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In re DBC Project No. A0716-00

May 30, 1997

IN RE DBC PROJECT # A0716-00


On appeal from a Final Administrative Decision of the Director of Building and Construction.

Approved for Publication July 22, 1997.

Before Judges Long, A.a. Rodriguez and Cuff. The opinion of the court was delivered by Long, P.j.a.d.

The opinion of the court was delivered by: Long

The opinion of the court was delivered by

LONG, P.J.A.D.

On October 28, 1996, the New Jersey Division of Building and Construction (DBC) solicited bids for the renovation of the Department of State Building located at 225 West State Street in Trenton. (DBC Project No. A-0716-00). In response, Paphian Enterprises, Inc. submitted the lowest bid, offering to perform the general construction work for a total contract price of $6,399,723. *fn1 The second lowest bid was submitted by Fitzpatrick & Associates for a total contract price of $6,495,000. With certain alternatives, Paphian's total price would increase to $6,425,322 and Fitzpatrick's would increase to $6,639,000, leaving Paphian the lowest bidder by a margin of approximately $214,000.

The DBC regulation governing submission of bids, N.J.A.C. 17:19-2.12(c), provides that each contractor shall include with its bid "a statement of the current value and status of its uncompleted work, and whether the award of the given contract would exceed its aggregate rating limit." Paphian and Fitzpatrick each submitted with its bid a certification that the amount of its bid proposal, including all outstanding incomplete contracts, did not exceed its aggregate rating limit. Neither submitted with its bid a statement of the current value and status of its uncompleted work. Despite the express terms of N.J.A.C. 17:19-2.12(c), according to DBC, its normal practice is not to require the statement. Instead, DBC normally relies solely on the certification, which does not require the bidder to state the amount of uncompleted contracts.

By mistake, Paphian also included with its bid proposal an executed Form 701, which is required only when submitting bids for Department of Education work. On the form, Paphian listed the amount of its uncompleted work as "-0-". While Form 701 seeks information as to all outstanding work from any source, Paphian incorrectly believed it requested only the value of uncompleted contracts currently under performance for the Department of Education. Although DBC did not require submission of Form 701 for the bid at issue here, Paphian's unusual response indicating no contract backlog naturally triggered an inquiry from Richard Ferrara, DBC's Chief of Contracts and Procurement. After the bid opening on December 17, 1997, Paphian explained its error. Instead of simply disregarding the unsolicited form, DBC requested that Paphian provide a revised Form 701 as well as a. breakdown of all uncompleted work on all contracts. No other bidder, including Fitzpatrick, was required to provide a Form 701 post-bid. Instead, DBC accepted Fitzpatrick's certification that the amount of its bid proposal, including all outstanding incomplete contracts, did not exceed Fitzpatrick's $29,000,000 aggregate rating limit.

On December 19, 1996, Paphian provided DBC with a revised Form 701, which reflected that the total amount of uncompleted work on five named projects was $3,139,245. Paphian also included a statement which included the names, the full contract amounts and the uncompleted portions of those five open projects. To calculate the value of uncompleted work, Paphian's President, Savas Tsivicos, used Paphian's cost to complete the contracts, which is consistent with the method used by surety companies for bonding purposes. At the time of the bid proposal, Paphian's aggregate rating limit was $10,000,000. Therefore, based on Paphian's calculation, as of the time of the bid opening, the total bid price with all alternates ($6,425,322), when added to the value of uncompleted contracts ($3,139,245), did not exceed this $10,000,000 limit ($9,564,567).

On December 20, 1996, DBC's Chief of Procurement and Contracts, having deemed Paphian "responsible," recommended to DBC that the contract be awarded to Paphian. Paphian subsequently reconfirmed its bid price, which is the normal DBC practice. DBC's recommendation to award the bid to Paphian was not communicated to the public or to the other bidders.

DBC then proceeded with a due diligence inquiry, which revealed no problems with Paphian's prior performance on other projects. Paphian promptly responded to all requests for additional information. Twice in February, 1997, Paphian agreed to extend its bid price upon DBC's request, with the understanding that litigation over the award of an electrical contract was causing delays in awarding the contract.

Without Paphian's knowledge, Fitzpatrick, armed with the Form 701 information which Paphian had been required to file, began an independent investigation of Paphian's uncompleted contracts in February, 1997. Because those jobs were public, Fitzpatrick was able to obtain information concerning the outstanding contract balances on them. On February 27, 1997, Fitzpatrick filed a formal protest against the bid of Paphian based, in part, on its Conclusion that the actual amount of Paphian's uncompleted contracts was at least $4,259,069, as opposed to the $3,139,245 figure provided by Paphian. This put Paphian in excess of its aggregate rating limit as of the date of the bid opening. Fitzpatrick accordingly demanded that Paphian's bid be rejected.

On February 28, 1997, DBC notified Paphian of Fitzpatrick's bid protest. On March 3, 1997, Paphian objected to the protest as out of time. Thereafter, in response to DBC's request, Fitzpatrick supplemented its protest with copies of contract requisitions for two additional uncompleted public jobs and calculated that Paphian exceeded its aggregate rating on the bid date by $847,037 due to an understatement of uncompleted contracts by at least $1,315,069.

The sole difference between Paphian's figures and those of Fitzpatrick was due to calculation methodology. Paphian's calculation was based upon its cost to complete the outstanding jobs and Fitzpatrick's on the outstanding contract balances.

On March 5, 1997, without further independent inquiry, DBC advised Paphian, based on DBC's evaluation of the documentation submitted by Fitzpatrick, that Paphian's uncompleted contracts, in combination with its bid price, exceeded its aggregate rating limit. In reaching this Conclusion, DBC relied on the outstanding contract balance method of calculation. DBC thus rejected Paphian's bid as "non-responsible." On March 7, 1997, Paphian made a timely request for a hearing. On March 11, 1997, Paphian's DBC aggregate rating limit was increased to $15,000,000. On March 18, 1997, *fn2 an informal hearing was held before the Director of the DBC. The hearing focused on three basic issues: the timeliness of Fitzpatrick's bid protest; the correct method for calculating uncompleted work; and whether Paphian should be allowed to meet the alternate responsibility standard of N.J.A.C. 17:19-2.12(c)1.

As to timeliness, Paphian argued that Fitzpatrick's protest was at least 67 days overdue under N.J.S.A. 17:19-4.3(a) which provides:

Any participating bidder seeking a hearing shall make written request to the Director setting forth the specific grounds for challenging the award. The request must be received by DBC within five calendar days after the opening of bids.

Paphian further urged that it would be inequitable to reject its bid based on an untimely protest where the information for the protest came from its own mistaken filing of Form 701. Fitzpatrick countered that, by its very terms, N.J.A.C. 17:19-4.3(a) allows a bidder to challenge an "award" and that its protest was timely because it preceded the formalization of the award in this case.

As to the method for calculating outstanding work, Paphian submitted the certification of its President, Savas Tsivicos, who related the circumstances surrounding its bid, including its position that the use of the cost-to-complete method for calculating outstanding work fully conformed with standards and practices in the industry. In addition, Paphian submitted the affidavit of Bruce Allen, a representative of its surety, Safeco.

Allen stated, based on 23 years experience in the bonding industry, that the standard for calculating work on hand is "well-established and relatively uniform within the surety industry." That standard is the contractor's cost to complete the contract, not the unpaid contract balance. According to Allen:

For any contract on which work has started and advanced beyond the initial stages, work on hand is calculated by reference to the contractor's cost to complete the contract, not by unpaid contract balances.

The reason for this is very simple: unpaid contract balances are an unreliable measure of the amount of actual work that remains to be completed on a contract, which is the true focus of concern. The only time contract balances are used to calculate work on hand is before work has begun or at the very beginning of a project. Once work has begun and progressed beyond the very early stages, a contractor seeking bonding is expected ...


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