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Agorganic Inc. v. Ocean County Utilities Authority

Decided: August 10, 1992.


Serpentelli, A.j.s.c.



This opinion considers the scope and application of the exception to the Local Public Contracts Law permitting negotiation of contracts for the marketing of recyclable materials. N.J.S.A. 40A:11-5(s). The issues are novel and there is no guiding precedent.

On February 7, 1992, the Ocean County Utilities Authority [hereinafter OCUA] solicited public bids for the removal and disposal of sludge from its Northern, Central and Southern Water Pollution Control Facilities [hereinafter Northern, Central and Southern plants]. The OCUA is in the process of developing a sludge management facility which converts sludge waste into a fertilizer. The OCUA was seeking bids for the emergency supplemental disposal of sludge for periods when the facility is either not operating due to required maintenance or when the sludge volume exceeds the capacity of the facility to convert it to fertilizer.

The bid specifications left the method of disposal to the discretion of the bidder subject to compliance with all applicable laws, rules and regulations. Landfilling, incineration, other types of land disposal and conversion of the sludge into a recycled product were permitted. All bidders were required to

submit a statement of the proposed method of disposal as well as documentation confirming that the designated disposal facilities had the capacity to accept the sludge produced under the contract. The specifications also gave the OCUA the right to reject all bids or alternatively, "to enter into negotiations for the disposal of the sludge through a recycling program" pursuant to N.J.S.A. 40A:11-5(s).

On March 2, 1992, four bids were received. The low bidders were Spectraserv, Inc. [hereinafter Spectraserv] for the Northern plant and Agorganic, Inc. [hereinafter Agorganic] for the Central and Southern plants. Spectraserv proposed three forms of disposal. The primary means was to be incineration. The remaining sludge was to be beneficially reused*fn1 through land application from March 15 to November 15, 1992. During the period in which the sludge could not be land applied, it was to be transported to Spectraserv's processing plant in Kearney, New Jersey. The residual waste generated by the Kearney facility [dewatered sludge] was to be taken to out-of-state landfills for ultimate disposal.

Agorganic's bid also offered three methods of disposal. It proposed to beneficially reuse the sludge by converting it into an agricultural liming agent, to land apply it at its facility in Phillipsburg, New Jersey or to transport dewatered sludge to a landfill in West Virginia.

Subsequently, both Agorganic and Spectraserv contacted the OCUA and requested an opportunity to negotiate pursuant to the bid specifications. On March 5, 1992, representatives of the OCUA and Spectraserv met. The OCUA advised Spectraserv that any negotiated proposal must include a commitment to recycle. Spectraserv offered a "package deal" whereby sludge from the Central and Southern plants would be disposed of by various recycling methods and lowered its bid price for those

facilities. It continued to propose incineration as the primary means of disposal for the Northern plant and did not change its price for that facility.

On March 11, 1992, representatives of the OCUA and Agorganic met. Agorganic was also advised that any negotiated agreement must include recycling. Agorganic lowered its bid price for the Northern plant but adhered to its original bid prices for the Central and Southern plants. It proposed to recycle the sludge from all three facilities.

Later that day, members of the OCUA staff and its counsel determined that the contract for all three facilities should be awarded to Spectraserv. The OCUA contacted Spectraserv and asked that it confirm the prices tendered on March 5, which Spectraserv did by letter of that date.*fn2 The OCUA staff recommended to its Commissioners that it would be in its rate payers best interests to grant Spectraserv the contract for all three plants. A special meeting was scheduled so that the contract could be awarded on March 16, the day immediately following the expiration date of the prior contract. Due to a failure to comply with the notice requirements of the Open Public Meetings Act, N.J.S.A. 10:4-6 et seq., the March 16 meeting was cancelled and rescheduled for March 26. In the interim, the OCUA allowed Spectraserv to handle the sludge on a temporary basis until a contract could be formalized.

On March 17, Agorganic wrote to the OCUA challenging Spectraserv's ability to perform the contract and submitting new prices for all three plants. Essentially, Agorganic asserted that Spectraserv did not have sources available which would enable it to beneficially reuse the sludge in accordance with the

OCUA's requirements. At the OCUA's regular meeting on March 26, Agorganic's counsel presented a detailed analysis of its objections to Spectraserv's proposal. After hearing arguments from both bidders, the OCUA adopted a resolution awarding the contract to Spectraserv.

On March 27, Agorganic filed a Complaint in Lieu of Prerogative Writs and an Order to Show Cause seeking to restrain the OCUA and Spectraserv from entering into the contract awarded on March 26. On March 31, the court entered an order temporarily enjoining the defendants from executing the contract but permitting Spectraserv, pending the outcome of the litigation, to remove the sludge from the three facilities under an interim arrangement with the OCUA.


N.J.S.A. 40A:11-5 creates a series of exceptions to the bidding requirements under the Local Public Contracts Law. That statute provides, in part:

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:

(s) The marketing of recyclable materials recovered through a recycling program, or the marketing of any product intentionally produced or derived from solid waste received at a resource recovery facility or recovered through a resource recovery program, including, but not limited to, refuse-derived fuel, compost materials, methane gas, and other similar products;

As a threshold issue, the court must address the scope of the recycling exception before it becomes necessary to determine whether the exception has been properly applied in this case. The plaintiff argues that the negotiated contract must require recycling of all sludge, as opposed to only partial recycling. The defendants contend that Spectraserv's proposal satisfies

the statutory objectives.*fn3

As discussed above, Spectraserv intends to incinerate the sludge emanating from the Northern plant. All parties concede that incineration does not constitute beneficial reuse. Therefore, Spectraserv's proposal does not envision a complete recycling of sludge from the three OCUA plants. On the other hand, Agorganic offered to beneficially reuse all of the sludge.

Agorganic asserts that permitting negotiation for partial recycling would allow public entities, intent on favoring a particular bidder, to avoid formal bidding merely by adding an insignificant recycling component to any sludge disposal specifications. The plaintiff also contends that partial recycling programs will not stimulate the technological advancement promoted by the statutory exception. It reads the exception as a means of encouraging public bodies to recycle their waste and private industry to invest in and develop processes which will accomplish that purpose.

Spectraserv counters that Agorganic's position seeks to exclude competition because only Agorganic has the capacity to beneficially reuse all of the sludge at its facility. It must be acknowledged, however, that there is nothing in the specifications which requires all of the beneficial reuse to be at one location or which prevents Spectraserv from making arrangements for recycling through various means at different sites. Furthermore, Agorganic also left open the possibility that it might recycle at locations other than its own.

The legislative history relating to the enactment of N.J.S.A. 40A:11-5(s) does not provide the court with any substantial evidence of legislative intent regarding its scope. This exception was not part of the Local Public Contracts Law as originally ...

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