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Local 1081 of Communications Workers of America v. Essex County

Decided: April 23, 1992.


On appeal from the Superior Court of New Jersey, Law Division, Essex County.

Michels, O'Brien and Conley. The opinion of the court was delivered by O'Brien, J.A.D.


The opinion of the court was delivered by


Plaintiff Union, which represents certain employees and the individual plaintiffs, both employees of the Essex County Division of Welfare and officers of the Union, appeal from a summary judgment authorizing the award of a contract to administer the County's health benefit plan to the intervening defendant Rasmussen Agency, Inc. (Rasmussen) without public advertising and bidding.*fn1 We affirm in part and remand for further proceedings.

The Essex County Employee Health Benefits Self-Funded Plan (the Plan) is administered by Rasmussen under a current contract approved September 26, 1990 by resolution of defendant Essex County Board of Freeholders, for a term from July 1, 1990 until July 1, 1991. As administrator, Rasmussen provides complete management, general administration, claim processing, required investigations, statistical services, and assistance in the procurement of reinsurance coverage under the terms and conditions of the agreement. The contract was awarded to Rasmussen without public advertising or bidding for one year expiring July 1, 1991. Plaintiffs contend this was in violation of the Local Public Contracts Law, N.J.S.A. 40A:11-1 to 24.

Defendants respond that the Plan, which also provides for reinsurance, is an exception to the requirement for public advertising and bidding pursuant to N.J.S.A. 40A:11-5(1)(m), which provides as follows:

Any purchase, contract or agreement of the character described in section 4 of this act may be made, negotiated or awarded by the governing body without public advertising for bids and bidding therefor if

(1) The subject matter thereof consists of

(m) Insurance, including the purchase of insurance coverage and consultant services, which exception shall be in accordance with the requirements for extraordinary, unspecifiable services.

Plaintiffs rejoin by arguing that this exception requires the Plan to meet the requirements of N.J.S.A. 40A:11-5(1)(a)(ii), which provides that the exception for extraordinary, unspecifiable services (EUS) requires:

The application of this exception shall be construed narrowly in favor of open competitive bidding, where possible, and the Division of Local Government Services is authorized to adopt and promulgate rules and regulations limiting the use of this exception in accordance with the intention herein expressed. The governing body shall in each instance state supporting reasons for its action in the resolution awarding each contract and shall forthwith cause to be printed, in the manner set forth in subsection (1)(a)(i) of this section, a brief notice of the award of such contract.

Thus, the appeal requires a construction of these statutory provisions and the regulations adopted pursuant thereto.

Historically, the County decided in 1988 to withdraw from the State of New Jersey's Health Benefits Program and sought proposals for the establishment of its own self-funded Health Benefits Program.*fn2 Rasmussen proposed a plan whereby the Health Benefits Program would be self-funded by the County, but reinsured to protect it from catastrophic losses. Under the proposed plan, Rasmussen would serve as third-party administrator of claims and benefits, thereby eliminating the cost of hiring additional county employees. The cost of the proposal included the cost of program administration at $408,252 and reinsurance premium at $176,800.

The Acting Director for Administration and Finance of the County forwarded the Rasmussen proposal to the County Administrator without competitive bidding under his certification that it was an exception under N.J.S.A. 40A:11-5(1)(m) and recommending Rasmussen because of its vast experience. The County adopted a resolution approving the contract, stating that it was awarded without public bidding as a contract for insurance and insurance consulting services. The resolution further provides in relevant part:

WHEREAS, the County of Essex has a need for consultation services to assist the County in administering an Employee Health ...

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