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O'Shea v. New Jersey Schools Development Authority

April 7, 2010


On appeal from the Adoption of N.J.A.C. 19:36-1.1 to -8.3 by the New Jersey Schools Development Authority.

Per curiam.


Argued October 21, 2009

Before Judges Axelrad, Fisher and Sapp-Peterson.

In this appeal, appellants Alan O'Shea and Mechanical Contractors Association of New Jersey challenge regulations promulgated by the New Jersey Schools Development Authority (Authority), N.J.A.C. 19:36-1.1 to -8.3, Procedures For Procurement of Design Build Contracts For School Facilities Projects For the Schools Construction Program, pursuant to its enabling legislation. N.J.S.A. 52:18A-235 to -259 (Act). We hold that with the exception of the regulations related to short-listing, which we find are invalid because they are arbitrary and not authorized by statute, the regulations represent a valid exercise of the Authority's powers.

The Authority is the successor agency to the School Construction Corporation (SCC), created in 2002 as a subsidiary of the New Jersey Economic Development Authority. See N.J.S.A. 52:18A-235. The SCC was abolished in 2007 when the Educational Facilities Construction and Financing Act (EFCFA), N.J.S.A. 18A:7G-1 to -48, was amended. The duties previously performed by the SCC were transferred to the Authority. See N.J.S.A. 52:18A-247. The Authority's primary function is to undertake school facilities projects in the Abbott*fn1 districts, where the Legislature has declared that the school facilities projects should be designed to "incorporate maximum operating efficiencies and new technologies to advance the energy efficiency of school facilities and the efficiency of other school building systems, [and] construction should be achieved in as efficient a manner as possible." N.J.S.A. 18A:7G-2(d). In both EFCFA and the Act, "school facilities project" bears the exact same definition: the planning... [and] construction[] of all or any part of a school facility or of any other personal property necessary for, or ancillary to, any school facility, and shall include fixtures, furnishings, and equipment, and shall also include, but is not limited to,... site development, the services of design professionals, such as engineers and architects, construction management, legal services, financing costs and administrative costs and expenses incurred in connection with the project. [N.J.S.A. 18A:7G-3 and N.J.S.A. 52:18A-236 (emphasis added).]

The Authority is permitted "[t]o do any and all things necessary or convenient to carry out its purposes and exercise the powers given and granted" to it under EFCFA and the Act, including the adoption of regulations to "carry out the provisions of [EFCFA and the Act]." N.J.S.A. 52:18A-238(k).

While EFCFA has conferred upon the Authority broad powers to undertake its duties, those powers are not without limitation. Thus, for example, EFCFA separately requires the Authority to establish "a process for the pre-qualification of contractors that desire to bid on school facilities projects." N.J.S.A. 18A:7G-33. The pre-qualification process applies to general contractors, construction managers and contractors, including mechanical contractors such as plaintiffs. Ibid. Additionally, rules and regulations adopted by the Authority are subject to the Administrative Procedure Act, except those rules and regulations that are intended to be effective for a period not to exceed twelve months. N.J.S.A. 18A:7G-26(b).

On February 4, 2009, the Authority adopted N.J.A.C. 19:36-1.1 to -8.3, establishing requirements for a one-year "pilot program" for procuring "design-build contracts" for up to six school facilities projects. See 41 N.J.R. 1513-18. The regulations became effective without public notice when they were filed on February 27, 2009. See N.J.S.A. 18A:7G-26.

Design-build contracts have existed in the private sector for many years but have received more attention from public entities in recent years. See, e.g., Mahony-Troast Constr. Co. v. Supermarkets Gen. Corp., 189 N.J. Super. 325, 329 (App. Div. 1983); see also 41 N.J. Practice, Constr. Law, § 1.3, at 4. Both the Hudson-Bergen Light Rail and the Riverline between Trenton and Camden were design-build projects. Id. at 2.

Proponents of design-build projects believe that such projects "expedite the entire construction process and... minimize extras and change orders resulting from disagreements between the contractors and the architects as to what has been 'bought' by the [contracting public entity]." 41 N.J. Practice, Constr. Law, supra, § 1.3, at 4. In implementing the design-build pilot program, the Authority explained that "[d]esign-build project delivery offers the potential for such benefits as a shorter overall design and construction process, greater cost reliability and reduced risk through enhanced project coordination." N.J.A.C. 19:36-1.1(e).

Under its design-build pilot project, the Authority is authorized to

(a) enter into contracts for the "planning, design, construction, reconstruction, improvement, equipping, furnishing, operation and maintenance" of a school facilities project. This statutory authority includes the procurement of design, construction and other project-related services in one contract when the Authority determines that a single point of responsibility for a combination of these services is in the best interests of a school facilities project. The Development Authority shall audit the design-build projects under the pilot program on a semi-annual basis.

(b) These rules provide for the Authority to retain a design professional, as a "bridging architect," pursuant to N.J.A.C. 19:38C, for the duration of the school facilities project, to prepare a design-build information package, which outlines the conceptual program, schematic design and performance specifications to be followed by the design-builder, and review the work of the design-builder to ensure that the design meets the requirements of the Authority and the SDA school district. The rules further provide for the engagement of a construction manager (CM) by the Authority to serve as the Authority's representative during the school facilities project and provide such services as project oversight and reporting, value engineering services and cost estimating. [N.J.A.C. 19:36-1.1(a) and (b).]

The award of a design-build contract under the pilot program involves a two-step selection process, N.J.A.C. 19:36-4.1 to -4.7, the purpose of which is to find a design-builder whose proposal offers the "'best value'... based upon a combination of cost and qualitative factors, with consideration given to price at least equal to the consideration given to all other factors combined." N.J.A.C. 19:36-1.1(c).

In the first phase of the selection process, the Authority:

(1) publicly advertises a request for qualifications (RFQ);

(2) ranks bidding design-builders, who are pre-qualified according to the Authority's procedures at N.J.A.C. 19:38A, based on their submissions to the RFQ; and (3) selects "a short list" of those ranked bidders to continue to the next phase. N.J.A.C. 19:36-4.1 to -4.4.

The RFQ "shall contain":

1. A general description of the school facilities project;

2. The scope of work;

3. The minimum qualification requirements for [bidders], including, but not limited to, the appropriate classifications and aggregate rating limits assigned by the New Jersey Department of Treasury, Division of Property Management and Construction;

4. A request for the submission of a statement of qualifications which will describe the qualifications of prospective [bidders];

5. The phase one evaluation factors upon which the most qualified [bidders] will be determined;

6. The anticipated technical evaluation factors to be utilized in the second phase of the selection process;

7. A statement of the maximum number of [bidders] anticipated to be selected to submit phase two proposals; and

8. Any other requirements, as determined in the sole discretion of the Authority. [N.J.A.C. 19:36-4.3(a).]

A bidder must submit documents, including its organizational chart, describing its "qualifications and capabilities" and those of "its key team members to perform the scope of services to be included in the design-build contract." N.J.A.C. 19:36-1.2 and -4.3(b). Once the RFQ has been submitted, a "technical evaluation committee" (TEC) consisting of representatives from the Authority and the particular Authority school district, N.J.A.C. 19:36-1.2, will evaluate each RFQ submission to determine the bidder's "relative ability... to perform the work under the design-build contract." N.J.A.C. 19:36-4.4(a). The TEC's evaluation of the qualifications of each [bidder] may include, but need not be limited to, consideration of the following factors:

1. Experience of the prospective [bidder] on projects of similar size, scope and complexity;

2. Experience of key team members on projects of similar size, scope and complexity;

3. Experience of the prospective [bidder] on design-build projects of similar size, scope and complexity;

4. Experience of the key team members on design-build projects of similar size, ...

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