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In re Failure to Award to the Lowest Responsible Bidder RFP 09-X-20513 Contract T0002


July 2, 2010


On appeal from the Division of Purchase and Property, Department of Treasury.

Per curiam.


Argued January 12, 2010

Before Judges Wefing, Messano and LeWinn.

In 2005, the Director of the New Jersey Division of Purchase and Property awarded plaintiff, Nestlé Waters North America, Inc. (Nestlé), a contract to sell and deliver its Deer Park brand of bottled water to State agencies located in fifteen counties for the period from January 1, 2006 through December 31, 2008. In October 2008, the Division issued a Request for Proposals, No. RFP 09-X-20513, for a three-year contract to provide bottled water (five-gallon bottles, referred to as "demijohns," and dispensers) statewide. Only Nestlé and its competitor, DS Waters of America, Inc. (DS Waters) submitted bids.

Nestlé bid $2.09 for delivery of each demijohn, no rental charge for unrefrigerated water coolers, and $7.96 per month for each refrigerated water cooler. Nestlé charged no deposit on the demijohns. Its bid was for fifteen of the State's twenty-one counties.

DS Waters also bid $2.09 for delivery of each demijohn and no rental charge for non-refrigerated water coolers. However, it bid $5.99 per month for refrigerated water coolers and included a $6 deposit for each demijohn which was fully refundable upon return.

On December 5, 2008, the Director gave public notice of her intent to award the contract to DS Waters, and simultaneously made both bids public pursuant to N.J.S.A. 52:34-12a. Nestlé filed a protest which asserted, in part, that DS Waters' bid was deficient for "fail[ing] to indicate the manufacturer, brand, model name and model number on all specified equipment for all counties[,]" and that pursuant to the RFP, the "'[f]ailure to submit all information required will result in the bid being considered non[-]responsive.'"

The Director agreed with this assertion and, in a letter decision issued on December 24, 2008, rescinded the notice of intent to award the contract to DS Waters. The Director "instruct[ed] the [Division] to consider re-bidding [sic] the entire . . . contract with textual and format changes to the RFP to facilitate the bidders' understanding and accomplishment of the requirements for effective bidding."

In a letter to the Director on January 8, 2009, Nestlé protested the decision to rebid the entire contract. It asserted that "the proper course of action is to award the contract to this company as the lowest qualified bidder which submitted a responsive bid which met all of the RFP's requirements."

On January 12, 2009, the Director issued a final decision denying Nestlé's protest, noting her statutory authority to reject "'[a]ny or all bids . . . when the . . . Director . . . determines that it is in the public interest so to do[,]" under N.J.S.A. 52:34-12, and adding:

I determined that, in light of the . . . results of the . . . bidding effort and the scrutinized review of the RFP provisions and configuration, it was apparent that various aspects of the . . . RFP were in need of modification to achieve the level of clarity and consistency that is essential for effective head-to-head competition among bidders, which would, in turn, enhance the likelihood that more favorable pricing could be achieved. . . . [T]o allow the award of a contract for water and water dispensers in 15 counties to [Nestlé] while I am firmly convinced that competition under a more sound RFP and contract will produce a better contract and more favorable pricing for the State would, of course, serve [Nestlé's] best interests, but would not, in my judgment, serve the best interests of the State and its citizens. Also, [the] determination to re-bid the entire contract was in recognition of and buttressed by the State's ongoing efforts to identify and implement stringent austerity measures in light of the budgetary concerns that the State is addressing on a daily basis as it seeks every opportunity to eliminate or curtail expenditures. Thus, I remain convinced that the rebidding [of] all 21 segments of the contract, with improvements to the RFP that include the elimination of provisions and price lines for deposits [sic] charges for demijohns, will produce results that will serve the State's best interests.

Simultaneously with filing its notice of appeal from this decision, Nestlé moved before the Division for a stay. The Director denied the stay request and, by order of March 9, 2009, we affirmed that denial. On that same date, the Division issued a second RFP for all twenty-one counties, leading Nestlé to seek a stay of bidding "on the fifteen counties for which [it] submitted the lowest bid that was most advantageous to the State." On April 7, 2009, we issued an order staying bidding under the second RFP for those fifteen counties.

The second RFP deleted price lines for deposits and credits; refrigerated coolers were also eliminated as a bid item. The RFP also contained a notice that "[d]ue to the State's fiscal constraints, the use of this contract will be limited to those State Agency locations that do not have potable water . . . ." On April 8, 2009, however, the Division cancelled this RFP and noted that "a new RFP will be reposted shortly[] . . . [which] will encourage Using Agencies to voluntarily restrict the use of this contract."

On April 20, 2009, the Division issued a third RFP. This RFP encouraged the "Using Agencies" to "reduc[e] purchases by 50%" under the contract because of "fiscal constraints," and stated further that the State was "not obligated to order any maximum or minimum amount. Actual quantities will be determined as needed by the using agencies [sic]." In an addendum issued three days later, the RFP eliminated water coolers with hot taps from the price sheets.

On appeal, Nestlé contends that the Director "disserved" the "public interest" by "failing to award [the] contract . . . to [it] after making all bids public." Nestlé further asserts that the Director must demonstrate "a [c]ompelling [j]ustification" for its decision to rebid the contract. The Division counters that the Director's decision is subject to "the arbitrary and capricious standard," and should be upheld under that standard.

We concur with Nestlé with respect to the pertinent standard of proof. We are, furthermore, satisfied that the Director failed to meet this standard and, therefore, we reverse.

Our role in reviewing decisions of administrative agencies is restricted to four inquiries: (1) whether the agency's decision offends the State or Federal Constitution; (2) whether the agency's action violates express or implied legislative policies; (3) whether the record contains substantial evidence to support the findings on which the agency based its action; and (4) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors. [George Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27 (1994).]

We are here concerned primarily with the third factor, whether the Director's decision is supported by substantial evidence in the record. For the reasons that follow, we conclude it is not.

We have specifically addressed the standard-of-proof question in a situation, such as exists here, where the contracting authority has rejected all bids after opening and publicizing them. In that circumstance, we have held that "once the bids have . . . been opened and each bidder's competitive position has been exposed, rejection of all bids should only occur for cogent or compelling reasons." Bodies by Lembo v. Middlesex County, 286 N.J. Super. 298, 309 (App. Div. 1996) (quoting Marvec Constr. Corp. v. Twp. of Belleville, 254 N.J. Super. 282, 288 (Law Div. 1992) (quoting Cushman & Doyle, Construction Bidding Law §1.7 at 9 (1990)) (internal quotation marks omitted). See also, PENPAC, Inc. v. Morris County Mun. Util. Auth., 299 N.J. Super. 288, 296 (App. Div.), certif. denied, 150 N.J. 28 (1997).

We are aware that these particular cases arose under the Local Public Contracts Law, N.J.S.A. 40A:11-1 to -51 and not under the State bidding laws, N.J.S.A. 52:34-6 to -25 However, we discern no reason why the same principle should not apply under the circumstances. In Bodies by Lembo, supra, we noted the "cogent rationale for allowing a contracting entity to rebid a project only when it acts in good faith and for a very good reason[,]" as follows:

"Rebidding a contract is fraught with certain dangers. While it is true that in some instances rebidding will benefit the public through achieving a lower price, the converse result of a higher contract price is also a factor to be considered. This is because the low bidder who may have given his best possible price may drop out of the bidding or other bidders by reason of insight gained through revelation of the competition's bidding strategy may see the weaknesses in their own bids. One cannot presume that rebidding will . . . bring a lower price." [286 N.J. Super. at 307 (emphasis added) (quoting Marvec Constr. Corp., supra, 254 N.J. Super. at 291).]

Our review of the record leads us to conclude that the Director lacked cogent or compelling reasons to reject all bids and order rebidding of the RFP. In her December 24, 2008 letter, the Director agreed with Nestlé's protest that DS Waters' failure to provide the manufacturer, brand, model name and number of the equipment it offered, constituted a "non-remedial flaw" rendering its bid "non-responsive . . . ." Nestlé had asserted numerous grounds for invalidating the contract award to DS Waters, including DS Waters' failure to comply with other RFP requirements such as mandatory ownership disclosure requirements. Nonetheless, the only ground with which the Director agreed was the failure to provide mandatory manufacturer information regarding the proposed equipment. Notwithstanding this narrow basis for disqualifying DS Waters, the Director called for rebidding the entire contract "with textual and format changes to the RFP to facilitate the bidders' understanding and accomplishment of the requirements for effective bidding."

In her January 12, 2009 letter rejecting Nestlé's challenge to the decision to rebid the entire contract, the Director for the first time cited financial considerations as a basis for that decision. The Director also noted that the "improvements to the RFP" would "include the elimination of provisions and price lines for deposits [sic] charges for demijohns," which would "produce results that will serve the State's best interests." These "improvements" are in no way related to the RFP requirement that a bidder provide certain manufacturer information regarding its proposed equipment, which, as noted, was the sole basis on which the Director rescinded the award to DS Waters.

In short, we regard the Director's proffered reasons for rejecting Nestlé's bid and rebidding the entire contract to be after-the-fact considerations that were in no way responsive to the "non-remedial flaw" in DS Waters' bid. Compare PENPAC, supra, 299 N.J. Super. at 297, in which the contracting authority's decision to reject all bids and rebid the contract after the bids had been opened and made public, was based on the authority's conclusion that "all the bids substantially exceeded . . . [its] estimated bid." We concluded that such a decision had been made "in good faith" and in conformance with the "principle[]" that "'cogent or compelling reasons'" must exist in such circumstances. Id. at 296-97 (quoting Marvec, supra, 254 N.J. Super. at 288).

In sum, we conclude that the lack of cogent or compelling reasons for her decision prevents the Director from demonstrating "substantial evidence to support the finding[s] on which" that decision is based. George Harms, supra, 137 N.J. at 27. Therefore, we are constrained to reverse the Director's decision of January 12, 2009, and remand with instructions to award the contract at issue to Nestlé.



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