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I/M/O Bid Solicitation N. 08-X-39737 v. Division of Purchase and Property

May 29, 2009


On appeal from the Division of Purchase and Property, Department of the Treasury, 08-X-39737.

Per curiam.


Argued: May 6, 2009

Before Judges Axelrad and Messano.

South Jersey Regional Airport, LLC ("Wagner") appeals from the final determination of the New Jersey Department of the Treasury, Division of Purchase and Property ("Treasury") rejecting its bid to operate the South Jersey Regional Airport ("the airport") in Lumberton for a twenty-year term. The agency concluded that Wagner's pricing structure calculating shared revenue on the net, as opposed to gross, fuel sales constituted a material, non-waivable deviation from the bid specifications. Although conceding its bid deviated from the State's request for proposal (RFP) and reduced potential revenue realized by the State under the contract, Wagner contends the term was not material and its waiver would not have undermined the underlying competitive bidding. Wagner alternatively argues that because the State accepted a similar deviation in the bid of a Wagner affiliate at the other state-owned airport, it was obligated to waive the deviation here. Wagner further argues the agency acted arbitrarily and in contravention of the RFP and law by refusing to negotiate with it rather than rejecting its bid and deciding to re-bid the project. We affirm.

Wagner has been the waivered contract vendor operating and managing the airport since March 2005, which contract has been renewed annually or semi-annually while the State has attempted to bid and award a publicly advertised contract for the services. On October 29, 2007, on behalf of the Department of Transportation (DOT), Treasury publicly advertised for proposals from vendors to operate the airport over a twenty-year period by way of an RFP. Notably, the proposal was structured as a revenue-sharing transaction, in which the successful bidder would share a portion of revenues generated by operating the airport with the State. The RFP contained the express direction that vendors submit proposed revenue sharing offers calculated on a fixed monthly amount, plus a percentage of gross revenue, all of which amounts were to be determined by the vendor as part of its proposal, with the highest pricing deemed more competitive. In pertinent part, the RFP's specifications set forth that a successful bidder would be required to pay the State[] a fixed monthly fee (adjusted annually by the Consumer Price Index - Philadelphia region) plus a percentage of gross revenues per year).

The bidder shall submit a completed 20 year payment schedule composed of the bidder's proposed fixed monthly payment (to be adjusted annually) and the bidder's proposed percentage of gross revenues that will be paid to the State. The bidder should provide the bidder's proposed operating budget for the first year of the contract. As additional support, the bidder should also provide detailed projected annual estimates of gross revenues and expenses for each year for Airport operations, to include all costs of development. The bidder should supply a description of how projected gross revenues and expenses result in gross profit and must use those calculations to justify the fixed monthly payments and fixed percentage of gross revenue it proposes to pay the State over the term of the contract. [Emphasis added.]

On December l2, 2007, Wagner and other bidders attended a mandatory pre-bid conference, during which the vendors were repeatedly informed that payments for fuel sales were to be based on gross revenues. Of the bidders present, Wagner and two others submitted bids for the airport, with Wagner submitting its on January 30, 2008. Wagner's bid contained the following assumption:


Our projections consider Fuel Sales as a Net number; (Gross Fuel Sales less Cost of Fuel) This treatment allows us to project the net effect on revenues of all fuel sales activity throughout the term of the contract without regard to the volatile nature of energy costs in particular aviation related fuel costs. Our NET Fuel Sales number is driven by anticipated volume and historical "mark-up" based on our actual operating history as "Emergent Operator" of South Jersey Regional Airport.

The Evaluation Committee, comprised of four voting members (one Treasury employee and three DOT employees) and three advisory members (two DOT members and one DAG), determined all bids were non-responsive and recommended no award be made and the contract be rebid. South Jersey Airport Services, LLC was found not to meet the experience or manpower requirements set forth in the specifications and Cave Flight School, LLC was found to have a disqualifying potential conflict of interest by proposing to essentially form a joint venture between its local, private airport and the publicly owned airport. Although the Committee determined Wagner had the highest technical score independent of its pricing structure, the Committee then found Wagner's method of calculating revenue sharing payments based on net sales was a "major deviation to bid submission requirements . . . that could not be withdrawn." The Treasury's Purchase Bureau accepted the Committee's recommendation.

Wagner filed a formal protest to the Treasury's Acting Director, arguing its "net fuel revenue" exception did not constitute a material, and therefore non-waivable defect, because it did not prevent the State from being assured of achieving its requirements nor adversely affect competitive bidding. See Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307, 315 (1994) (reaffirming the two-prong test enunciated in Township of River Vale v. R.J. Longo Construction Co., Inc., 127 N.J. Super. 207, 216 (Law Div. l974) for determining whether a deviation constitutes a substantial material and thus non-waivable irregularity, i.e. (1) whether the effect of a waiver would be to deprive the public entity of "its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements," and (2) whether it is of "such a nature that its waiver would adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders or by otherwise undermining the necessary common standard of competition."); see also In re the Protest of the Award of the On-Line Games Prod. and Operation Servs. Contract, 279 N.J. Super. 566, 594-95 (App. Div. 1995). Specifically, Wagner argued the method of calculating its bid was the same as it submitted in obtaining the Greenwood Lake Airport contract and its successful performance on that contract set a precedent for the instant procurement; Cave, the only other qualified bidder, used the same net fuel revenue basis for its revenue calculations and thus it could not have been placed at a competitive disadvantage by Wagner's use of that methodology;*fn1 the remaining bidder's projected revenue sharing was "wildly unrealistic"; and no bidder was placed at a disadvantage by Wagner's disregard of the pricing specifications in the RFP. Wagner further asserted that the Committee was empowered to negotiate the pricing provision with it rather than reject it as non-responsive, and emphasized that such negotiation would be in the public interest in that Wagner had the technical prowess to perform the contract and that delaying a long-term contract would discourage a short-term vendor such as Wagner from implementing capital improvements to the airport to the detriment of airport users.

On July 21, 2008, Acting Director of the Treasury Alice K. Small ("Director") issued a final agency determination that upheld the Evaluation Committee's recommendation to reject all bids and re-bid the contract.*fn2 The Director found Wagner's pricing deviation was a material, non-waivable bid defect that failed both prongs of the River Vale materiality test. According to the Director, since fuel and oil sales were explicitly mentioned in the RFP as requiring gross revenue projections to maximize revenue to the State, Wagner could not perform the revenue-sharing portion of the contract as specified, to the State's detriment. Moreover, the common standard of competition would be compromised if the specifications were essentially rewritten after bid submission to allow Wagner's pricing deviation. The Director addressed and rejected Wagner's claim that its submission of net sales would not adversely affect competition because of Cave's non-responsive submission that was also based on net revenue. Thus, by being a material deviation, Wagner's pricing scheme was not subject to correction or negotiation.

The Director also deemed unmeritorious the argument by Wagner that she was bound by the "precedent" set by Treasury in the earlier contract for the other state-operated airport. As a threshold matter, the Director noted that as the statutes that guide public purchasing mandate, "the bid proposal must conform to all of the material requirements of the RFP" for consideration for contract award, the successful performance of Wagner's related company at the Greenwood Lake Facility "can not, in and of itself, establish the basis to consider [Wagner] for the contract award resulting from the current procurement, absent a determination that its bid conformed to all of the material requirements of the RFP." In addition, the prior award was based on ...

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