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Oceanside Charter School v. New Jersey State Department of Education Office of Compliance

January 14, 2011


On appeal from the Final Decision of the Commissioner of Education, New Jersey State Department of Education, Decision No. 413-09.



Submitted November 30, 2010 - Decided

Before Judges Carchman, Messano and Waugh.

The opinion of the court was delivered by CARCHMAN, P.J.A.D.

On this appeal, we address the question of a grant recipient's responsibility to return federal grant funds when the recipient fails to comply with certain provisions of the Public School Contracts Law (PSCL), N.J.S.A. 18A:18A-4 and N.J.S.A. 18A:18A-5. Here, respondent Department of Education (DOE) ordered appellant Oceanside Charter School (OCS or appellant) to repay $354,765.04 in grant funds. We affirm.

The issue arises in the following factual context. On May 1, 2002, DOE issued a Notice of Grant Opportunity (NGO) for a federally-funded School Renovation Grant Program. The grant was structured to provide for the award of federal grants to be administered by DOE. The program was designed to aid schools with a high percentage of low-income students in completing urgently needed school facilities projects, and to ensure that students were "educated in healthy, safe, compliant, and otherwise adequate school [facilities]." The NGO explained that, "the project must be limited to a single school building; it must not be dependent upon any other project for its completeness." The School Renovation Grant Program expressly prohibited the use of the funds for "construction of a new facility."

OCS, located in Atlantic City, applied for four Renovation Grants from DOE to assist with, as described in the grant application, increased lease payments, an "upfront" equity payment, installation of a fire and alarm suppression system and payment for design and construction documents' fees. Each of OCS's applications stated that it requested grant funding to "assist in the comprehensive renovation of 53,000 square feet of leased space." The applications also described the project as a "retrofitting" and "renovating" of the shell of the Second Baptist Church (the Church) in Atlantic City. In its grant applications, OCS explained,Oceanside Charter School will address the needs stated above by entering into a long term lease agreement for a 53,000 square foot facility that is across the street from its current location. It is the school's intention to vacate the current modular campus and relocate [to] this facility. The property, owned by 2nd Baptist Church, encompasses approximately 148,000 square feet . . . . Of the 148,000 square feet, the church's current program occupies only 85,000 square feet of space. The remaining 63,000 square feet is unoccupied, un-renovated open space . . . . However, with the assistance of the New Jersey Department of Education Facility Renovation Grant Program, our intention is to renovate this facility into a 53,000 square foot healthy, safe and compliant school facility. [(Emphasis added).]

On November 13, 2002, DOE awarded four grants to OCS totaling $1,883,840 in federal funding. As a condition of the grant agreements, the PSCL, N.J.S.A. 18A:18A-1 to -59, was incorporated by reference in its entirety. The agreements also incorporated a provision stating that failure to comply with such laws "shall be grounds for termination of this agreement."

The PSCL requires publicly advertised bidding for contracts exceeding the bid threshold. N.J.S.A. 18A:18A-4. However, N.J.S.A. 18A:18A-5 contains exceptions to the publicly advertised bidding requirement for professional services and extraordinary unspecifiable services (EUS).

The grant agreements also established a deadline for the completion of the projects. The deadline for the use of the grant funds was initially August 2004, but was then extended to December 2005. In November 2005, DOE determined that OCS had not started any renovations. DOE then visited the "renovation" site and observed that no building existed.

Ultimately DOE learned that on June 1, 2002, OCS had entered into what it describes as a "creative partnership" with the Church.

Pursuant to this agreement, the Church was to construct a shell of a building, which it would lease to OCS. Then OCS would use grant funding to "renovate" the building. OCS's retrofitting of the building was "wholly dependent upon the Church constructing that building." The Church never constructed the building and no public notice was given of the exemption.

After learning that no building existed on the property, DOE advised OCS that it would recoup any expenditures made in violation of the grant agreements. DOE sought to recoup these funds, because according to Alan Oleksiak, the contract officer in DOE's Office of Grant Management, federal funding awarded for projects that were not completed or did not comply with the grant agreement must be returned to the federal government.

DOE, through its Office of Compliance, commenced an investigation reviewing OCS's expenditure reports to determine whether OCS violated the terms of the grant agreements and applicable laws.

The investigation revealed that by board resolution on August 17, 2004, OCS awarded a contract to Century Builders Inc. (CBI) for design services without advertising the project for public bidding or including a provision indicating that OCS relied on an exemption to the PSCL and publishing a public notice to that effect. The payment to CBI totaled $299,287.

The investigation also revealed that OCS awarded a contract to an entity identified as "7group" for "green" consulting services. This contract was not advertised for public bidding, and the resolution did not contain a provision explaining that OCS relied on an exception to the public bidding requirement. OCS paid 7group $55,478.04 for its services.

DOE concluded that both of these contracts violated the PSCL, specifically N.J.S.A. 18A:18A-4, because they were not advertised for public bidding.

OCS appealed DOE's findings and ultimately, the matter was transferred to the Office of Administrative Law (OAL) for a hearing. The Administrative Law Judge (ALJ) concluded that OCS violated N.J.S.A. 18A:18A-5 because OCS failed to comply with the procedures required to claim an exception to the PSCL. He dismissed the appeal, and ordered OCS to reimburse the $354,765.04 in grant funds that had been expended in violation of the statute.

The Commissioner adopted the ALJ's decision and ordered full repayment. She concluded that a full refund of the grant money was not too harsh a penalty because OCS's grant applications were ...

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