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In re Honeywell Information Systems Inc.

Decided: October 13, 1976.


Carton, Kole and Larner. The opinion of the court was delivered by Larner, J.A.D.


This is an appeal from the award of a contract for the furnishing and installation of a full data processing system for the State of New Jersey by the Director of the Division of Purchase and Property (Director) to International Business Machines Corporation (IBM). Appellant Honeywell Information Systems, Inc. (HIS), the unsuccessful bidder, attacks the award, claiming to be the lowest responsible bidder entitled to the contract under the "Request for Proposals" (RFP) which constituted the specifications and invitation for bids.

Because of rapid increases in the State's requirements of automatic data processing, the State Bureau of Data Processing recommended as early as August 1972 that the State procure sufficient additional equipment without competitive bidding to meet the existing needs until arrangements could be made for appropriate invitation for competitive bids. Accordingly, at that time, as well as on three other occasions between December 1972 and August 1973, the State leased certain data processing equipment from IBM without competitive bidding, pursuant to the statutory authority of N.J.S.A. 52:34-8 to 11.

Recognizing the growing need for the development of a complete data center equipped to handle the data processing of all departments of the State Government, a committee was formed in December 1973 composed of representatives from the Division of Budget and Accounting and the Division

of Data Processing (Evaluation Committee) to prepare an RFP in anticipation of competitive bidding. On June 28, 1974 the final draft of the RFP was circulated among 31 data processing firms. After a bidders' conference attended by representatives of six potential bidders where questions were asked and answered, only IBM and HIS finally submitted bid proposals on November 19, 1974.

The RFP was different from the usual invitation to bidders which is encountered in the judicial literature dealing with bidding practices of governmental entities. The State, in this instance, did not specify any finite items of equipment for which bids were solicited. The complex nature of the accouterments of the overall data processing, and its absorption into the state system, involving hardware, software, conversion costs, maintenance, personnel training, etc., defied the preparation of specifications which would identify particular types of equipment to be furnished by the bidder.

As a consequence, the lengthy RFP invited proposals for a total data processing system, outlining the State's performance requirements, and leaving to the discretion of the bidders the determination of the components of the system which would accomplish the desired goals.

IBM and HIS each submitted a proposal incorporating its own equipment which it represented would carry out the concept of a total data processing system designed to satisfy all the performance requirements of the State. Shortly after the submission of the two proposals, HIS on November 21, 1974 wrote to the Director of the Division of Purchase and Property expressing concern with the method by which IBM computed its bid. The essence of its objection at that time, as well as the nub of its contention on this appeal, is that IBM improperly deducted from its bid figure purchase option credits of $938,693 in connection with the lease of equipment already in use by the State. It asserted that the bids should be evaluated without consideration of these credits and that HIS would be the lower bidder on the basis of the gross purchase price in both proposals.

This protest by HIS evoked expressions of opinion on the subject from those officials intimately involved in the acquisition process. On November 26, 1974 Edward G. Hofgesang, Deputy Director of the Division of Budget and Accounting, wrote a memorandum to the Director of the Division of Purchase and Property as follows:

I wish to record my strong opposition to the suggestion, communicated to you by Honeywell Information Systems, Inc., that purchase option credits earned by the State of New Jersey be disallowed in the evaluation of the proposals received through bid RX-32.

It is clear that this money has properly accrued to the State's benefit and should the decision be reached to purchase either of the proposed systems the amount of any such credits should certainly be used in determining the award. To do otherwise would be an injustice to the taxpayers of the State.

On February 5, 1975 Harry J. Collis, Supervisor of the Bureau of Data Processing, wrote to Hofgesang, noting that the Evaluation Committee had taken the position that accrued option credits should be allowed in evaluation of the bids. This letter pointed out that, without consideration of conversion costs and other favorable cost items, the use of these credits would result in a saving to the State under the IBM bid of approximately $717,000, whereas the elimination of the credits would render HIS the nominally low bidder by $383,000. In addition, he urged that the acceptance of the IBM bid would produce benefits, monetary and otherwise, to the State which would be lacking with the HIS proposal.

Upon submission of the proposals there was conducted a "bench mark" test wherein each company for a period of three days had the opportunity to demonstrate to the State's Evaluation Committee its proposed system and the nature of its performance. In addition to this "bench mark" test the Evaluation Committee made a thorough study and analysis of the two proposals with respect to quality of performance and price. On February 19, 1975 it submitted to the Deputy Director of the Division of Budget and Accounting a

comprehensive report which unanimously concluded that the IBM proposal was lowest in cost and most responsive to the State's needs and recommended that the contract be awarded to IBM.

The comprehensive report includes a performance evaluation based on percentage points allocated to the various sections of the performance requirements. Utilizing 100% as the ideal, the committee concluded that IBM scored 98.54% and HIS 76%, and that IBM surpassed HIS in each category. Further analysis was submitted by way of a detailed breakdown of the committee's findings which resulted in the respective point allocations. Interlaced through the highly technical evaluation report are expressions such as "IBM's equipment offers a clear performance advantage and IBM is the lowest responsible bidder," "IBM's conversion plan can be implemented with no disruption of critical operations, no reprogramming and little additional training."

In addition to the evaluation of the performance standards of both proposals, the committee analyzed and evaluated the various cost proposals of both bids, which included cost of hardware, software, maintenance, conversion costs, interest, freight, training, parallel operation and collateral costs to the State under each proposal. It found, after all adjustments, that the total cost to the State, based on a five-year monthly ...

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