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Township of Middle v. Public Developers Corp.

Decided: January 31, 1990.

TOWNSHIP OF MIDDLE, PLAINTIFF,
v.
PUBLIC DEVELOPERS CORPORATION, THE AMERICAN ARBITRATION ASSOCIATION, AND LOWELL F. CURRAN, JR., DEFENDANTS



Callinan, J.s.c.

Callinan

[240 NJSuper Page 446] This matter comes on before this court on cross-motions for summary judgment. On or about July 15, 1988, defendant

Public Developers Corporation (hereinafter "Public") entered into a contract with the Township of Middle, a municipal corporation of the State of New Jersey, (hereinafter "Middle") for the construction of a sanitary sewer collection system designed to be installed in the Rio Grande East section of Middle Township. The funding for this proposed sewer project was provided by the Farmers Home Administration, an agency of the federal government (hereinafter "FHA").

The bid documents contained instructions from FHA regarding the necessity of retaining or withholding payment pursuant to Fm.HA instructions 1942-a and 1933-a, paragraph 19. This provision, entitled "Payment to Contractor," became part of the agreement between the parties and provides:

The Owner will, within ten (10) days of presentation of an approved partial payment estimate, pay the Contractor a progress payment on the basis of the approved partial payment estimate less the retainage. The retainage shall be an amount equal to 10% of the said estimate until 50% of the work has been completed.

Competitive sealed bids were accepted on May 11, 1988 and on or about July 15, 1988, plaintiff awarded the contract to Public. Public accepted the contract which enunciated the retainage provision cited above. After Public began work on the project and after it had commenced the drawing down of monies for work completed, Public objected to this retainage provision claiming it to be a violation of N.J.S.A. 40A:11-16.3. This litigation followed wherein Middle sues for compliance under preemption and estoppel theories. Public now moves for summary judgment and Middle cross moves for summary judgment as to whether 7 C.F.R. 1942.18(n)(10) or N.J.S.A. 40A:11-16.3 controls Middle's obligations to retain monies under the subject contract. Both parties agree that the outcome of this motion is dispositive of the suit. Public's position is based upon N.J.S.A. 40A:11-16.3, which states in pertinent part:

With respect to any contract or agreement entered into by a contracting unit pursuant to section 1 of this act for which the contractor shall agree to the withholding of payments pursuant to P.L.1979, c. 152 (C.40A:11-16.1), 2% of the amount due on each partial payment shall be withheld by the contracting unit pending completion of the contract or agreement.

When Public broached the subject to Middle, the township communicated with FHA. FHA took the position that if the federal retainage requirements were not adhered to, the FHA funding of this project would be terminated. The sole issue in this case is whether the contractual 10% retainage requirement of FHA takes precedence over the provisions of N.J.S.A. 40A:11-16.3. The question that this case presents is one of first impression in this State.

Summary judgment is appropriate in this case as there is no dispute as to any material fact. Judson v. People's Bank & Trust Co. of Westfield, 17 N.J. 67, 110 A.2d 24 (1954).

The source of the federal regulation is 7 C.F.R. 1942.18(n)(10), which states:

All construction contracts shall contain adequate provisions for retainage. . . . The retainage shall not be less than an amount equal to 10% of an approved partial payment estimate until 50% of the work has been completed . . . Additional amounts may be retained if the job is not proceeding satisfactorily, but in no event shall the total retainage be more than 10% of the value of the work completed.

The effect of the federal regulation is to require 5% retainage while the effect of the New Jersey statute is to require 2% retainage. Administrative rules and regulations are not statutes, but if otherwise valid, properly promulgated and extant, they have the weight, force and effect of law. U.S. v. Mersky, 361 U.S. 431, 80 S. Ct. 459, 4 L. Ed. 2d 423 (1960); Chrysler Corp. v. Brown, 441 U.S. 281, 99 S. Ct. 1705, 60 L. Ed. 2d 208 (1979); U.S. v. Nixon, 418 U.S. 683, 94 S. Ct. ...


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