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M.J. Paquet, Inc. v. New Jersey Department Of Trasportation

November 15, 2000

M.J. PAQUET, INC., PLAINTIFF-RESPONDENT,
v.
NEW JERSEY DEPARTMENT OF TRANSPORTATION, DEFENDANT-APPELLANT.



Before Judges Baime, Wallace, Jr., and Carchman.

The opinion of the court was delivered by: Baime, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 18, 2000

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

This appeal involves arcane principles pertaining to public contracts. The Department of Transportation's bid specifications provide that individual pay items contained in a lump sum bid must fairly reflect the anticipated cost, overhead and profit attributable to the work to be performed. The specifications bar a bidder from obtaining additional compensation based upon inaccuracies reflected in the individual pay items. These provisions are designed to prevent bidders from submitting unbalanced bids, i.e., bids in which one or more of the pay items fails to carry its share of the cost of the work and the contractor's profit. At issue is the manner in which these specifications are to be applied to a deductive change in a construction contract where a government agency properly deletes a portion of the work because of unanticipated changes in federal regulations. We hold that in such a case the contract price may be adjusted by deducting the amounts of pay items corresponding to the work the contractor is saved or excused from performing.

I.

The facts are not in dispute. In October 1992, the Department solicited bids for a contract to rehabilitate several highways in northern New Jersey. The project included restoring twelve bridge structures along the various routes. We will describe in detail the Department's bid specifications later in this opinion. Suffice it to note here that the specifications required bidders to estimate the cost, overhead and anticipated profit of each line item. Prospective contractors were warned that they could not seek additional compensation in the event their estimates of pay items were inaccurate. However, the contract was to be awarded to the contractor with the lowest overall bid.

Several days before submitting its bid, Paquet received an estimate from a potential subcontractor for painting the effected bridges. Paquet prepared the forty-four items pertaining to painting the bridges utilizing that estimate. However, shortly before submitting its bid, Paquet received a much lower estimate from another subcontractor, O.J. Painting. Because it was "impractical" to revise the forty-four pay items corresponding to the bridge work, Paquet made no changes in its allocation of costs, overhead and anticipated profit with respect to those work units. It instead lowered the price of other pay items, thus reducing the overall bid. The end result was the submission of an unbalanced bid in which the pay items relating to the painting work included inflated amounts for cost, overhead and anticipated profit.

Paquet was the lowest of seven bidders at $17,906,324. The Department was not aware that the pay items contained in Paquet's bid were unbalanced. However, after Paquet was awarded the contract and before the painting work was to be commenced, it submitted the O.J. Painting subcontract to the Department for its approval. The forty-four pay items relating to bridge painting in Paquet's bid totaled $826,473.50. The O.J. Painting subcontract totaled $450,414. The Department approved the subcontract. However, the record does not disclose whether the Department matched or compared the subcontract price with the pay items associated with bridge painting. Although Paquet asserts that the Department knew that the pay items relating to bridge painting were inflated when the O.J. Painting subcontract was approved, the transcript is silent on that question.

Approximately eleven months after Paquet was awarded the contract, the Occupational Safety and Health Administration (OSHA) revised its rules regarding the removal of lead-based paint. Compliance with the revised regulations would have required the expenditure of substantial costs that had not been anticipated by Paquet when it submitted its bid. Paquet submitted a claim for $608,000 to cover the additional anticipated costs of removing the lead-based paint. The Department rejected that claim after comparing Paquet's estimate with recently submitted bids for similar work that conformed with the new OSHA requirements. The bid specifications provided that where completion of a contract required unforeseen "extra work" and the parties could not agree upon an adjusted contract price, the Department could elect to solicit new bids. Pursuant to that provision, the Department opted to delete the bridge painting work from its contract with Paquet. The Department thus issued a change order eliminating the bridge painting work and reducing the contract price by deducting the forty-four pay items relating to removing the lead-based paint and repainting the bridges.

Paquet brought suit for breach of contract and unjust enrichment. At the conclusion of the bench trial, the judge found that the Department properly exercised its right to delete the bridge painting work from the contract because the parties could not agree on a price adjustment for the extra work that would have been required in order to comply with the revised federal regulations. The judge nevertheless awarded Paquet $325,000, finding that in adjusting the contract price it was improper for the Department merely to deduct the total of the pay items attributable to the bridge painting work. In reaching that conclusion, the judge acknowledged that Paquet had violated the bid specifications by submitting an unbalanced bid. The judge determined that Paquet had inflated the cost and overhead components of the pay items dealing with the bridge painting work. The judge concluded, however, that elimination of the pay items did not accurately reflect the cost and overhead Paquet saved by not having to perform that portion of the contract. The judge instead deducted the cost of the O.J. Painting subcontract ($450,414) from the total of the pay items pertaining to bridge painting ($826,473.50) and reduced the difference by Paquet's anticipated profit ($51,000), thereby arriving at a figure of $325,000. While conceding that the award of $325,000 lacked "mathematical certainty," the judge asserted that the figure more accurately reflected the cost and overhead of items for which Paquet had not been adequately compensated.

II.

Although Paquet did not file a cross-appeal *fn1 , we first address its argument that the Department breached the contract by unilaterally deleting bridge painting work. We reject this contention.

The specifications, which were incorporated into the contract, contemplated that completion of the contract might require the performance of tasks not envisioned in the agreement. Specification 104.08 was ...


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