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PENPAC, Inc. v. Morris County Mun. Utilities Authority

April 2, 1997


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

Approved for Publication April 4, 1997.

Before Judges Muir, Jr., Kleiner, and Coburn. The opinion of the court was delivered by Muir, Jr., J.A.D.

The opinion of the court was delivered by: Muir

The opinion of the court was delivered by


These consolidated appeals deal with the competitive bidding process set out in the Local Public Contracts Law, N.J.S.A. 40A:11-3, -4. We are required to review (1) the propriety of the Morris County Municipal Utilities Authority's (the Authority) acceptance of an offer to extend a contract for one year beyond its authorized term after it rejected bids for a new contract to provide the services covered by that contract; and (2) the propriety of the Authority's rejection of all bids on grounds of excessive cost. The trial court ruled the extension invalid on the ground it contravened the public bidding law. The court also invalidated the bid rejection and ordered the Authority to award a contract to plaintiff PENPAC, Inc. We now affirm in part and reverse in part.


In a September 21, 1993, agreement, the Authority acquired two transfer stations. In that contract, the Authority hired Morris County Transfer Station, Inc. (MCTS) to operate the transfer stations and to transfer waste. Under the 1993 agreement, MCTS received $30 per ton to operate the stations and $17 per ton to transfer the waste. The agreement provided for a one time adjustment in January 1996, which resulted in a total cost of $38.65 per ton. The 1993 agreement had a December 31, 1996, termination date but provided the Authority "in its sole discretion [was] entitled to extend, upon three (3) month's prior written notice to MCTS, MCTS's obligations pursuant to [the agreement] for two (2) individual six (6) month terms at the rates, [payable] for the calendar year 1996 . . . ." The Authority did not exercise the option in accord with the contract terms.

On June 24, 1996, while its agreement with MCTS was still in force, the Authority filed a verified petition with the Commissioner of the Department of Environmental Protection (DEP) seeking approval for a rate reduction in the tariff charged by the Authority for the disposal of solid waste at its transfer stations on an interim basis. That reduction was sought, according to the petition, in anticipation of the implementation of a new contract to be awarded through the public bidding process. The Authority stated it foresaw that a new contract would result in substantially reduced costs from the current contract "due to prevailing market conditions and the recent experience of other New Jersey counties and solid waste implementing agencies." The reduction was to be implemented immediately. On July 30, 1996, the DEP accepted the proposed tariff rates on an interim basis. Until the reduction was actually realized through a new contract, the reduced tariff rates were subsidized through Authority funds held for that purpose.

On September 23, 1996, the Authority advertised for bids in connection with the operation of the two transfer stations and for transportation of solid waste to designated disposal sites. Bids were requested based on a contract duration of three consecutive years beginning in 1997 and cancelable by the Authority "without penalty or cause." Alternatively, bids were sought for the same years but with a provision to include an option whereby the Authority could extend the contract for two individual years. All bids were to be submitted by November 25, 1996. At that time, they were to be publicly opened and read aloud. The Authority reserved the right to reject "any and all bids" and to waive any informality in the bids.

In response to the advertisement, bids were submitted by Geological Reclamation Operations and Waste Systems, Inc. (GROWS), PENPAC, and MCTS. According to the Authority, the price per ton by all bidders for both operation of the transfer stations and transportation of solid waste was higher than projected. The bidding process for the affected years and their total costs, as represented by the Authority, are:


GROWS $33.74 $34.22 $34.71 $25,667,500

PENPAC $34.46 $35.48 $36.54 ...

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