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O'Shea v. New Jersey Schools Construction Corp.

October 19, 2006


On appeal from the Superior Court of New Jersey, Law Division, Mercer County, MER-L-470-04.

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



Argued September 13, 2006

Before Judges Cuff, Winkelstein and Fuentes.

In this appeal from an order dismissing plaintiffs' complaint seeking to enforce defendants' compliance with public bidding laws, the principal issue is whether a subsidiary of a State authority, the New Jersey Schools Construction Corporation (the SCC), may permit a general (or prime) contractor to substitute major trade subcontractors for those listed in the general contractor's bid documents after the bid has been awarded. We conclude that such a practice is contrary to public bidding laws and their underlying policies.*fn1 Accordingly, we reverse.

Plaintiffs are an association of New Jersey-based mechanical contracting firms and its executive director. The SCC is a subsidiary of the New Jersey Economic Development Authority, a public entity authorized by the Educational Facilities Construction and Financing Act, N.J.S.A. 18A:7G-1 to -44, to construct and finance school facilities projects in Abbott*fn2 school districts. See N.J.S.A. 18A:7G-5a; Exec. Order No. 24 (2002).

The New Jersey Economic Development Authority Act requires that when the SCC procures contracts, it shall advertise and receive (1) separate bids for each of the branches of work specified in subsection a. of this section;[*fn3 ] or (2) bids for all the work and materials required to complete the school facilities project to be included in a single overall contract, in which case there shall be set forth in the bid the name or names of all subcontractors to whom the bidder will subcontract for the furnishing of any of the work and materials specified in branches (1) through (4) in subsection a. of this section; or (3) both. [N.J.S.A. 34:1B-5.7b (emphasis added).]

Thus, the SCC can obtain separate bids from and award separate contracts to certain major trade contractors; enter into a single contract with one general contractor; or a combination of the two. N.J.S.A. 34:1B-5.7b(2), (3).

In their complaint in lieu of prerogative writs, plaintiffs, claiming a violation of N.J.S.A. 34:1B-5.7b(2), sought mandamus-type relief to compel the SCC to end its practice of permitting general contractors to substitute major trade subcontractors for those the general contractor named in its bidding documents.*fn4 The bid forms the SCC requires bidders to submit contain a provision stating that the bidder "shall name" all of the subcontractors who will be performing the trade work listed in the bid advertisement and that the bidder is not permitted to substitute subcontractors "prior to execution of the contract." Nevertheless, the form indicates that substitution is still permissible, stating that "[a]ny substitution of subcontractors after the award of contract shall be made only with written approval of the SCC in accordance with the General Conditions."

In the Law Division, the SCC acknowledged that it was permitting prime contractors to substitute subcontractors for those named in their bids, but contended it was within its discretion to do so. The SCC claimed substitutions were made pursuant to a specific written policy it had implemented during the pendency of the instant litigation. Specifically, the policy allowed the SCC to permit subcontractor substitutions where the subcontractor identified in the price proposal was going out of business; refused to perform; refused to adhere to the contract requirements; stated in writing that it was over-extended or over-committed and provided a reasonable explanation for same; or under "any other circumstance where the [the SCC] deems there to be a rational basis for the substitution."

As a result of the implementation of this policy, plaintiffs moved to transfer the case to this court, contending that the policy is a "rule" promulgated by a State administrative agency, and as such, was in violation of the statutory requirements of the Administrative Procedure Act, N.J.S.A. 52:14B-1 to -15. See generally Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 328-38 (1984) (discussing relevant factors to determine if agency action constitutes rule-making). The Law Division judge denied plaintiffs' motion to transfer, and instead dismissed the complaint. The court found that because no particular bidder's rights were impacted by the SCC's adoption of the policy, no case or controversy existed between the parties. The court did not directly address plaintiffs' argument that the SCC did not, under any circumstance, have the discretion to permit a prime contractor to substitute subcontractors following award of the bid.

We first turn to whether the case should have been dismissed because no controversy existed between plaintiffs and defendants. In arriving at its decision, the court reasoned:

At this time, the [SCC] has exercised its discretion and has in place a subcontractor substitution policy and an uncompleted ...

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