before the Commissioner affirmatively establishing the criminal allegations. In both cases the contractors declined an opportunity to present evidence concerning the truth of the criminal charges. The Appellate Division held the suspensions were illegal because of the absence of competent evidence establishing the commission of the alleged offenses. Trap Rock Industries, Inc. v. Kohl, 115 N.J. Super. 278 (App. Div. 1971); Ottilio v. Kohl (not reported). We granted the Commissioner's petitions for certification. 59 N.J. 239 (1971).

As to respondent Trap Rock Industries (herein Trap Rock), the indictment ran against Michael J. Stavola. He owns 80% of the stock of Trap Rock and is its president and chairman of its board of directors. The indictment charged that Stavola conspired with another to bribe and offered a bribe of $5,000 to a member of the New Jersey State Police to intercede improperly on Stavola's behalf with respect to still another indictment charging Stavola with assault and battery upon a police officer and with obstructing the officer in the performance of his duties. Upon learning of the bribery indictment, the Commissioner gave

notice to Trap Rock that this criminal charge would, in the Commissioner's opinion, affect the "responsibility" of Trap Rock; that Trap Rock's "classification" was thereby "suspended"; and that Trap Rock was given "an opportunity to be heard on this action" within the ensuing ten days. At the hearing the indictment was placed in evidence. Trap Rock noted Stavola's plea of not guilty to the indictment but declined to offer any testimony as to the criminal charges. Trap Rock also declined to consent to the examination of the transcript of the grand jury testimony.

Prior to the Commissioner's action, Trap Rock had bid on a job. Subsequently it developed that Trap Rock was the low bidder for that contract. The Commissioner refused to award the contract to Trap Rock. The Appellate Division's judgment would have required the award to be made to Trap Rock. We granted a stay of an award pending the disposition of this appeal.

Respondent Carmen Ottilio is the sole owner of the business he conducts under a trade name, V. Ottilio and Sons. The indictment in his case was returned in the United States District Court for the District of New Jersey. Nine counts charged Ottilio with offering substantial bribes to a special agent of the Intelligence Division, United States Internal Revenue Service, and also with filing false income tax returns, again involving substantial sums of money. As in the case of Trap Rock, the Commissioner notified Ottilio that there were developments since his classification to bid which would affect Ottilio's responsibility and would authorize the voiding of such classification; that his classification was "suspended," and that an opportunity would be afforded him to be heard on that action. Again, as in the case of Trap Rock, the indictment was introduced into evidence and Ottilio declined to go beyond noting his plea of not guilty in the federal court. Ottilio waived any objection to the Commissioner's examination of the grand jury minutes, but, we gather, the federal authorities would not make them available.

The contractors contend the Commissioner's actions violate the provisions of the Administrative Procedure Act and deny due process because (1) the Commissioner did not adopt rules delineating the misdeeds which would disqualify a bidder, and (2) their classifications were suspended on the basis of an indictment alone, without independent proof of the truth of the criminal charges.


These cases do not involve the right to engage in business. The contractors are free to do business with anyone willing to deal with them. The question is whether the State must do business with them despite the Commissioner's view that the public interest would be disserved by doing so. And the question is not whether the Commissioner may bar Trap Rock or Ottilio permanently upon the record in these matters, for the Commissioner went no further than temporarily to suspend their opportunity to seek the business of the Department of Transportation pending a showing that the State's interest would be served by doing business with them notwithstanding the criminal charges.

We start with the premise expressed in Perkins v. Lukens Steel Co., 310 U.S. 113, 127, 60 S. Ct. 869, 84 L. Ed. 1108, 1114-1115 (1940), that "Like private individuals and businesses, the Government enjoys the unrestricted power to produce its own supplies, to determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases." The State need not resort to competitive bidding. Cf. Lehigh Construction Co. v. Housing Authority of the City of Orange, 56 N.J. 447 (1970); Rutgers, the State University v. Kugler, 110 N.J. Super. 424 (Law Div. 1970), affirmed o.b., 58 N.J. 113 (1971). And if the Legislature chooses to direct competitive bidding, it need not mandate an award to the "lowest" responsible bidder but rather may vest in its agent the discretion to accept the bid of "that responsible bidder whose bid, conforming to

the invitation for bids, will be most advantageous to the State, price and other factors considered," as the statute provided in Commercial Cleaning Corp. v. Sullivan, 47 N.J. 539, 548 (1966).

That the State may decide how to procure its needs does not mean that, having chosen a course, the State may pursue it with the abandon of a private consumer. When the State acts, certain restraints attach. So, as frequently noted, the State could not select its suppliers on the basis of religious, racial or ethnic attributes. See Garden State Dairies of Vineland, Inc. v. Sills, 46 N.J. 349, 355 (1966), same case, 53 N.J. 71 (1968); cf. Burlington County Evergreen Park Mental Hospital v. Cooper, 56 N.J. 579, 583-584 (1970). Nonetheless the purpose of a procurement program is not to advance the interest of those who want the State's business. On the contrary, the purpose is to serve the State's interest as purchaser.

The purpose of competitive bidding statutes "is to secure competition and to guard against favoritism, improvidence, extravagance and corruption. Statutes directed toward these ends are for the benefit of the taxpayers and not the bidders; they should be construed with sole reference to the public good * * *." Hillside Township, Union County v. Sternin, 25 N.J. 317, 322 (1957).

It, of course, serves the public interest to permit suits to enforce the policy of these statutes. To that end, a taxpayer may sue. So, too, may a bidder who claims to be entitled to the award. And to the same end, the low bidder is entitled to be heard by the public authority before his bid is rejected. Commercial Cleaning Corp. v. Sullivan, supra, 47 N.J. at 550; Arthur Venneri Co. v. Paterson Housing Authority, 29 N.J. 392, 402 (1959); Paterson Contracting Co. v. Hackensack, 99 N.J.L. 260, 261 (E. & A. 1923); J. Turco Paving Contractor, Inc. v. City Council of Orange, 89 N.J. Super. 93, 98-99 (App. Div. 1965); Sellitto v. Cedar Grove, 132 N.J.L. 29, 32 (Sup. Ct. 1944). The low bidder is sometimes said to have acquired a "status."

That he has an interest of some character which will support a claim to be heard cannot be questioned. The point to be stressed is that the interest, whatever its dimensions, is conferred upon him to the end that the public will obtain all that is due it in the procurement process, rather than for his individual aggrandizement. As was said in Arthur Venneri Co., supra, 29 N.J. at 402-03, "The requirement of a hearing derives from the basic policy of the bidding laws, i.e., the encouragement of competition, which in turn works to protect the public coffers and prevent chicanery and fraud in public office."

We noted earlier that Trap Rock and Ottilio were "prequalified" for bidding. Under some competitive bidding statutes, the bidder's qualifications are determined after bids are received and the low bidder thus ascertained. There are, however, some situations in which the Legislature has decided that the public interest would be furthered by classifying prospective bidders in advance of bidding. One such statute, N.J.S.A. 27:7-35.1 to 35.12, applies to the Department of Transportation and is here involved. In brief, section 35.2 requires that all persons who propose to bid on highway work "shall first be classified by the department as to the character and amount of work on which they shall be qualified to submit bids." Section 35.3 requires a sworn statement in response to a questionnaire prepared by the department which "shall develop fully the financial ability, adequacy of plant and equipment, organization and prior experience of the prospective bidder, and also such other pertinent and material facts as may be deemed desirable." Section 35.6 provides that a dissatisfied applicant "may request in writing a hearing before the prequalification committee." Section 35.8 reads:

Nothing contained in this act shall be construed as depriving the State Highway Commissioner*fn1 of the right ...

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