On appeal from the Superior Court, Law Division, Middlesex County.
Gaulkin, R. S. Cohen and A. M. Stein. The opinion of the court was delivered by R. S. Cohen, J.A.D.
Middlesex County Utilities Authority (MCUA) advertised for bids to build a one-mile outfall line to carry treated effluent from its sewage treatment plant into Raritan Bay. Prospective bidders complained of defects in the contract documents and asked MCUA to correct them or not proceed to receive bids. MCUA went ahead. Plaintiff contractors declined to submit bids. Joined by a taxpayer and a contractors' trade association, they sued MCUA and secured a judgment barring the award of a contract on the thesis that it would contain a fatal statutory violation. We now affirm, but for somewhat different reasons.
Paragraph CA.40 of the contract requires the contractor to guarantee the work and materials for one year after completion. The provision condemned by the Law Division judge is CA.41, which he read to require MCUA to retain 2% from each monthly progress payment to be held for the guarantee period for "repairs, corrections or replacements" which the contractor fails to make. At the end of the year, if the work is in good order, the retainage or so much as remains is paid to the contractor.
Another paragraph, CA.33, retains 2% from each progress payment "as part security for the fulfillment of the Contract."*fn1 That 2% is paid to the contractor upon final completion, which just precedes the one-year guarantee period.
Retainage was one of the subjects of 1979 amendments to the Local Public Contracts Law, N.J.S.A. 40A:11-1 et seq., L. 1979, c. 464, which governs MCUA's construction contracts. See
N.J.S.A. 40A:11-2. The amendments require contracts exceeding $100,000 to provide for progress payments at least monthly (N.J.S.A. 40A:11-16.2), and, if the contractor agrees to a withholding of a percentage of payments, "2% of the amount due on each partial payment shall be withheld . . . pending completion of the contract or agreement." N.J.S.A. 40A:11-16.3. Contracts may also provide for monthly payments for materials delivered. N.J.S.A. 40A:11-16.4.
The purpose of the amendments, according to the Senate County and Municipal Government Committee was
to ease the cash flow problems experienced by contractors on medium and large scale public construction or maintenance projects.
[T]he provision for 2% withholding on partial payments . . . is the provision currently in effect for State contracts. . . . The purpose of the bill in extending the provision to local units is to standardize this practice among the governmental units of the State.
Because the legislative goal of the amendments was to ease contractors' cash flow problems and standardize public contracting practices, the statutory 2% retainage must be treated as a maximum. Retainage may not be held for the guarantee period, tying up contractors' funds for a year beyond "completion of the contract or agreement." N.J.S.A. 40A:11-16.3. Completion does not mean the end of all contractor obligations, but is a word of art signifying entitlement to final payment upon acceptance of the work, subject to contractual maintenance or guarantee obligations. See Graybar Electric Co. v. Manufacturers Casualty Co., 21 N.J. 517, 524 (1956); 64 Am.Jur. 2d, Public Works and Contracts, § 116 at 979 (1972). Cf. U.S. F. & G. Co. v. Rome Concrete Pipe Co., 256 Ga. 661, 353 S.E. 2d 15 (1987); American Fire & Cas. Co. v. First Nat. Bank of New York, 411 F.2d 755 (1 Cir.1969), cert. den. 396 U.S. 1007, 90 S. Ct. 563, 24 L. Ed. 2d 499 (1970).
The meaning of CA.41 is something of a mystery. In a pre-bid inquiry to MCUA, prospective bidders complained that CA.41 unlawfully required 2% to be retained for repairs from monthly progress ...