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Marvec Allstate Inc. v. Gray & Fear Inc.

Decided: March 17, 1977.


Matthews, Seidman and Horn. The opinion of the court was delivered by Matthews, P.J.A.D.


[148 NJSuper Page 483] Pursuant to appropriate public notice, defendant Brick Township Municipal Utilities Authority

(Authority) solicited bids on September 25, 1976 on public works contract S-13 for the construction of sewer lines. Plaintiff Marvec Allstate, Inc. (Marvec) and defendant Gray & Fear responded to the solicitation and submitted bids for the work. The notice to bidders required that a "bid bond" be posted in the amount of 5% of the total bid. The specifications required that each bid be accompanied by a certified check, cashier's check or bid bond, together with consent of surety attached, in an amount of 5% of the total bid price.*fn1 Since the project is to be funded partially by the Federal Government, the requirement established by the Federal Environmental Protection Agency for a 5% guarantee was applicable. See C.F.R. 35.935.

Inadvertently, the bid bond submitted by Gray & Fear was limited to a maximum of $20,000. Five percent of the total bid submitted by it ($2,459,265.95) would require a bid bond in excess of $122,000. Since the notice to bidders permitted the Authority to waive any insubstantial or minor defects, the Authority chose to waive the defect as to the amount of the Gray & Fear bid bond. In fact, within 24 hours of the opening of the bids Gray & Fear cured the defect and submitted a bid bond in an amount of 5% of its total bid.

We also note that the consent of surety accompanied the original bid bond in accordance with the specifications.

Plaintiff contends that the federal agencies involved recommended the amendment to N.J.S.A. 40A:11-21 so that they could be assured of ample security in the event of default of the ostensibly lowest bidder.*fn2 Furthermore, it claims, a deviation in excess of $102,000 cannot be deemed minor or inconsequential because the Authority and the federal funding agency are entitled to obtain a guarantee of the execution and full performance of the contract or the full security upon failure to execute the contract. It also argues that bonding capacity is not only determined by the general financial capabilities of the bidder, but also is based on experience in the trade, availability of equipment and other work in process. Consequently, it is a substantial cost which must be factored into any bid; and if one contractor is permitted to submit a lesser bid bond in the first instance and then cure it, the competitive advantage is apparent.

Plaintiff relies principally on Hillside Tp. v. Sternin , 25 N.J. 317 (1957):

The financial capacity of a bidder is a material and substantial consideration in connection with the award of contracts for public work. Manifestly it is one element which must enter into the determination of responsibility; the statute itself speaks of the lowest "responsible" bidder. * * * In this connection obviously the Legislature regarded that factor as important because it adopted a separate act to provide municipalities with a means of requiring a prospective

bidder to furnish in advance a statement of his financial ability. * * * And in our judgment a demand in a public advertisement for the deposit of some form of security as a guaranty that the contract will be entered into if the bid is accepted, is properly imposed as an aid to the governing body in reaching its decision. Moreover, the deposit is material for another reason. It is recognized that failure of the successful bidder to execute the contract results in its forfeiture * * * and the specifications so provided in this case. Thus, in most instances the municipality may be made whole for any resulting loss or expense by summary action without having to sue for damages. [25 N.J. at 323; citations omitted]

Plaintiff concludes that a gross variance in the bid bond submitted from that required "goes to the heart not only of the bidding procedure, but to the very essence of the requirement."

The trial judge accepted these arguments of plaintiff and concluded that the Authority did not have the security to which it was entitled and that the bidders were not treated alike because of the substantial discrepancy in the Gray & Fear bid bond. In reaching that conclusion, he stated that the conditions and specifications must apply equally to all prospective bidders, and that any discrepancy or irregularity should not deprive a municipality or authority ...

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