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New Jersey Schools Construction Corp. v. Arkay Construction


April 14, 2008


On appeal from a Final Decision of the Board of Directors of the Schools Construction Corporation, Agency Docket No. 03-05.

Per curiam.


Submitted January 7, 2008

Before Judges S. L. Reisner, Gilroy and Baxter.

Appellants Arkay Construction, Inc., and Rantik Parikh, appeal from the November 22, 2006, final decision of the Board of Directors of the New Jersey Schools Construction Corporation (Board), denying them prequalification*fn1 and debarring*fn2 them for three years. We affirm.


On August 29, 2005, New Jersey Schools Construction Corporation (SCC) issued a notice of adverse action to appellants, denying them prequalification and debarring them as contractors eligible to engage in public works contracting for four years, pursuant to the Educational Facilities and Construction Financing Act, L. 2000 c. 72 (the Act).*fn3 On September 15, 2005, appellants filed a request for a hearing with the SCC, and the matter was forwarded to the Office of Administrative Law (OAL), as a contested case. On April 5 and 6, 2006, the hearing was conducted before an Administrative Law Judge (ALJ). On July 27, 2006, the ALJ rendered his initial decision, recommending that the denial of prequalification be affirmed, but that there be no debarment. On August 31, 2006, the SCC filed exceptions to the ALJ's initial decision. On October 25, 2006, the Board issued its final administrative decision, adopting the ALJ's findings of fact and recommendation regarding denial of prequalification. However, the Board rejected the ALJ's recommendation of no debarment, and instead, imposed a three-year debarment from the date of issuance of the notice of adverse action.

On appeal, appellants argue:












Arkay is a contractor that engages in public construction work, including the construction of public schools. Parikh is Arkay's President and sole shareholder. In August 2001, appellants entered into a consent order with the United States Department of Labor, settling federal prevailing wage violations, relating to a contract between Arkay and the United States Department of the Army. Under the provisions of the consent order, appellants: 1) agreed to pay the wages and benefits of mechanics and laborers that Arkay had employed in the performance of the federal contract; and 2) stipulated that the alleged violations "may be deemed admitted for the purposes of debarment of the respondents pursuant to the contract and 29 CFR § 5.12(a)." However, while the consent order resolved all claims asserted by the United States Department of Labor, the order provided that "it [was] not an admission by any party as to the merits of such claims." In signing the consent order, appellants consented to "voluntary debarment from future new contracts for a three-year period." The debarment remained in effect from November 15, 2001, through November 14, 2004.

On February 19, 2002, appellants submitted a "Request for Classification" to the Department of Treasury, Division of Property Management and Construction (DPMC). On the application, appellants responded in the negative to the following question: "[h]as any person or entity listed in this form ever been suspended, debarred, or otherwise declared ineligible by an Agency of Government from bidding or contracting to provide services, labor, material, or supplies?"

On May 29, 2002; May 30, 2002; August 7, 2002; and October 23, 2002, appellants submitted to the SCC respectively, a: 1) bid for "Jersey City - Roof Replacement and Repairs," Contract No. HS-0070-C01 (Jersey City Contract No. 1); 2) bid for "PS 6, Henry Snyder High School & PS 15 - General Construction Pkg.," Contract Number HS-0070-C02 (Jersey City Contract No. 2); 3) bid for "Paterson - Public School No. 6 - Window Replacements and Sidewalk Renovation," Contract No. HS-0045-C02 (Paterson Contract); and 4) bid for "Irvington - Health & Safety Upgrades" at University Six School, Contract No. HS-0094-C05 (Irvington Contract). In all four bid submissions, appellants failed to disclose the federal debarment, and affirmatively certified that they were not "currently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from bidding or contracting by any state or federal department or agency . . . ."

Appellants were awarded two contracts, the Paterson Contract for the sum of $1,791,000, and the Irvington Contract for the sum of $889,200. In conjunction with the award of the two contracts, Parikh, in the Integrity Affidavit and the Disclosure to Unit of Fiscal Integrity General Consent and Waivers, certified to the truth of all statements previously made in Arkay's bid documents, and did not disclose the federal debarment.

Appellants' prior prequalification with the SCC expired on May 31, 2003. On January 20, 2005, appellants submitted a renewal application for prequalification. In this application, Parikh disclosed the federal debarment and a New Jersey Department of Labor violation relating to the Irvington contract. However, appellants failed to disclose seven additional matters that alleged violations of "laws governing wages, hours, or labor standards" on State contracts, including one with the SCC, which included payment of penalties for contracting with unregistered subcontractors, and failure to pay wages, prevailing wage, and record violations. The SCC determined that the certification submitted in support of the prequalification renewal was not "full, complete," or "truthful."

On August 29, 2005, the SCC served appellants with a multi-count notice of adverse action, contending that appellants had failed to disclose: the consent order under which appellants were debarred from bidding or contracting with the Federal Government from November 15, 2001, through November 14, 2004; and multiple violations, penalties, and alleged violations issued to appellants by the New Jersey Department of Labor. The notice denied appellants' application for prequalification, and debarred them "from bidding on or engaging on any school facilities project financed or constructed pursuant to the Act for a period of four (4) years from the date of this Notice."

On September 15, 2005, appellants requested an administrative hearing and the matter was referred to the OAL. Prior to the commencement of testimony, counsel for appellants advised the ALJ that appellants, having decided to no longer seek construction contracts from the SCC, were going to withdraw their application for prequalification, and as such, not contest the SCC's denial of that application. However, counsel informed the ALJ that his clients contested the SCC's decision of debarment because that decision, if upheld, would effectively put appellants out of business; not only with regard to the SCC, but with regard to other State agencies, or other work that they might seek in other states.*fn4

Testifying at the hearing on behalf of the SCC was Barbara J. Bohi, the Managing Director of Policy and Legal Services for the agency. Testifying on behalf of appellants was Parikh. Bohi testified as follows. If a contractor settles a wage and hour dispute with the New Jersey Department of Labor, and the Department has not taken any action to debar, the SCC will not take any action against the contractor. However, the SCC does take action where there is a failure by the contractor to disclose the violations with the Department of Labor. Bohi stated that the SCC relies on the integrity of the contractor in faithfully carrying out the contract for the school construction work, and the SCC will take action against the contractor where there is an attempt to become pre-qualified or to obtain a contract under false pretenses.

Bohi further testified that: 1) the SCC did not give appellants an opportunity to explain or address the allegations against them; 2) the denial of prequalification is the functional equivalent of debarment because both prevent appellants from contracting with the SCC; 3) the factors the SCC uses to determine the propriety and length of debarment are not contained in published regulations; 4) not every nondisclosure is a basis for debarment; and 5) the SCC would consider whether a nondisclosure was unintentional.

Parikh testified as follows. Parikh believed the settlement with the United States Department of Labor meant that appellants would voluntarily stop bidding with the Federal Government, not State agencies, for a three-year period. Parikh did not understand the meaning of the term "debarment" when he entered into the federal consent order. When asked by the ALJ: "So when the agreement said that the respondents [Arkay] and [Parikh] waive the right to a hearing on debarment and consent to voluntary debarment, you did [not] think that meant that you were debarred," Parikh answered: "no I thought that it [is] a voluntary withholding from the bidding for the next three years." Parikh stated that debarment by the SCC would put Arkay out of business, because most of its work is in the government sector and other agencies will "piggyback" on the debarment.

Parikh also testified concerning the prequalification application. Parikh stated that his office manager was responsible for completing the prequalification application, and that he was unaware that the office manager had only attached one labor violation to the prequalification submission. When asked whether he had reviewed the language of the affidavit before signing it, Parikh responded, "You know, I won't pretend telling you here I read every single word, because the certifications are sometimes so big. I won't say 100 percent every word, no." On July 27, 2006, the ALJ issued his initial decision, stating in relevant part:

Parikh's testimony in this matter with respect to the meaning of the Consent Order and the use of the word debarment was plausible though not particularly compelling. However, since the SCC has applied the [NJ]EDA regulations to [appellants], they cannot simply pick and choose portions of those regulations to apply while ignoring other portions. They seek to debar Arkay under N.J.A.C. 19:30-2.2(a)(9) which requires them to prove that violation by clear and convincing evidence.

The SCC's failure to inquire about the Consent Order prior to filing the Notice of Adverse Action against [appellants], in combination with Parikh's plausible explanation for the entry of the Consent Order corroborated by the inserted terms and explicit language therein mitigates against the contentions of the SCC to the point where they have not produced evidence of a clear and convincing nature that a debarment is warranted. The failure to disclose pending violations of wage and hour regulations and/or other similar violations does not create a pattern of deceptiveness nor does it require a remedy other than denial of prequalification.

On November 30, 2007, the Board rendered its final decision. Although the Board adopted the ALJ's findings of fact and recommendation that appellants be denied prequalification, it rejected the ALJ's recommendation that there be no debarment. In reaching its decision, the Board stated:

After reviewing the record and taking into consideration its obligation to do business only with responsible contractors, the [Board] rejects the conclusion that a debarment is unwarranted. The Board finds unpersuasive the ALJ's determination that SCC failed to establish, by clear and convincing evidence, that a debarment was warranted because it did not inquire about the consent order prior to filing a Notice of Adverse Action and because Mr. Parikh claimed not to have understood the meaning of "debarment" in the context of the consent order. This determination is particularly troubling since Mr. Parikh does not contest the fact that he signed various SCC certifications that denied the existence of any debarments or voluntary exclusions at a time when Arkay was debarred by the federal government.

Although SCC issued its Notice of Adverse Action based solely on Arkay's false certifications, the Board has had the opportunity to take into account Mr. Parikh's view of the consent order and its import. In executing the consent order, it was clear to Mr. Parikh that Arkay was "voluntarily refraining from bidding . . . ." Thus, even if, as [the] ALJ . . . found, Mr. Parikh "did not quite comprehend the meaning of 'debarment,'" Mr. Parikh would likely have understood that SCC's certification also referenced situations where Arkay may have been "voluntarily excluded from bidding or contracting." Furthermore, Mr. Parikh acknowledged that the settlement agreement with the federal government was negotiated with "the help of counsel . . . ." Finally, the Board notes that despite Mr. Parikh's misunderstanding of the meaning of the consent order, Arkay elected to seek renewal of its SCC prequalification on January 20, 2005, twenty months after expiration of its prior prequalification, but only two months after expiration of the federal debarment period. [(citations to transcript of hearing and the ALJ's initial decision omitted).]

The Board imposed a debarment for the term of three years, a one year reduction from the recommended four-year term in the notice of adverse action, beginning August 29, 2005, the date of the notice.


Appellate courts have a limited role in reviewing decisions of administrative agencies. In re Taylor, 158 N.J. 644, 656 (1999). Our review of a final agency decision and of an appeal in a non-jury case is the same, that is, "'whether the findings made could reasonably have been reached on sufficient credible evidence present in the record,' considering 'the proofs as a whole,' with due regard to the opportunity of the one who heard the witnesses to judge of their credibility." Close v. Kordulak Bros., 44 N.J. 589, 599 (1965) (quoting State v. Johnson, 42 N.J. 146, 162 (1964)). Moreover, "an appellate court's review of an agency decision 'is not simply a pro forma exercise in which [the court] rubber stamp[s] findings that are not reasonably supported by the evidence.'" In re Taylor, supra, 158 N.J. at 657 (quoting Chou v. Rutgers, 283 N.J. Super. 524, 539 (App. Div. 1995), certif. denied, 145 N.J. 374 (1996)). However, an agency's decision must stand unless it is arbitrary, capricious, or unreasonable. In re Twp. of Warren, 132 N.J. 1, 26 (1993). It is equally well settled that an appellate court is not bound by the agency's interpretation of a statute or legal issue. In re Taylor, supra, 158 N.J. at 658.

As described in In re N.J. Pinelands Comm'n Resolution, 356 N.J. Super. 363, 372 (App. Div. 2002), certif. denied, 176 N.J. 281 (2003), our review is limited to three inquiries of whether: "1) the action violates express or implied legislative policies; 2) the record contains substantial evidence to support the agenc[y's] findings; and 3) in applying the legislative policy to the facts, the agency erred in reaching a conclusion that could not reasonably have been made on a showing of irrelevant factors." Courts will reverse an agency decision that is arbitrary, capricious, or unreasonable, or that is not supported by credible evidence in the record. Ibid. Courts "may not vacate an agency determination because of doubts as to its wisdom or because the record may support more than one result." Ibid. Stated another way, "we are obliged to give due deference to the view of those charged with the responsibility of implementing legislative programs." Ibid.

We have carefully considered appellants' arguments in light of the record and the applicable law. We are not persuaded by either of the arguments, and affirm substantially for the reasons expressed by the Board in its final decision of October 25, 2006, determining that the decision is supported by sufficient, credible evidence on the record as a whole. R. 2:11-3(e)(1)(D). Nevertheless, we add the following comments.

Appellants argue that the SCC failed to promulgate and publish its own set of administrative regulations governing debarment, and thus, the SCC's decision is arbitrary and capricious. Appellants contend that the "'death penalty' of debarment should be meted out only when the most egregious intentional violations of published statutes or regulations are conclusively established." Appellants assert that "[d]ebarment in these circumstances violates fundamental fairness because [it] must have [had] advance notice of an applicable standard before being cited for a violation of such rule." We disagree.

The SCC directed debarment pursuant to the published regulations of the NJEDA. N.J.A.C. 19:30-2.2(a) provides for debarment of contractors who are proven to have violated criminal statutes, N.J.A.C. 19:30-2.2(a)1 to -(a)8, and for "[a]ny other cause of such serious and compelling nature as may be determined by the Authority to warrant . . . debarment from contracting with the Authority or from the Authority project contracting." N.J.A.C. 19:30-2.2(a)9. In addition, that regulation authorizes debarment when "any department, agency, or instrumentality of the State or Federal government" has already debarred the contractor. N.J.A.C. 19:30-2.2(a)10.

Although the SCC had not published separate regulations governing debarment, it utilized the regulations of the NJEDA. Because the SCC was a subsidiary of the NJEDA when appellants filed their Request for Classification and their bid submissions, and the SCC had been delegated the responsibility of the NJEDA in implementing the Act for school construction programs, we are satisfied the SCC properly utilized the NJEDA regulations in debarring appellants.

Appellants argue in the alternative that, assuming the SCC was authorized to pursue debarment under the regulations promulgated and adopted by the NJEDA, "[t]he SCC selectively, conveniently, and improperly cherry-picked [NJEDA's] regulations." Appellants contend that the SCC exclusively relied on N.J.A.C. 19:3-2.2(a)9, while ignoring N.J.A.C. 19:30-2.3(a), which sets forth the standard of proof by which the SCC must prove a regulatory violation before directing debarment. Because the SCC utilized N.J.A.C. 19:3-2.2(a)9 in determining to debar, the SCC was required to conform to the conditions contained in N.J.A.C. 19:30-2.3(a).

The determination to debar a contractor rests with the discretion of the SCC "unless otherwise required by law, and shall be rendered in the best interest of the [SCC]." N.J.A.C. 19:30-2.3(a)1. In deciding whether debarment is warranted, the SCC must consider all mitigating factors in determining the seriousness of the offense or inadequacy of performance of the contractor. N.J.A.C. 19:30-2.3(a)2. The causes for debarment must be established by clear and convincing evidence. N.J.A.C. 19:30-2.3(a)4. "[C]lear and convincing evidence falls somewhere between the ordinary civil standard of preponderance of the evidence, and the criminal standard of beyond a reasonable doubt. Biunno, Current N.J. Rules of Evidence, comment 6 on N.J.R.E. 101(b)(1) (2007). See In re Purrazzella, 134 N.J. 228, 240 (1993) (Clear and convincing evidence is evidence "that 'should produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.'") (quoting Aiello v. Knoll Golf Club, 64 N.J. Super. 156, 162 (App. Div. 1960)).

Here, the SCC directed debarment, concluding that appellants had violated N.J.A.C. 19:30-2.2(a)9, which provides in pertinent part: "Any other cause of such serious and compelling nature as may be determined by the Authority to warrant disqualification for assistance or debarment from contracting with the Authority or from the Authority project contracting." There is no dispute that appellants had entered into the consent order with the United States Department of Labor in August 2001, consenting to debarment from future federal contracts for a three-year period, that is, from November 15, 2001, through November 14, 2004. Nor is it disputed that appellants failed to disclose the federal debarment when they submitted their Request for Classification to the DPMC on February 19, 2002; or when they submitted contract bids on May 29, 2002; May 30, 2002; August 7, 2002; and October 23, 2002; or in the supplemental contract documents after they were awarded the Patterson and Irvington contracts. We conclude that such evidence met the clear and convincing standard, justifying the SCC's decision directing debarment.

Appellants contend that the SCC improperly rejected the factual findings of the ALJ. Appellants assert that the penalty of debarment was not warranted, considering Parikh believed that the consent order applied only to federal contracts, not State contracts. We find this argument is without merit.

When an ALJ conducts a hearing under the Administrative Procedure Act,*fn5 the ALJ issues "[a] recommended report and decision which contains recommended findings of fact and conclusions of law" and files the same with the agency. N.J.S.A. 52:14B-10(c). On review of the initial decision, "the agency head may reject or modify findings of fact, conclusions of law or interpretations of agency policy in the decision, but shall state clearly the reasons for doing so." Ibid; see Clowes v. Terminex Int'l, Inc., 109 N.J. 575, 587 (1988). However, the right to reject findings of fact based on the ALJ's credibility determinations is limited.

The agency head may not reject or modify any findings of fact as to issues of credibility of lay witness's testimony, unless it is first determined from a review of the record that the findings are arbitrary, capricious, or unreasonable, or are not supported by sufficient, competent, and credible evidence in the record. In rejecting or modifying any findings of fact, the agency head shall state with particularity the reasons for rejecting the findings and shall make new or modified findings supported by sufficient, competent, and credible evidence in the record. [Ibid.]

Here, contrary to appellants' assertion, the Board did not reject the ALJ's credibility determination concerning Parikh's understanding of the consent order, but rather rejected the legal conclusion that debarment was not warranted under the facts as determined by the ALJ. Parikh knew that appellants were debarred from receiving federal contract work. To qualify for SCC construction work, a contractor must disclose "any federal, State, or local debarments." N.J.S.A. 18A:7G-34a(8). In the four bid submissions, Parikh affirmatively certified that the company was not "currently debarred . . . from bidding or contracting by any state or federal department or agency . . . ." Because Parikh knew that appellants were debarred from bidding on federal contract work, he was obligated to disclose that fact in the bid submissions.

We are satisfied that the Board correctly determined that, although Parikh may not have known what "debarment" meant, as found by the ALJ, appellants "should still [be] penalized for answering that question wrong" because "debarment is debarment." Parikh's explanation that "he did [not] understand what debarment was[,] is more mitigation of the penalty than averting the penalty itself."

Appellants also assert that the SCC "failed to consider mitigating factors militating against debarment," as required by N.J.A.C. 19:30-2.3(a)2. Appellants contend that prior to filing the notice of adverse action, the SCC had not provided appellants an opportunity to explain their initial failure to disclose the debarment. We find this argument equally unpersuasive. Although the Board does not dispute this contention, it did take such mitigating factors into consideration in rendering its final administrative decision. The Board stated in relevant part: "[a]lthough SCC issued its Notice of Adverse Action based solely on [appellants'] false certifications, the Board has had the opportunity to take into account Mr. Parikh's view of the consent order and its import."

In addition, the Board "has accepted [the] ALJ's finding that Parikh's explanation of his understanding of the consent order was plausible, [though not particularly] compelling. As such, the Board concludes that a three-year period of debarment . . . [was] justified under the totality of the circumstances."

Parikh repeatedly failed to make the mandatory disclosures on certified submissions to the SCC, and based on this pattern of non-disclosure, the Board issued its final decision debarring appellants for three years. This administrative action is presumed to be valid. In re N.J. Bd. Of Pub. Utils., 200 N.J. Super. 544, 558-59 (App. Div. 1985). There is a strong presumption of reasonableness accorded to an administrative agency's exercise of statutorily delegated responsibility. Courts are not free to substitute their judgment as to the wisdom of a particular administrative action so long as that action is statutorily authorized and not otherwise arbitrary, capricious, or unreasonable. See In re N.J. Pinelands Comm'n Resolution, supra, 356 N.J. Super. at 372.


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