August 24, 2010
BLUE DIAMOND DISPOSAL, INC., PLAINTIFF-APPELLANT,
CITY OF VINELAND, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, AND SOUTH JERSEY SANITATION COMPANY, DEFENDANTS-RESPONDENTS, AND EARTHTECH CONTRACTING, INC., DEFENDANT.
On appeal from the Superior Court of New Jersey, Chancery Division, General Equity, Cumberland County, Docket No. C-24-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued August 10, 2010
Before Judges Lihotz and Baxter.
This appeal involves an unsuccessful challenge to a bid awarded by defendant City of Vineland (City) for trash disposal services. In particular, plaintiff Blue Diamond Disposal, Inc. (Blue Diamond) challenges a November 20, 2009 Chancery Division order that dissolved temporary restraints on the bid award, thereby permitting the City to award the contract to the lowest bidder, defendant South Jersey Sanitation Company (SJSC). We reject Blue Diamond's contention that SJSC's bid documents contained a material defect, namely SJSC's failure to have provided an unconditional consent of a surety to issue a performance bond. We affirm.
On August 19, 2009, the City publicly solicited bids for trash collection services for a two-year period. Each bidder received a seventy-page packet of information for bidders and a set of technical specifications that stated in relevant part:
The proposal must be accompanied with [sic] a certificate from a surety company stating that it will provide the contractor with a bond in the amount of 100% of the contract amount.
The successful bidder will be required to furnish a bond for the faithful performance of the contract in a sum not less than one hundred percent (100%) of the total contract amount, said bond to be that of an approved surety company authorized to transact business in the State of New Jersey.
Each document in the bid proposal must be properly completed in accordance with N.J.A.C. 7:26H-6.5. No bidder shall submit the requested information on any form other than those provided in these bid specifications.
[The] certificate of surety must be signed by an authorized agent or representative of a surety company and not by the individual or company submitting the bid. Power of attorney must be attached and corporate seal of the surety company must be affixed to [the] surety form.
Failure to provide the required one year performance bond at the time and place specified by the City of Vineland shall be cause for assessment of damages.... In the event the successful bidder fails to provide said performance bond, the City of Vineland may award the contract to the next lowest responsible bidder or terminate the bid process and re-bid the collection services in accordance with N.J.A.C. 7:26H-6.7(d).... [Emphasis added.]
On September 30, 2009, four bidders -- Blue Diamond, SJSC, EarthTech and Waste Management, Inc. -- submitted sealed bids to the City. After opening the bids, the City announced that SJSC was the lowest bidder, followed respectively by EarthTech, Blue Diamond and Waste Management. The bid amounts were:
Name of Bidder Bid amounts*fn1
SJSC $5,633,544 EarthTech $5,779,152 Blue Diamond $6,432,000
Waste Management $6,930,000 As part of its bid package, SJSC submitted a consent of surety form from Hudson Insurance Company (Hudson), which stated that Hudson agreed to execute the required performance bond "or to become co-sureties with others in the full amount of the contract price." Hudson's consent of surety stated:
The Hudson Insurance Company a Corporation organized and existing under the laws of the State of Delaware and licensed to do business in the State of New Jersey, hereby consents and agrees that if the contract for: City Wide Trash and Recyclables Collection Program Be awarded to:
South Jersey Sanitation Company The undersigned Corporation agrees with the said: City of Vineland To execute the final bond as required by specifications or to become co-sureties with others in the full amount of the contract price for the faithful performance of the contract. [Emphasis added.]
SJSC's consent of surety did not contain the power of attorney required by the City's bid specifications. Instead, the consent of surety submitted by Hudson Insurance Company was signed by Christopher J. Ruck, one of its regional managers, who was designated as "Attorney-in-Fact."
At the time of the bid opening on September 30, 2009, the City announced that SJSC was the lowest responsible bidder and that the City intended to formally award the contract to SJSC at its next meeting of the governing body. By letter of October 6, 2009, Blue Diamond protested the City's intended bid award and asserted that SJSC's and EarthTech's bid proposals were both defective. Blue Diamond requested that the City reject those bids as non-responsive and award the contract to Blue Diamond. Blue Diamond complained of the following material defects: 1) SJSC's consent of surety from Hudson did not unconditionally obligate the surety to the faithful performance of the contract; and 2) SJSC did not comply with the City's bid specifications, which prohibited bidders from "submit[ting] the requested information on any form other than those provided in the bid specifications."*fn2
The City did not respond to Blue Diamond's October 6, 2009 letter. On October 26, 2009, Blue Diamond filed a complaint and order to show cause seeking injunctive relief and the imposition of temporary restraints to prevent the City from awarding the trash collection contract to SJSC. The next day, a Law Division judge granted Blue Diamond's request for temporary restraints pending a November 20, 2009 hearing before the General Equity judge.
In anticipation of that hearing, SJSC submitted a certification from Ruck in which he explained the "become co-sureties with others" language that was contained in the consent of surety issued by Hudson. Ruck stated that Hudson's underwriting limits were $13,511,000. Therefore, "[i]f a contractor asked Hudson to write a bond that exceeded $13,511,000, [Hudson] would reach out to another surety company and the two of them would become co-sureties to bond the job." According to Ruck, "[t]hat is a generally recognized procedure in the bonding industry," one which he had used "hundreds" of times on Hudson's behalf "without any complaint or objection from any public authority." He explained that in the subject contract, because the "specifications do not require that the bond exceed $13,511,000, there is no need for Hudson to partner with a co-surety."
On November 20, 2009, after a hearing, Judge Rafferty issued an order dissolving the temporary restraints that had been imposed on October 27, 2009 and denying Blue Diamond's request for a stay of the bid award pending appeal. Judge Rafferty concluded that the defects in SJSC's bid were not material and the City was therefore entitled to waive any such defects.
On appeal, although Blue Diamond frames its arguments in two different point headings with several subparts, its argument may be distilled as follows: first, SJSC's consent of surety was not unconditional, thus making the bid unresponsive, and that defect could not be waived or cured. As a result, the City's award of the contract to SJSC was improper and the judge erred in refusing to rescind the award. Second, the consent of surety was improperly issued by Hudson on its own form, rather than on a form issued by the City, as required by the City's bid package.
In opposition, SJSC argues that the judge properly determined that the consent of surety it provided was unconditional. SJSC also maintains that Hudson's consent of surety was proper on its face and that the document satisfied the requirements of N.J.S.A. 40A:11-22(b) even without resort to Ruck's certification. SJSC also argues that the City's bid specifications expressly permit bidders to use their own consent of surety document, so long as it is substantially similar to the City's.
The City's argument is narrower: if on appeal SJSC's bid is found to be materially defective, the City should be permitted to rebid the trash contract rather than be forced to accept Blue Diamond's bid, in light of the significant price disparity between the bids of SJSC and Blue Diamond.
"The competitive-bidding process is incorporated in the Local Public Contracts Law[,]... [t]he purpose of [which]... is to 'secure for the public the benefits of unfettered competition.'" Meadowbrook Carting Co. v. Borough of Island Heights, 138 N.J. 307, 313 (1994) (quoting Terminal Constr. Corp. v. Atl. County Sewerage Auth., 67 N.J. 403, 410 (1975)). To that end, "publicly advertised contracts must be awarded to 'the lowest responsible bidder[,]'" which "has [been] interpreted... to mean... the contract must be awarded not simply to the lowest bidder, but rather to the lowest bidder that complies with the substantive and procedural requirements in the bid advertisements and specifications." Ibid. (quoting N.J.S.A. 40A:11-6.1). "[All] bids must comply with the terms imposed, and any material departure invalidates a nonconforming bid as well as any contract based upon it." Id. at 314.
The standard of review on the matter of whether a bid on a local public contract "conforms to specifications (which is a component of the ultimate issue of who is the lowest responsible bidder) is whether the decision was arbitrary, unreasonable or capricious." In re Protest of the Award of the On-Line Games Prod. & Operation Servs. Contract, 279 N.J. Super. 566, 590 (App. Div. 1995).
N.J.S.A. 40A:11-22(b) requires bidders to submit a certificate in which a surety agrees to provide a performance bond covering the entire amount of the bid. The statute states in pertinent part:
When a surety company bond is required in the advertisement or specifications for a contract, every contracting unit shall require from any bidder submitting a bid in accordance with plans, specifications and advertisements, as provided for by law, a certificate from a surety company stating that it will provide the contractor with a bond in such sum as is required in the advertisement or in the specifications.
This certificate shall be obtained for a bond--(1) For the faithful performance of all provisions of the specifications or for all matters which may be contained in the notice to bidders, relating to the performance of the contract.... [N.J.S.A. 40A:11-22(b).]
The certificate specified in N.J.S.A. 40A:11-22(b) is frequently "referred to as a consent of surety." Meadowbrook Carting, supra, 138 N.J. at 316. The consent of surety is one of five items listed in N.J.S.A. 40A:11-23.2, that when required by the bid specifications, "shall be considered mandatory." "[T]he failure to submit any one of the [five] mandatory items shall be deemed a fatal defect that shall render the bid proposal unresponsive and that cannot be cured by the governing body[.]" N.J.S.A. 40A:11-23.2. "The intent of N.J.S.A. 40A:11-23.2 was to 'circumscribe the authority of local contracting agencies to waive bid defects by designating five kinds of defects that cannot be waived under any circumstances.'" Star of the Sea Concrete Corp. v. Lucas Bros., Inc., 370 N.J. Super. 60, 68 (App. Div. 2004) (quoting P & A Constr., Inc. v. Twp. of Woodbridge, 365 N.J. Super. 164, 176-77 (App. Div. 2004)) (alteration in original).*fn3
The consent of surety "provides the local government with some assurance at the time of the bid submission that the low bidder will have the capacity to perform the contract and to supply the necessary bonds." Meadowbrook Carting, supra, 138 N.J. at 316; see also Albanese v. Machetto, 7 N.J. Super. 188, 191 (App. Div. 1950); DeSapio Constr., Inc. v. Twp. of Clinton, 276 N.J. Super. 216, 221 (Law Div. 1994). The "consent of surety assures the public entity that the surety will provide the performance bond if the contract is awarded to and signed by the bidder." Meadowbrook Carting, supra, 138 N.J. at 316.
However, the legal consequences that flow from the surety's issuance of a certificate pursuant to N.J.S.A. 40A:11-22 arise without regard to whether the bidder actually executes the contract. As the Court has said, a consent of surety "is a direct undertaking by the bonding company, enforceable by the municipality. Its purpose is to provide a guarantee to the municipality, at the time of the submission of bids, that if the bidder were to be awarded the contract, the surety would issue the required performance bond." Id. at 321. Indeed, without a performance bond, "the bidder cannot be required to enter into and perform the contract." Ibid.
"To permit waiver of the consent-of-surety requirement would undermine the stability of the public-bidding process." Ibid. "For example, if a low bidder that had failed to submit a consent of surety" later decided it no longer wished to perform the contract because its bid was too low, "that bidder could decline to obtain the consent of surety and the performance bond." Ibid. In Meadowbrook Carting, the Court distinguished DeSapio, noting that the low bidder in DeSapio, who "had failed to include an unconditional consent of surety with its bid proposal[,] had acquired a competitive advantage because even if it were awarded the contract, it 'could unilaterally "cancel" the award by failing to obtain' the consent of surety." Ibid. (quoting DeSapio, supra, 276 N.J. Super. at 222).
Moreover, 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. [Ibid.]
The issue confronted by the Court in Meadowbrook Carting was limited to whether the failure to supply the consent of surety was waivable or curable. Supra, 138 N.J. at 320. Similarly, in Albanese, the bid was challenged, in part, because it failed to include any consent of surety. Supra, 7 N.J. Super. at 190. That, of course, is not the issue that confronts us, because SJSC did submit a consent of surety from Hudson. Rather, the question posed here is narrower -- whether the consent of surety issued by Hudson frustrates the purposes of N.J.S.A. 40A:11-22(b) because Hudson reserved the right to "become [a] co-suret[y] with others" in the issuance of the performance bond.
As to that particular question, there is little guidance to be gleaned from precedent. In DeSapio, the low-bidder's consent of surety provided:
Should DeSapio Construction Inc. be successful low bidder on the project, we would not anticipate any difficulty providing bonds on the above captioned project, subject to execution of a contract satisfactory to DeSapio and [the surety]. In addition, provisions of such bonds would also be subject to satisfactory evidence of financing in our normal underwriting requirements at the time of such request from our principal. [DeSapio, supra, 276 N.J. Super. at 219.]
The judge concluded that the consent was "defective" because under its terms, the surety "[wa]s not unconditionally undertaking an obligation to provide the bond. [The surety's] commitment letter d[id] not bind [it] to do anything." Id. at 220. For that reason, she upheld the municipality's rejection of the bid. Id. at 222.
In L. Pucillo & Sons v. Township of Belleville, 249 N.J. Super. 536, 548 (App. Div.), certif. denied, 127 N.J. 551 (1991), we determined that the consent of surety accompanying a bid for a five-year public contract failed to comply with the bid specifications because "renewability was at the surety's option."
We do not view SJSC's bid as suffering from any of the fatal defects identified in Meadowbrook Carting, Albanese, DeSapio or L. Pucillo. Unlike the bidders in Meadowbrook Carting and Albanese, SJSC did provide a consent of surety. And unlike the bidder in DeSapio, whose surety lamely promised only that it did "not anticipate any difficulty providing bonds on the... project," supra, 276 N.J. Super. at 219, SJSC's surety expressly and unconditionally agreed to "execute the final bid bond" either individually or as a co-surety. Nor did SJSC's surety, Hudson, reserve the right to refuse to renew the bid, which was the case in L. Pucillo, supra, 249 N.J. Super. at 548.
Plaintiff's reliance on the unpublished decision in Nova Crete, Inc. v. City of Elizabeth, No. A-3211-08 (App. Div. Jan. 15, 2010), is equally unavailing. There, the surety did not unconditionally agree to supply the performance bond if Nova Crete was awarded the contract by the City of Elizabeth (Elizabeth). Nova Crete, supra, slip op. at 4. Instead, the surety, Aegis, merely agreed to issue the performance bond if "requested by the Principal" to do so. Ibid. The panel concluded that the condition attached to Aegis's consent of surety was "a virtual invitation to further litigation," which thereby made Aegis's consent far from the unconditional promise Meadowbrook Carting requires. Id. at 14. The panel also agreed with Elizabeth that the conditional nature of Aegis's consent "opened the door to all the potential vices cited by the Meadowbrook Carting Court." Id. at 13.
This is not such a case. Like Judge Rafferty, we consider Hudson's promise to be unconditional. Hudson agreed to provide the performance bond if SJSC was awarded the contract by Vineland. Although Hudson reserved the option to seek a co-surety, that prerogative in no way weakened, lessened or undermined the unconditional nature of Hudson's agreement to provide the required performance bonds. Whether Hudson ultimately satisfies that obligation by itself, or instead as a partner, introduces none of the uncertainty that was fatal in DeSapio, L. Pucillo and Nova Crete. Hudson's consent was unconditional. The City's determination that SJSC's bid was fully conforming, and therefore was the lowest responsible bid, was not arbitrary, unreasonable or capricious. See On-Line Games Contract, supra, 279 N.J. Super. at 590. We therefore affirm Judge Rafferty's conclusion that Hudson's consent of surety satisfied the requirements imposed by N.J.S.A. 40A:11-22(b) and Meadowbrook Carting. Blue Diamond's remaining contentions lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).