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K.S.B. Technical Sales Corp. v. North Jersey District Water Supply Commission

Decided: December 23, 1977.


For reversal -- Justices Sullivan, Pashman, Clifford, Schreiber and Handler. For affirmance -- None. The opinion of the court was delivered by Schreiber, J. Handler, J., concurring in the result.


[75 NJ Page 276] This case projects for our review the validity of New Jersey "Buy American" statutes, which generally require use in government purchase contracts of materials produced in this country. The bidding specifications of the North Jersey District Water Supply Commission (Commission) for a water treatment plant contained such a provision. K.S.B. Technical Sales Corp. (K.S.B.), a New York corporation which is a wholly owned subsidiary of a West German manufacturer of pumps and pumping equipment, and Linda Fazio, a taxpayer and resident of the City of Clifton, seek an adjudication that the Buy American condition

in the specifications be declared invalid and its statutory foundation unconstitutional.

Upon filing a verified complaint, plaintiffs obtained an order to show cause and a temporary restraint preventing the Commission from opening the bids and awarding a contract. The State of New Jersey, Terminal Construction Corporation and Briscoe/Courter/Conduit, a joint venture, were permitted to intervene. Subsequent to the hearing on the return day (the facts are virtually undisputed), the trial court declared the Buy American provision in the specifications invalid, but in view of the pressing need to commence construction permitted the bids to stand. 150 N.J. Super. 533 (1977). The plaintiffs K.S.B. and Fazio appealed. The Commission, the State of New Jersey and Terminal cross-appealed. The Appellate Division agreed with the trial court as to the invalidity of the provision, but held that the bids were void. 151 N.J. Super. 218 (1977).

The Commission and the State filed appeals and plaintiffs and Terminal cross-appealed. Because of the attendant urgency we accelerated the time for filing briefs and presenting oral argument. Because of that same urgency we issued an order prior to our opinion. Our order reversed the Appellate Division's judgment that the bids were void and permitted the Commission to proceed with the original bids. This opinion now follows. Cf. Dolan v. Borough of Tenafly, 75 N.J. 163 (1977).

A brief factual summary is in order. The North Jersey District Water Supply Commission, a governmental agency, was created for the purpose of developing a water supply for municipalities in the northern part of the State. N.J.S.A. 58:5-1 et seq. It has carried out that function and has been distributing water to eight municipalities in Essex, Hudson and Passaic counties. In 1974 the Commission was ordered to comply with a directive of the State Department of Health to construct a water treatment plant to improve the quality of the water. State v. North Jersey Dist. Water Supply Comm'n, 127 N.J. Super. 251 (App. Div.), certif. den. 65 N.J. 578,

cert. den. 419 U.S. 999, 95 S. Ct. 314, 42 L. Ed. 2d 273 (1974). For that purpose the Commission submitted specifications to prospective bidders which included a requirement that "[o]nly manufactured products of the United States, wherever available, shall be used in the work in accordance with municipalities and counties Local Public Contracts Law. N.J. 40A:11-18." Both the trial court and the Appellate Division held that the applicable statute was N.J.S.A. 52:33-2 and 3, not N.J.S.A. 40A:11-18. 150 N.J. Super. at 545 and 151 N.J. Super. at 223. We agree. Because the New Jersey Legislature has embraced the Buy American concept in almost all facets of governmental operations in substantially the same manner, none of the parties has raised any question in respect of the erroneous statutory citation in the specifications.

State work is governed by N.J.S.A. 52:32-1 which reads as follows:

The state shall make provisions in the specifications for all contracts for state work and for work for which the state pays any part of the cost, that only such manufactured and farm products of the United States, whenever available, be used in such work. [ N.J.S.A. 52:32-1]

This law has remained unchanged since its adoption in 1932.

The recently enacted Local Public Contracts Law (L. 1971, c. 198) which applies to counties, municipalities, and their agencies, as well as to certain types of boards, N.J.S.A. 40A:11-2(1), contains the following:

Each local unit shall provide, in the specifications for all contracts for county or municipal work or for work for which it will pay any part of the cost, that only manufactured and farm products of the United States, wherever available, be used in such work. [ N.J.S.A. 40A:11-18]

Provisions which cover all public works, including, as the trial court and Appellate Division held, projects of the Commission, are N.J.S.A. 52:33-2 and 3. Their terms are:

Notwithstanding any inconsistent provision of any law, and unless the head of the department, or other public officer charged with the duty by law, shall determine it to be inconsistent with the public interest, or the cost to be unreasonable, only domestic materials shall be acquired or used for any public work.

This section shall not apply with respect to domestic materials to be used for any public work, if domestic materials of the class or kind to be used are not mined, produced or manufactured, as the case may be, in the United States in commercial quantities and of a satisfactory quality. [ N.J.S.A. 52:33-2]

Every contract for the construction, alteration or repair of any public work in this state shall contain a provision that in the performance of the work the contractor and all subcontractors shall use only domestic materials in the performance of the work; but if the head of the department or other public officer authorized by law to make the contract shall find that in respect to some particular domestic materials it is impracticable to make such requirement or that it would unreasonably increase the cost, an exception shall be noted in the specifications as to that particular material, and a public record made of the findings which justified the exception. [ N.J.S.A. 52:33-3]

A contractor's failure to comply with these provisions may disqualify him from being awarded any public work construction contracts for three years. N.J.S.A. 52:33-4.

The plaintiffs, who, as counsel stated during oral argument, are not particularly concerned with the award of this contract, seek a general declaration that the New Jersey Buy American statute is unconstitutional. The constitutional issues concern the applicability and effect of the General Agreement on Tariffs and Trade made between the United States and foreign countries, the conflict, if any, between the New Jersey Buy American provisions and the foreign affairs power, and the conflict, if any, between the New Jersey Buy American provisions and the Commerce Clause.

Preliminarily we note our concurrence with the trial court's ruling that the plaintiff Linda Fazio, as a taxpayer residing in a municipality which was a contracting municipality of the North Jersey District, has a pecuniary interest in the project. K.S.B. is a potential supplier of pumps. However, K.S.B. was not a bidder and there was no showing that any bidder would have considered pumps sold by K.S.B.

In view of Fazio's clear right to standing, we see no need to pass upon K.S.B.'s status. See Camden Plaza Parking v. City of Camden, 16 N.J. 150, 158-159 (1954).



The General Agreement on Tariffs and Trade (GATT)*fn1 is a multi-lateral international agreement to which the United States is a party by virtue of executive action. Presidential authority to bind the United States to GATT has been predicated in part on the Reciprocal Trade Agreements Act of 1934 and its successors, 48 Stat. 943 (1934) (currently codified at 19 U.S.C.A. ยงยง 1351-1366 (1965 & Supp. 1977)), and in part upon the executive power to conduct foreign affairs.*fn2 The legal significance of GATT has been considered by all parties as equivalent to that of a treaty. See United States v. Belmont, 301 U.S. 324, 331, 57 S. Ct. 758, 761, 81 L. Ed. 1134, 1139-1140 (1937); United States v. Pink, 315 U.S. 203, 230, 62 S. Ct. 552, 565, 86 L. Ed. 796, 818 (1942). In the context of this litigation we do likewise. Thus we conclude that GATT is, by virtue of the federal constitution, "the supreme Law of the Land." See U.S. Const., Art. VI, cl. 2.*fn3 A state law must yield when it

is inconsistent with or impairs the policy or provisions of a treaty. Kolovrat v. Oregon, 366 U.S. 187, 190, 81 S. Ct. 922, 924, 6 L. Ed. 2d 218, 221 (1961); United States v. Pink, supra. Thus, whether federal preemption exists in this case depends upon an analysis of GATT, the New Jersey Buy American statute in question, N.J.S.A. 52:33-2 and 3, and the status and functions of the Commission.

Facially the Buy American statute, N.J.S.A. 52:33-2 and 3, appears to be in direct conflict with GATT, Pt. II, Article III, paragraph 4, 62 Stat. 3680 (Vol. 3) (1948), which provides that:

The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.

Both the trial court and the Appellate Division opinions are bottomed on that conclusion. See also Territory of Hawaii v. Ho, 41 Haw. 565 (Sup. Ct. 1957).

Article III, paragraph 4 of GATT is not, however, all-inclusive. An exception reads as follows:

The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale. [GATT, Pt. II, Art. III, par. 8(a), 62 Stat. 3681 (Vol. 3) (1948)]*fn4

The Commission has urged that materials to be acquired in connection with the construction of its proposed water treatment plant fall within the exception clause. The exclusionary requisites are: (1) procurement by a governmental agency, (2) of a product, (3) purchased for governmental purposes, (4) not for commercial sale, and (5) not with a view to use in the production of goods for commercial sale. That the Commission is a governmental agency and that it proposes to acquire products, materials with which to construct and equip the plant, are clear.

The plaintiffs contend, however, that the Commission's construction of a water treatment plant is not for a governmental purpose and that the proposed plant will produce "goods", namely water, for commercial sale. Consideration of these contentions necessitates examination of the Commission, its operations and functions.

The North Jersey District Water Supply district was created by the Legislature in 1916 for the purpose of developing water supply sources for the use of any municipality in the eleven most northerly counties in the State. N.J.S.A. 58:5-1, L. 1916, c. 70.*fn5 Municipalities desirous of "developing, acquiring and operating a water supply or a new or additional water supply for the use of the municipality," were authorized to join together and petition for a commission. N.J.S.A. 58:5-2. Upon appointment the commission, to be known as the North Jersey District Water Supply Commission, would become a "body corporate" with power to acquire and use all property necessary for the uses and purposes for which it was created, N.J.S.A. 58:5-7, more particularly to provide a sufficient water supply to the contracting municipalities. N.J.S.A. 58:5-16. Municipalities were authorized to petition the Commission for a water supply and request an estimate of the cost of such supply, each agreeing to pay its share of the cost. N.J.S.A. 58:5-9.

Thereupon the Commission was required to hold a public hearing at which other municipalities might signify their willingness to join in the project provided they agreed to pay their share ...

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