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McElwee Group, LLC v. Atlantic County Utilities Authority


December 28, 2009


On appeal from the Superior Court of New Jersey, Chancery Division, Atlantic County, Docket No. C-82-08.

Per curiam.


Argued November 9, 2009

Before Judges Lisa and Alvarez.

Defendant Atlantic County Utilities Authority (the Authority), a governmental corporation, appeals from summary judgment granted to plaintiff The McElwee Group, LLC (McElwee), on March 6, 2009, directing the return of a $20,000 bid bond. For the reasons that follow, we affirm.

The Authority solicited bids in accord with the Local Public Contracts Law, N.J.S.A. 40A:11-1 to -51, for work to be performed on its "City Island Sewage Treatment Facility Improvement Project." McElwee submitted its sealed bid and a $20,000 bid bond prior to the April 6, 2008 scheduled opening of sealed bids. After the Authority accepted the bid on April 7, McElwee discovered that the bid contained two errors totaling $240,000.*fn1 As a result of these errors, McElwee bid $1,522,000 instead of $1,777,200. On that same day, April 7, McElwee contacted the Authority in writing and attempted to withdraw. The Authority refused and instead submitted a proposed contract, advising that if the contract were not signed, the $20,000 bid bond would be forfeited and the contract would be awarded to the next-lowest bidder.

Because McElwee had not returned the signed contract by the specified date, the Authority awarded the project to the next-lowest bidder for "almost 1.7 million" at its next board meeting. In fact, had McElwee included the mistakenly-omitted amounts in its bid, it would have been the third-lowest bidder.

The Authority retained the bond; thereafter, McElwee filed suit seeking return of the forfeited funds.*fn2

McElwee committed two errors in preparing the bid. The first mistake was the omission of any cost for a particular item, identified as 01820, valued at $100,000, due to the Authority's "vagueness, equivocation, lack of understanding and... failure to fully inform" McElwee regarding this item. McElwee was not invited to attend a non-mandatory prebid conference, where the omission may have come to light as the specifications were reviewed in detail. The second mistake, totaling $140,000 according to the complaint, was "a calculation mistake by a McElwee employee under a time constraint to complete and submit the bid." The Authority disputes neither of the errors, nor that the omissions were innocently made.

In reliance upon the four-prong test outlined in Conduit & Foundation Corp. v. City of Atlantic City, 2 N.J. Super. 433, 440 (Ch. Div. 1949), Judge William Todd concluded McElwee established that it was entitled to rescission due to mistake. Judge Todd said:

... I am satisfied there are four basic circumstances that are necessary before [rescission] would be permitted. First, that the mistake is of great consequence so that the enforcement of the contract would be unconscionable. Second, that the mistake goes to a material feature of the contract. [Third], that the mistake [was made] notwithstanding the exercise of reasonable care. And fourth, that there's no serious prejudice to the other party aside from the loss of the bargain.

Given that these essential conditions set forth in Conduit were met, Judge Todd determined that McElwee was entitled to withdraw its bid and to the return of its bid deposit.

On appeal, the Authority asserts that Judge Todd erred because the relief he awarded McElwee, namely, the return of the bid bond, is prohibited by N.J.S.A. 40A:11-21. The statute states in pertinent part:

A person bidding on a contract for the erection, alteration or repair of a public building, structure, facility or other improvement to real property, the total price of which exceeds $100,000, shall furnish a guarantee as provided for herein.... The guarantee shall be payable to the contracting unit so that if the contract is awarded to the bidder, the bidder will enter into a contract therefor and will furnish any performance bond or other security required as a guarantee or indemnification. The guarantee shall be in the amount of 10% of the bid, but not in excess of $20,000.00, except as otherwise provided herein, and may be given, at the option of the bidder, by certified check, cashier's check or bid bond.

The Authority relies upon the following language in Meadowbrook Carting Co. v. Borough of Island Heights, 138 N.J. 307, 321 (1994) in support of its reading of the statute:

... that the municipality can retain the amount of the bid bond does not necessarily assure that the low bidder will enter into or perform the contract. If the low bidder determines that its bid is too low and that its prospective loss on the contract exceeds the amount of its bid bond, that low bidder may decide to forfeit its security rather than incur a greater loss by performing the contract.

We agree neither with the Authority's reading of the statute nor its interpretation of the language from Meadowbrook. The passage from Meadowbrook establishes only that a bidder, once having determined that its bid will result in business losses, may opt to forfeit its security rather than incur a greater loss by performing pursuant to an unprofitable contract. Ibid. In Meadowbrook, the issue was whether the failure of a bidder to submit certain documents, such as "a consent of surety," pursuant to "the bid specifications" is a defect that can be waived by the governmental entity and subsequently cured. Id. at 310-11. Ultimately, the Court concluded that strict compliance with the bid specifications was required, and that a municipality generally does not have the "discretion to accept a defective bid." Meadowbrook, supra, 138 N.J. at 314.

In fact, we question whether McElwee's omission of an estimated $100,000 item is not so material a departure from bid specifications that, had a competing bidder challenged the acceptance of McElwee's bid, the Authority would have been compelled to reject its bid outright as defective. In other words, we question whether the failure to include the $100,000 item was a non-waivable, noncorrectable material deviation from the specifications. In any event, Meadowbrook relates to a dispute between competing bidders, not a situation in which a governmental entity sought to retain a bid bond.

The Authority also suggests that the timing of the notice of withdrawal here bars McElwee from recovering its bid bond. In Conduit, the plaintiff advised the City of its mistake after the opening of bids. Conduit, supra, 2 N.J. Super. at 436-37. That was not the case, however, in Cataldo Construction Co. v. County of Essex, 110 N.J. Super. 414, 416 (Ch. Div. 1970). The construction project in Cataldo involved two municipalities. The low bidder notified the governmental entity of its error after the first affected governmental entity, Essex County, had opened the bids although the second entity, Morris County, had not yet issued a concurring resolution. Ibid.

In Cataldo, the successful bidder sought to rescind the day after Essex County opened the bids because it made a $10,000 error in its submission of a proposal that should have been for $34,233 but was instead $24,233. The plaintiff obtained not only rescission of the contract but also the return of a $2500 certified deposit check required as security in the instructions to bidders. Id. at 423. The analogy is quite clear.

Summary judgment must be granted where "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). We apply the same standard in reviewing a grant of summary judgment. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We first determine whether there was a genuine issue of fact; if there is no such dispute, we look to whether the court's ruling on the law is correct. See ibid. Here, there was no disputed fact; rather, the issue was whether plaintiff was entitled to judgment as a matter of law. See also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

Even though the cited cases were decided prior to the adoption of the Local Public Contracts Law in 1971, the analysis is not altered. Although the law requires each bidder to supply a bid bond, nothing in the plain language of the statute makes retention by the municipal entity mandatory. Rather, the language of the statute merely requires some guarantee upon submission of a bid in order to protect the public from improper manipulation of the governmental contract process. That guarantee gives some assurance that if a contract is awarded, the successful bidder will enter into the contract for the bid price.

Additionally, McElwee's mistake, $240,000 on a $1,522,000 contract was substantial for a "small company," as McElwee describes itself in the complaint. The error was 15.8 percent of the quoted price, of sufficient consequence and a material feature of the contract such as to make enforcement unconscionable. See Conduit, supra, 2 N.J. Super. at 441. This is particularly true in light of the $188,000 gap between the mistaken bid McElwee submitted and the next-lowest bid. In fact, McElwee's bid, if correct, would not have been accepted because it would not have been the lowest. Furthermore, the court had grounds to find that the mistake occurred despite reasonable care. See id. at 440. There was no proof of any prejudice whatsoever to the Authority other than the loss of the mistaken contract price that omitted material items. See ibid.

Finally, the mistake was communicated immediately, the day following bid openings.

We recognize the important public policy behind the legislative enactment which protects the public from "'favoritism, improvidence, extravagance and corruption.'" Meadowbrook, supra, 138 N.J. at 313 (quoting Twp. of Hillside v. Sternin, 25 N.J. 317, 322 (1957)). In this limited circumstance, no harm comes to the legislative scheme, or to the public policy which drives it, by allowing McElwee equitable relief. This is particularly true where, because of a missing material element, the bid did not even comply with document specifications.


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