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M.J. Paquet, Inc. v. New Jersey Department of Transportation

April 04, 2002

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



On certification to the Superior Court, Appellate Division, whose opinion is reported at 335 N.J. Super. 130 (2000).

SYLLABUS BY THE COURT

The Court addresses whether an equitable adjustment should be awarded to a successful bidder of a public contract whose performance is rendered impracticable during the course of the contract.

In 1992, the Department of Transportation (DOT) solicited bids for a contract to rehabilitate several highways and bridges in New Jersey. As part of its bid submission, M.J. Paquet, Inc. (Paquet) used an estimate submitted by a potential subcontractor for the bridge painting work on the contract. Paquet's total bid for the bridge painting work was $826,473.50, which included its thirty-percent mark-up for costs, overhead, and profit. Shortly before the bid submission deadline, Paquet received a significantly lower estimate of $450,414 for the bridge painting work from O.J. Painting. Rather than redoing its bid submission, Paquet did not amend the original figure for the bridge painting work; instead, it lowered the price of several of the other "common" items in the contract to offset the inflated price of the bridge painting work. This "unbalanced" bid was submitted by Paquet to DOT. As the lowest bidder, Paquet was awarded the contract.

After the DOT awarded the contract to Paquet, the Occupational Safety and Health Administration (OSHA) issued revised regulations in respect of the cleaning and painting of existing bridges containing lead-based paint. Those regulations directly affected the bridge painting work in the Paquet-DOT contract. As a result, Paquet informed DOT that compliance with the new regulations would cause Paquet to incur substantial and unanticipated costs. Paquet requested additional compensation. Rather than agreeing to pay Paquet the requested additional compensation for the work, DOT decided to excise the bridge painting from the contract. DOT notified Paquet that it was deleting the bridge painting work from the contract in the amount of $826,473.50.

Paquet filed a Contractual Notice Form objecting to DOT's removal of the bridge painting work. The parties could not settle their dispute through the alternative dispute resolution procedure set out in the contract . Thereafter, Paquet filed suit against DOT, claiming that DOT was not authorized to delete the painting work from the contract and, in the alternative, DOT could not delete the entire amount of $826,473.50 listed in the contract for bridge painting work.

The trial court found that DOT properly deleted the bridge painting work. The court held that the new OSHA regulations had significantly changed the circumstances surrounding the contract; therefore, the contract was impossible to perform. The court also held that the entire amount of $826,473.50 should not have been deleted because Paquet was entitled to an equitable adjustment. The court awarded Paquet $375,000.

On appeal, the Appellate Division affirmed the trial court's decision that DOT properly deleted the bridge painting work from the contract, but reversed the equitable adjustment award, finding that such an adjustment was not warranted because DOT specifications prohibited unbalanced bids and purportedly barred recovery.

The Supreme Court granted Paquet's petition for certification.

HELD: The Department of Transportation properly deleted the bridge painting work from the contract pursuant to the principle of impracticality. However, under the unique circumstances of this case, Paquet is entitled to an equitable adjustment.

1. The requirements imposed by the revised OSHA regulations for the bridge painting work did not materially change the character of the work, thereby requiring completion by the contractor pursuant to Specification 104.07.

The essence of the bridge painting work remained the same. Rather, the revised OSHA regulations created "new and unforseen" work that was "essential" to the satisfactory completion of the project. Moreover, this new work was not covered under any of the various pay items for which there was a bid price. Therefore, the revisions constitute "Extra Work" as defined in the contract specifications, specifically Specification 104.08. As extra work, several options were available to DOT, including its choice of electing not to have Paquet perform the extra work. That decision was within DOT's discretion pursuant to Specification 104.08 of the contract. (Pp. 8-13)

2. DOT correctly deleted the bridge painting work from the contract pursuant to the principle of impracticality. The revised OSHA regulations triggered the impracticality as Paquet could not complete the work without additional adequate compensation and DOT did not consent to pay the excessive amount that it claimed Paquet sought for the additional work. Thus, both parties' performance under the contract became impracticable. (Pp. 13- 17)

3. The 1989 DOT Specifications incorporated into the Paquet-DOT contract do not provide for an equitable adjustment. Moreover, New Jersey has not adopted the concept as a form of equitable relief in public contracts. However, federal law provides guidance. Typically, public contracts involving the federal government contain equitable adjustment clauses safeguarding the contractor in circumstances where the government modifies the contract, thereby increasing or decreasing the cost to the contractor for the work to be performed. Some federal courts have applied the principle generally, without reference to a particular clause in the contract. Several states also provide for equitable adjustments in public contracts. (Pp. 17-20)

4. Paquet submitted a bid that contained an inflated amount for the pay items relating to the bridge painting work and an understated amount for other pay items in the contract; therefore, the bid was unbalanced within the meaning of Specification 102.08. The Court disagrees with the Appellate Division's holding that Specification 102.08 prohibits granting an equitable adjustment in this appeal for two reasons: 1) Specification 102.08 is ambiguous and should therefore be construed against the drafter -DOT; and 2) even assuming Specification 1023.08 was not ambiguous and that it denies Paquet relief by its plain language, the Court would nonetheless find in favor of Paquet given the unique circumstances presented here. (Pp. 20-23)

5. Because the phrase "claim for additional compensation" may be subject to varying interpretations, Specification 102.08 is ambiguous. Both Paquet's and the DOT's interpretations of its meaning are plausible; therefore, the ambiguous phrase must be construed against DOT. Thus, Specification 102.08 does not bar Paquet from seeking an equitable adjustment from DOT. (Pp. 23-28)

6. Even if there were no ambiguity, independent equitable grounds exist necessitating an equitable adjustment. The policy reasons behind the prohibition against unbalanced bids -- to guard against fraud, collusion, front-end loaded bids and the deterioration of fair competition -- are not implicated here. Because Paquet did not submit its unbalanced bid with any illicit motive, there is no justification for penalizing it for doing so. Further, given the unique facts presented here, it is not anticipated that this holding will diminish Specification 102.08's deterrent effect on contractors who do submit unbalanced bids intending to manipulate the system to their advantage. Finally, the DOT would be unjustly enriched if it were permitted to delete the entire original bid cost of the bridge painting work nor will DOT be required to pay more under the contract than it would have paid in the absence of the revised OSHA regulations. (Pp. 28-31)

7. This holding is limited to the unique facts and circumstances presented here. (P. 31)

Judgment of the Appellate Division is AFFIRMED IN PART and REVERSED IN PART and the matter is REMANDED to the trial court for a determination of the amount of equitable adjustment.

CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, LONG, VERNIERO, and LaVECCHIA join in JUSTICE ZAZZALI's opinion.

The opinion of the court was delivered by: Zazzali, J.

Argued October 9, 2001

This appeal requires the Court to determine whether an equitable adjustment should be awarded to a successful bidder of a public contract whose performance is rendered impracticable during the course of the contract. M.J. Paquet, Inc. (Paquet) submitted an unbalanced bid for a contract with the New Jersey Department of Transportation (DOT) to rehabilitate several highways and bridges in New Jersey. The DOT awarded Paquet the contract. Nearly one year later, the Occupational Safety and Health Administration (OSHA) issued revised regulations substantially affecting Paquet's performance of the bridge painting work. After the parties could not agree on an increased amount for the bridge painting work, the DOT deleted that work from the contract. Thereafter, Paquet commenced this action seeking legal and equitable relief.

The trial court found that the DOT properly had deleted the bridge-painting work from the contract, but nonetheless awarded Paquet an equitable adjustment for the other tasks that the contractor had completed. The Appellate Division upheld the DOT's right to delete the bridge-painting work, but denied Paquet any equitable adjustment. M.J. Paquet v. New Jersey Dep't of Transp., 335 N.J. Super. 130, 144 (App. Div. 2000). The panel reasoned that such an adjustment was not warranted because DOT specifications prohibited unbalanced bids and purportedly barred recovery in this setting. Ibid.

We affirm the Appellate Division's ruling that the DOT properly deleted the bridge painting portion of the contract. However, we reverse the decision denying Paquet an equitable adjustment of the contract price, and remand the matter to the trial court for a determination of the amount of that adjustment.

I.

In October 1992, the DOT solicited bids for a contract to rehabilitate highways in northern New Jersey. The project included highway resurfacing, safety improvements, and the restoration and painting of twelve bridges along various routes. Several days before submitting its bid, Paquet received an estimate from a potential subcontractor for the bridge painting work included in the project. Paquet used that estimate to calculate the forty-four individual pay items contained in its bid pertaining to the bridge painting. After adding its customary thirty percent mark-up for costs, overhead, and profit to the bridge painting pay items, Paquet's total bid for the bridge painting work amounted to $826,473.50. Shortly before the bid submission deadline, Paquet received a significantly lower estimate of $450,414 for the bridge painting work from subcontractor O.J. Painting.

According to Paquet, because "it was impracticable and highly risky to redo all the prices for the [forty-four] bridge structure items," Paquet did not amend the $826,473.50 figure it originally entered on the bid for the bridge painting work. Rather, Paquet lowered the price of several of the other "common" items, including mobilization and construction layout costs, to offset the now inflated price for the bridge painting work. Accordingly, Paquet submitted an "unbalanced" bid to the DOT. An "unbalanced" bid is one "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." Paquet, supra, 335 N.J. Super. at 132.

Paquet's bid of $17,906,324 was the lowest presented to the DOT, which subsequently awarded Paquet the contract. At that time, the DOT was unaware that Paquet had submitted an unbalanced bid. Before the work commenced, Paquet submitted and received approval of the O.J. Painting subcontract from the DOT. The record does not indicate whether the DOT compared the subcontract price with the amount in Paquet's bid for the bridge painting work.

After the DOT awarded Paquet the contract, OSHA issued revised regulations in respect of the cleaning and painting of existing bridges containing lead-based paint. Those regulations directly affected the bridge painting work in the Paquet-DOT contract. Paquet asserted that the new OSHA regulations "significantly increased the nature and the magnitude of procedures governing [the] cleaning and painting [of] existing structural steel" containing lead-based paint. Accordingly, Paquet informed the DOT that compliance with the new regulations would result in Paquet's incurring substantial and unanticipated costs. Paquet made several ...


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