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Garden State School Bus Contractors Association and Javier Fernandez v. Board of Directors of the Passaic County Education Services


June 27, 2011


On appeal from the Department of Education, Docket No.315-11/09.

Per curiam.


Argued June 1, 2011

Before Judges Wefing, Baxter and Koblitz.

This appeal concerns a defective bid submitted by K&M Transportation, Inc. (K&M) for pupil transportation bus routes in Passaic County for the 2009-10 school year, and the refusal of the acting Commissioner of the Department of Education (Commissioner) to order the party aggrieved by the defective bid, namely, the Passaic County Educational Services Commission (PCESC), to demand the forfeiture of the bid bond posted by K&M's surety. We reject the Commissioner's conclusion that because PCESC never tendered a contract to K&M, the surety was not required to forfeit its bid bond. We conclude that K&M's repudiation of the bids it had submitted on six of the eight routes on which K&M was declared to be the successful bidder was sufficient to constitute a disavowal of its duty to perform, and that the actual tendering of a contract by PCESC would have been nothing more than a futile act. We therefore reverse the Commissioner's decision, and remand for consideration of the issue the Commissioner never reached, whether PCESC should have demanded payment on the bid bond that had been submitted by Bondex Insurance Company (Bondex), as the surety for K&M.

I. In August 2009, PCESC solicited bids for transporting pupils on sixty-six different bus routes for the upcoming 2009-10 school year. The bid specifications contained a provision requiring each bidder to submit a bid bond, cashier's or certified check for five percent of the amount of the annual contract cost, up to a maximum of $50,000. The bid specifications described the conditions under which forfeiture of the bid bond would be demanded:

Such deposit shall be forfeited upon refusal of a bidder to execute a contract; otherwise, checks shall be returned when the contract is executed and a surety (performance) bond is filed with [PCESC]. The bid security check for all unsuccessful bidders, except for the three lowest bidders, will be returned within 10 days after the bid opening[.]

Potential bidders were permitted to bid on a portion of the sixty-six routes, and were not required to bid on all.

The specifications stated, "All contractors shall comply with current applicable New Jersey statutes, regulations and with the policies and procedures of the [PCESC] governing student transportation." The specifications also stated, "The contractor shall provide and maintain an adequate number of school buses, including spares, to safely transport any and all students assigned to the routes contained in this bid[.]"

The bid form filled out by each contractor stated, above the signature line, "If I am awarded the bid, I agree to furnish a bus to meet your approval and that of the County Superintendent of Schools and to comply with the rules and regulations of the State Board relating to pupil transportation."

On August 5, 2009, K&M submitted a bid for twenty-nine of the sixty-six bus routes, at a price ranging from $141 to $359 per route. K&M included in its bid submission a bid bond issued by Bondex. At the bid opening, PCESC determined that K&M was the lowest bidder on eight of the twenty-nine routes for which K&M had submitted a bid. PCESC immediately contacted K&M to notify the company that it had been awarded the bid for eight routes. Upon being contacted, K&M informed PCESC that it only had two buses, two drivers, and two aides available, and could therefore only service two of the eight routes on which it was the successful bidder. K&M later explained why it had submitted a bid for twenty-nine routes even though it knew it could only provide drivers and buses for two:

[K&M] did not have the ability to perform on all routes for which [K&M] submitted a bid. [K&M] had the ability to perform on any two routes on which [K&M] bid, but [K&M] was concerned about exclusion from being awarded any routes if [K&M] bid on just two, and was not the low bidder. [K&M] would not have been able to compete for any other routes. [K&M] had two buses, two drivers, and two aides available for Passaic County routes. Other vehicles, drivers and aides were assigned for work elsewhere.

Upon learning that K&M only had two school buses available, PCESC chose not to take the step of tendering a contract to K&M for all eight routes on which K&M was the successful bidder. Instead, PCESC decided to award the contract for routes 3025 and 3026 to K&M. The contracts for routes 3004, 3012, 3013, 3017, 3030 and 3033 were awarded to the next-lowest bidder. Notably, PCESC did not demand that Bondex be required to forfeit its bid bond.

In November 2009, Garden State School Bus Contractors Association (Garden State) and Javier Fernandez (collectively, "petitioners") filed a petition with Rochelle Hendricks, the Acting Commissioner of the Department of Education, asking her to: declare K&M to be an unqualified bidder; declare the contracts between K&M and the PCESC null and void; compel PCESC to call for the forfeiture of K&M's bid bond; and compel PCESC and K&M to reimburse Passaic County taxpayers for their losses.

According to Al Van Riper, a member of Garden State's board of trustees, Garden State was founded in 1998 to promote "safe and cost effective school pupil transportation in New Jersey and to assist in the growth, development and regulation of the school bus transportation industry throughout New Jersey." Garden State has approximately thirty members, many of whom have offices or depots within Passaic County, and at least five members of Garden State regularly submit bids to PCESC. Van Riper further certified that approximately eight Garden State members had submitted bids for the project at issue, and many of Garden State's members were Passaic County taxpayers. Of the eight routes for which K&M submitted the lowest bid, five members of Garden State had submitted a total of thirteen bids.

Javier Fernandez is a resident and taxpayer of Passaic County.

The Commissioner transferred the petition to the Office of Administrative Law as a contested case. On June 17, 2010, an administrative law judge (ALJ) rendered a decision finding that both Garden State and Fernandez lacked standing to proceed against Bondex before the Department of Education. The ALJ found that PCESC had abused its discretion by permitting K&M to withdraw from the six routes with impunity, characterizing the actions of PCESC as "arbitrary, capricious and unreasonable." Ultimately, the ALJ concluded that because K&M never refused to execute a contract, the triggering event for the forfeiture of the bid bond never occurred. Thus, the bond could not be forfeited.

After reviewing the ALJ decision, the Commissioner concluded that although Fernandez had standing to pursue his claims, Garden State did not. Next, the Commissioner concluded that PCESC's actions, in allowing post-bid, ex parte communications with K&M and releasing K&M from its obligations as the lowest bidder without demanding the bid bond, were arbitrary and capricious. The Commissioner cautioned PCESC against repeating such conduct. But, like the ALJ, the Commissioner found that petitioners were not entitled to relief because the contract had been fully performed and the triggering event for forfeiture of the bid bond had not occurred because K&M had not refused to sign a contract. Moreover, the Commissioner decided, based on lack of evidence and practical considerations, not to order K&M and PCESC to reimburse the taxpayers of Passaic County directly for any financial loss caused by the K&M's and PCESC's actions.

On appeal, petitioners raise the following claims:



As is evident from the above point headings, the only remedy petitioners now seek is to force Bondex to forfeit its bid bond to PCESC.

II. We will discuss petitioners' arguments in reverse order. In Point II, petitioners argue that the Commissioner erred in finding that Garden State lacked standing. For its part, PCESC argues that the Commissioner erred in finding that Fernandez possessed the requisite standing. We agree with the Commissioner that Fernandez, as a citizen and a taxpayer, had standing. N.J.A.C. 6A:3-1.2; Crescent Park Tenants Ass'n v. Realty Equities Corp. of N.Y., 58 N.J. 98, 103-04 (1971). We therefore have no occasion to address the question of whether Garden State did so as well.

III. We turn to Point I, in which petitioners maintain that the Commissioner erred in holding that the condition for the mandatory forfeiture of K&M's bid bond had not been met. In particular, petitioners urge us to reject the Commissioner's conclusion that the forfeiture of K&M's bid bond was not required because K&M did not refuse to execute a contract. As we have noted, the Commissioner stated that "PCESC decided against tendering [to K&M] the six contracts that K&M won but indicated that it could not perform." The Commissioner concluded that she would not order PCESC to demand the performance of the bid bond because performance was not due.

N.J.A.C. 6A:27-9.4(e) specifies that each bidder for a pupil transportation route shall submit a guarantee "to ensure that, if a contract is awarded, the successful bidder shall enter into that contract . . . ." A bid bond is a guarantee that the bidder will meet the requirements of its bid.

10 Eugene McQuillin, Municipal Corporations § 29.73 (2010). In addition, "[t]he bid bond . . . shall be forfeited upon refusal of the successful bidder to execute a contract . . . ." N.J.A.C. 6A:27-9.4(e)(2). See also N.J.S.A. 18A:39-4 (stating that the bid bond "shall be forfeited upon the refusal of a bidder to execute a contract").

A bidder is prohibited from modifying a bid, or making an oral bid, after the bids have been opened by the public body. N.J.A.C. 6A:27-9.8. Bidding statutes should be strictly construed and enforced. See Fair Lawn Bd. of Educ. v. Fair Lawn Plaza Taxi, Inc., 55 N.J. Super. 357, 368 (App. Div. 1959), aff'd, 32 N.J. 129 (1960). The purposes of a bid bond are to establish and measure the obligations of bidders; guarantee that a contract will be executed if the bid is accepted; aid the school board in reaching its decision; and reimburse the municipality for losses resulting from "the wrongful act of a bidder in declining to enter into a contract for the performance of the work after the contract was lawfully awarded to him." Ibid.

As the Supreme Court has observed:

Bidding statutes are for the benefit of the taxpayers and are construed as nearly as possible with sole reference to the public good. Their objects are to guard against favoritism, improvidence, extravagance and corruption; their aim is to secure for the public the benefits of unfettered competition. To achieve these purposes all bidding practices which are capable of being used to further corrupt ends or which are likely to affect adversely the bidding process are prohibited, and all awards made or contracts entered into where any such practice may have played a part, will be set aside. This is so even though it is evident that in fact there was no corruption or any actual adverse effect upon the bidding process. As Justice Francis observed in Township of Hillside v. Sternin, 25 N.J. 317, 326 (1957), "In this field it is better to leave the door tightly closed than to permit it to be ajar, thus necessitating forevermore in such cases speculation as to whether or not it was purposely left that way."

[Terminal Constr. Corp. v. Atl. City Sewerage Auth., 67 N.J. 403, 409-10 (1975).]

Moreover, "[i]f a contract is awarded, the successful bidder shall enter into a contract" and "upon refusal of the successful bidder to enter into a contract" the bidder shall forfeit the bid bond. N.J.A.C. 6A:27-9.4(e).

Even though PCESC had the right to reject K&M's bids under N.J.A.C. 6A:27-9.9, PCESC rejected K&M's bids because of K&M's repudiation. Allowing PCESC to forgive K&M's obligations in this situation elevates the form of the regulations over their substance and permits a situation where corruption could take place. This is the very circumstance that the bidding laws were designed to prevent. Terminal, supra, 67 N.J. at 409-10.

A bidder's obligation to perform pursuant to the bid it submitted is established at the bid opening when the public body accepts the bid as being the lowest responsible bid. Fair Lawn, supra, 55 N.J. Super. at 361. Thus, when the bids were opened and K&M was the lowest bidder on eight routes, it incurred the obligation to execute contracts for those eight routes. Ibid. K&M was obligated to fulfill those obligations, but refused to do so. Under such circumstances, the triggering event for the forfeiture of its bid bond occurred at that point.

Moreover, as petitioners correctly argue, requiring PCESC to have presented contracts to K&M in this situation would have been a "futile and wasted effort" because K&M had already repudiated its contractual obligation to perform. "[F]ollowing a clear repudiation, the other party should not be required to perform the formal, economically wasteful, and useless act of further performing." 13 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 39:37 (4th ed. 1993).

K&M repudiated its contractual obligations when it informed PCESC that it would only be able to service two routes. Under such circumstances, PCESC was entitled to demand the forfeiture of the bid bond issued by Bondex. We thus agree with the argument asserted by petitioners, and reject the Commissioner's conclusion that no potential liability on the bid bond was triggered because K&M never refused to sign the contracts for the other six routes.

IV. Having concluded that the Commissioner erred when she determined that PCESC had no legal authority to demand the forfeiture of the bid bond, we turn to the next issue, namely, whether PCESC should now be ordered to demand that Bondex tender payment on the bid bond it supplied. As we have already noted, the Commissioner never reached this issue, as she concluded that Garden State had no standing to raise this claim and that Fernandez had no standing to assert any claims involving Bondex.

Many questions of law and fact are involved in the determination of whether PCESC should be ordered to demand forfeiture of the bid bond, including, for example, whether petitioners are barred by laches from demanding performance by Bondex,*fn1 whether the expiration of nearly two years since the bid opening has prejudiced any rights of Bondex such that demanding performance on the bid bond would now be inequitable, whether PCESC had discretion to relieve Bondex from any obligation to make payment on the bond, and whether Fernandez has the right to insist upon performance under the surety agreement between K&M and PCESC. These issues should not be determined by us in the first instance without the benefit of a definitive ruling by the Commissioner. N.J.A.C. 6A:2-1.2. See Star of Sea Concrete Corp. v. Lucas Bros., Inc., 370 N.J. Super. 60, 72 (App. Div. 2004).

We therefore reverse the Commissioner's conclusion that because K&M never refused to sign a contract, no triggering event had occurred that would expose Bondex to the obligation to make payment on the bid bond. We remand for a determination by the Commissioner on whether PCESC should now be ordered to issue such a demand to Bondex.

Affirmed in part. Reversed in part, and remanded.

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