On appeal from and certification to the Superior Court, Appellate Division, whose opinion is reported at 196 N.J. Super. 52 (1984).
For reversal -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock and Garibaldi. For affirmance -- None. The opinion of the Court was delivered by Handler, J.
Respondent Keyes Martin and Company (Keyes Martin) seeks the award of a contract to provide advertising and promotional services for the New Jersey State Lottery. After reviewing the bids submitted by all the companies competing for the contract, the State Lottery Commission (Lottery Commission) determined that Keyes Martin was the best qualified company. However, when it was later informed of business dealings between Daniel Gaby, the president of Keyes Martin, and Reese Palley, the Chairman of the Lottery Commission, the Commission recommended to the Director of the Division of Purchase and Property that Keyes Martin's low bid be rejected. The Director agreed with the recommendation of the Commission and awarded the contract to another agency.
An appeal was filed by Keyes Martin and the Appellate Division vacated the Director's final decision. A majority of the court determined that the contract should be awarded to Keyes Martin. A dissenting member of the court concluded that there should be further proceedings relating to Keyes Martin's qualifications to bid on public contracts. We granted
the Director's petition for certification, 97 N.J. 703 (1984), and also granted a motion to stay the lower court's decision. We now reverse and reinstate the Director's decision rejecting Keyes Martin's bid.
The New Jersey Lottery is authorized by the Constitution, N.J. Const. (1947), Art. IV, sec. VII, para. 2, and implementing legislation, N.J.S.A. 5:9-1 to -25. The operations of the State Lottery are conducted by the Division of the State Lottery in the Department of Treasury (Division) and supervised generally by the Lottery Commission. The Lottery Commission in the exercise of its supervisory responsibilities engages in extensive marketing, advertising, promotional and public relations activities to enhance the effectiveness of the State Lottery. To provide these services, it employs an advertising and public relations agency. These services have been regularly provided under successive, separate, two-year contracts that are awarded pursuant to public bidding as mandated by N.J.S.A. 52:34-6.
Keyes Martin had been the successful bidder or vendor for several years and it was the current vendor performing advertising and promotional services under a contract that had been awarded by the Division in September of 1980.*fn1 On January 19, 1983, in response to a Request for Proposals issued by the Division of Purchase and Property, Keyes Martin and six other agencies submitted comprehensive bid proposals containing detailed plans for achieving the specified goals of the Lottery Commission.
An Evaluation Committee consisting of staff members of the Lottery Commission and the Division reviewed the proposals submitted by the seven agencies. The Committee determined that Keyes Martin, which had submitted the lowest bid, was the
best qualified agency in terms of experience and technical approach. Accordingly, on March 22, 1983, the Committee recommended that the contract be awarded to Keyes Martin.
Before the Lottery Commission could act upon the Committee's recommendation, the State Treasurer received a letter from the Attorney General advising the Director to reject Keyes Martin's bid proposal. The basis for the Attorney General's opinion was an asserted business relationship between Daniel Gaby, the president of Keyes Martin, and Reese Palley, then Chairman of the Lottery Commission, during the time period that Keyes Martin was under contract to provide advertising and promotional services for the State Lottery. The Attorney General also referred to a complaint that had been filed by the Executive Commission on Ethical Standards charging Palley with conflicts of interest and the violation of several provisions of the Lottery's Code of Ethics.*fn2 Rejection of the Keyes Martin bid was suggested because "an award to that vendor would impair public confidence in the integrity of the operations of the State Lottery."
Acting in response to the Attorney General's recommendation, the Evaluation Committee was reconvened by Deputy Director of the Division of Purchase and Property (Deputy Director). The Committee was instructed to evaluate the bid proposals after eliminating from consideration Keyes Martin's bid. On May 23, 1983 the Committee issued an alternative award recommendation, naming Venet Advertising, Inc. (Venet) as the best qualified remaining agency. The Committee's recommendation was adopted by the Lottery Commission on May
25, 1983, in a resolution requesting the Deputy Director to grant Venet the Lottery advertising contract. The Deputy Director awarded the advertising contract to Venet on May 31, 1983, notwithstanding a petition filed by Keyes Martin requesting review of the Lottery Commission's rejection of its low bid. The Deputy Director indicated that the award to Venet was contingent upon the success of Keyes Martin's protest.
On June 27, 1983 an informal hearing on the protest was held before an Assistant to the Director of Purchase and Property, acting as a hearing officer. The hearing was conducted for the purpose of affording Keyes Martin an opportunity to contest the factual basis from which the Lottery Commission drew its conclusion to reject the Keyes Martin bid. Accordingly, Keyes Martin's evidence was directed at demonstrating that the Attorney General's characterization of the relationship between itself and Reese Palley was inaccurate or unfair.
According to the evidence considered, there were business contacts involving a visit that Palley made in July of 1982 to the Republic of China to explore business opportunities for China Interface Corporation, a company in which Palley owned stock. Palley had mentioned that he would let Gaby know if he saw anything on his trips that would interest the advertising company, to which Gaby replied "Fine." On Palley's return, he asked Gaby to reimburse him for $200 spent in China for the services of a "consultant" and an interpreter, both employed to further the interests of Keyes Martin. Although Gaby had not authorized these expenditures, he did reimburse China Interface because of Palley's "good intentions" and the small amount involved.
Other contacts between Palley and Gaby, as reflected by the evidence, involved a discussion in August of 1982 about the possibility of Gaby becoming a stockholder in China Interface. Palley proposed that Gaby become a 16 1/2% owner of the company, and Gaby said he "would seriously consider the matter," but no transaction ever ensued. Keyes Martin also provided
advertising and public relations services to China Interface. At Palley's direction Keyes Martin arranged for the placement of a classified advertisement in The Wall Street Journal, for which Keyes Martin received a standard fee. Additionally, at the suggestion of Palley, the advertising company submitted to China Interface a proposal for a program of advertisements for a Chinese beer that China Interface planned to market in this country. Although China Interface expressed an interest in Keyes Martin's proposal, it was not accepted and no advertising contract between the companies was executed.
The hearing officer found "that a 'business relationship' existed between Keyes Martin and China Interface" and that "Reese Palley played a role in affecting [sic] that relationship."*fn3 His report was submitted to the Lottery Commission, which passed a resolution again recommending that Keyes Martin's bid be rejected. The Commission concluded that
based on the business relationship between Reese Palley and Keyes Martin, an award to Keyes Martin would not be in the public interest in that any appearance of wrong doing may impair public confidence in the integrity of the operations of the State lottery which is based primarily upon public confidence and whose operations are essential to the fiscal health of the State.
On July 29, 1983 the Director of the Division of Purchase and Property affirmed the Deputy Director's initial decision to reject the bid of Keyes Martin and to award the advertising contract to Venet.
We begin our analysis with the statutory provisions that define and control the responsibility of the Director of the Division of Purchase and Property in the award of public contracts under our system of competitive bidding. Public advertisement for bids is required under N.J.S.A. 52:34-6 with respect to "[a]ll purchases, contracts, or agreements, the cost
or contract price whereof is to be paid with or out of State funds. . . ." After bids are requested and received,
award shall be made with reasonable promptness by written notice to that responsible bidder whose bid, conforming to the invitation for bids, will be most advantageous to the State, price and other factors considered. Any or all bids may be rejected when the State Treasurer or the Director of the Division of Purchase and ...