April 11, 2012
DIAMOND CHEMICAL COMPANY, INC., APPELLANT,
DIVISION OF PURCHASE AND PROPERTY, RESPONDENT.
On appeal from the Division of Purchase and Property, Department of Treasury.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 12, 2012 --
Before Judges Sabatino, Ashrafi, and Fasciale.
In this procurement case, appellant Diamond Chemical Company, Inc., appeals the rejection of its bids on contracts to supply the State with laundry chemicals. Respondent, the Division of Purchase and Property ("the Division") of the Department of the Treasury, rejected appellant's bids because the bids, as well as a laboratory test of a sample from appellant, reflected that prohibited ingredients were contained in the laundry chemicals. The Division consequently awarded the contracts to other vendors. Appellant filed a protest, which the Division denied.
Appellant contends that the Division's rejection of its bids was arbitrary and capricious. It asserts that the bid deviations were inadvertent clerical errors, noting that it had supplied the State with conforming laundry chemicals for many years under one or more past contracts. Appellant maintains that the Division acted unreasonably in refusing to waive the errors. In addition, appellant contends that one of the other vendors' successful bids was non-responsive.
For the reasons that follow, we affirm the Division's final agency decision.
The facts are substantially undisputed. In January 2011, the Division issued a fifty-four-page Request for Proposal 11-X-21782 ("the RFP") for the statewide supply of laundry chemicals. The RFP specified that bid submissions were due on February 15, 2011. The Division issued the RFP in order to replace the laundry chemicals contracts set to expire on March 31, 2011.*fn1
Appellant was an incumbent vendor under one of those existing contracts.
The RFP consisted of ten price lines corresponding to ten different laundry chemicals. The ten price lines were organized into four groups: group one (dry chemical system); group two (liquid chemical system); group three (packets); and group four (solid encapsulated detergent).
Group one (dry chemical system) consisted of price line 00001, low alkalinity/low temperature powdered laundry detergent. Group two (liquid chemical system) covered price lines 00002 to 00008, entitled: price line 00002: liquid laundry detergent price line 00003: liquid heavy duty alkaline builder price line 00004: detergent/bleach combination liquid laundry detergent price line 00005: concentrated liquid chlorine bleach price line 00006: liquid system combination fabric softener/sour price line 00007: liquid antibacterial softener/sanitizer price line 00008: liquid rust removing sour Group three (packets) referred to price line 00009, pre-measured powdered laundry detergent in water-soluble packets. Group four (solid encapsulated detergent) consisted of price line 00010, also named solid encapsulated detergent. The RFP permitted vendors to bid on one or more of the four groups.
A key aspect of the RFP was to obtain laundry chemicals for the State that were both "[e]nvironmentally [p]referable" and "[b]iodegradable[,]" in order to comply with Executive Order #76 ("EO 76") issued on January 12, 2006. The executive order requires the State to procure and utilize cleaning products that "minimize potential impacts to human health and the environment[.]"
Section 1.2 of the RFP instructed bidders about ingredients that should not be contained in the laundry chemicals. That provision explicitly stated that "[o]ne of the main raw material surfactant types that can be eliminated from laundry chemicals are all Alkyl Phenol Ethoxylates (APE)." According to the RFP, APE is harmful because it "is a suspected hormone disruptor, and has been shown to mimic the hormone estrogen." Additionally, the compound biodegrades to nonylphenols, which can be harmful to salmon and other fish.
Because of these adverse environmental impacts, the RFP noted in Section 1.2 that "purchasing laundry chemicals with no alkyl phenol ethoxylates in them would be in strict compliance with EO 76. In addition[,] the related surfactant forms of all APE including Nonyl and Octyl Phenol ethoxylates are also prohibited from all formulations." Furthermore, Section 3.16 of the RFP specified that the "[p]roducts bid are to be free of phosphates."
Apart from these general prohibitions in Sections 1.2 and 3.16, the RFP also specifically cautioned bidders in its descriptions of price lines 00001, 00002, 00007, and 00010 that the surfactants used "shall not be of the Alkyl phenol ethoxylates (APE) or Nonylphenol ethoxylates [type] (NPE)." For reasons that are unclear, this additional warning was not repeated in the descriptions of the other price lines.
The RFP required bidders to submit a material safety data sheet ("MSDS") for each product offered in its bid submission. Each MSDS was required to list "all raw materials which make up greater than 1% of the [product's] formula[.]"
The RFP further authorized the Division's Purchase Bureau to conduct laboratory testing of samples of the bidders' products before the contracts were awarded. According to Section 18.104.22.168, such samples were to "meet the specification requirements set forth in the RFP and must be representative of the product bid." The bidders were required to make their samples available to a quality assurance unit for such testing.
Under Section 6.1 of the RFP, the Director of the Division reserved "the right to waive minor irregularities" in a bid. The Director also was permitted to waive a mandatory requirement, so long as:
(1) The requirement is not mandated by law;
(2) All of the otherwise responsive proposals failed to meet the mandatory requirement; or
(3) In the sole discretion of the Director, the failure to comply with the mandatory requirement does not materially affect the procurement or the State's interests associated with the procurement.
Section 6.3 of the RFP allowed the Division to request a clarification "to resolve minor ambiguities, irregularities, informalities or clerical errors." However, such clarifications could not "correct any deficiencies or material omissions or revise or modify a proposal, except to the extent that correction of apparent clerical mistakes results in a modification."
Appellant timely submitted its bid in response to the RFP for all ten price lines on February 11, 2011. For group two, price line 00008, appellant submitted a product identified as "FG Sour 2010." According to the MSDS that appellant submitted with its bid, FG Sour 2010 contained orthophosphate, an ingredient prohibited by the RFP.
For group three, price line 00009, appellant offered to supply "PLD 2010." The MSDS for PLD 2010 that appellant submitted with its original bid submission did not list any of the ingredients prohibited by the RFP.
On April 5, 2011, the Division sent appellant a letter requesting that it submit a certification clearly indicating that its "product meets the criteria for line items #9 and #10[.]" The Division further requested that appellant submit a sample for each product and an MSDS sheet. In bold-faced type, the letter warned that "[i]t is very important that all submissions especially the certifications and samples must correspond exactly to the manufacturer brand and model number listed in your bid submission on the price lines."
On April 12, 2011, appellant responded by letter to the Division's inquiry. It also submitted an MSDS and the requested sample for group three, price line 00009. Appellant did not, however, submit a sample for group four, price line 00010. The letter and the accompanying MSDS used a different product number for PLD 2010 than appellant had listed on its original bid submission. Moreover, the MSDS now listed a prohibited substance, "[p]oly(oxy-1,2-ethanediyl), alpha-(4-nonylphenol)-omega-hydroxy-,branched[,]" as one of PLD 2010's ingredients. A laboratory test of the PLD 2010 sample confirmed the presence of that prohibited substance.
The Purchase Bureau issued an award recommendation on May 16, 2011. The recommendation proposed awarding group one, price line 00001, to Pariser Industries Inc.; group two, price lines 00002 to 00008, to Interline Brands; group three, price line 00009, to Americhem Enterprises; and group four, price line 00010, to Sanolite Corporation.*fn2 Appellant was not recommended to receive any of the awards, despite the fact that it had submitted the lowest price on group two.
The Purchase Bureau found that appellant's submission was deficient for group three, price line 00009 because that bid "failed to meet the Specification criteria set forth in the RFP which prohibits the use of Nonylphenol Ethoxylates." Thus, the Purchase Bureau did not recommend appellant to receive the award on that item. The Purchase Bureau further noted that appellant had failed to provide a sample for group four, price line 00010, despite its obligation to do so under the RFP.
The Division adopted the Purchase Bureau's recommendations, and notified the bidders of the intended awards on May 18, 2011.
Within two weeks, appellant filed a protest of the Division's notice of intent to award. Appellant specifically requested an explanation as to why the Purchase Bureau had not recommended it for the group two award, since it was the low bidder. Additionally, appellant pointed out that the RFP's description for group three, price line 00009, did not specifically prohibit that product from containing nonylphenol ethoxylates.
The Division denied appellant's protest, in a letter from its Acting Director dated June 29, 2011. In her rejection letter, the Acting Director explained that appellant's bid proposal for group two "was deemed non-responsive for having proposed a product in response to price line #00008 . . . that included phosphate as an ingredient." Moreover, with respect to appellant's bid proposal for group three, the Acting Director noted that the MSDS and product sample contained nonylphenol ethoxylate, an ingredient prohibited by Section 22.214.171.124 of the RFP.
Appellant requested the Acting Director to reconsider her denial of its bid protest, or, alternatively, to stay the group two and group three contract awards pending appellate review of the final agency decision. In its letter seeking such relief, appellant reiterated its position that the RFP did not clearly prohibit the product for group three from containing nonylphenol ethoxylate. Appellant did acknowledge, however, that it had made a clerical error in its bid proposal for group two, line item 00008, and that it had included an out-of-date MSDS in its submission. Appellant represented that it was capable of providing a product free of phosphate for this line item. In that vein, appellant submitted with its reconsideration letter an updated MSDS for FG Sour 2010, reflecting the absence of that prohibited substance. Finally, appellant argued that the errors in its submission were minor irregularities that the Division was free to waive under Section 6.1 of the RFP.
The Division responded to appellant's reconsideration request by letter on July 20, 2011. As to group two, price line 00008, the Division was unpersuaded that appellant had submitted an out-of-date MSDS for FG Sour 2010 through inadvertence. Relying upon the legal principles set forth in In re Protest of the Award of the On-Line Games Production and Operation Services Contract, 279 N.J. Super. 566 (App. Div. 1995), the Division also disregarded the revised MSDS that had been belatedly submitted for that item, because doing so would afford appellant an improper "opportunity to alter its response to price line 00008[.]"
The Division also rejected appellant's contentions with respect to the award for group three, price line 00009. The Division recognized that appellant was correct that the price line reference to this item in Section 126.96.36.199 of the RFP did not specifically ban nonylphenol ethoxylate. Even so, the Division noted that the general language in Section 1.2 of the RFP sufficiently put appellant and the other bidders on notice that this environmentally-harmful ingredient was disallowed.
On July 22, 2011, appellant submitted yet another letter to the Division seeking a stay of the contract awards for groups two and three. In this final request, appellant argued that the Division had overlooked evidence substantiating its contention that it had submitted an out-of-date MSDS for FG Sour 2010 inadvertently. Appellant pointed to a statement within the cover letter accompanying its original bid proposal, expressing "that its products and ingredients would comply with the 'United States Environmental Protection Agency, Design for the Environment (DfE), Cleangredients list,' which does not include phosphates." Appellant further urged the agency to reconsider its position by taking into account that appellant had supplied the State with phosphate-free products for many years.
The Division sent appellant a final letter on July 26, 2011 denying appellant's request to stay the contract award for groups two and three pending appeal.
Appellant then filed the present appeal. It also filed an emergent application to stay the Division's final agency decision. A panel of this court denied that request, and appellant did not seek further emergent review from the Supreme Court.
On appeal, appellant contends that (1) the Division's decision was arbitrary, unreasonable, and capricious, because its bid was allegedly conforming as to group two, price line 00008 and group three, price line 00009; (2) the Division should have waived the clerical error in appellant's bid submission; and (3) the Division failed to review appellant's bid protest sufficiently. Additionally, appellant argues that one of the winning contractors' bids was non-responsive. We reject these contentions, particularly in light of the governing law and the Division's well-established discretion and expertise in procurement matters.
Certain basic principles of public bidding law guide our review. As our Supreme Court has noted, "[p]ublic bidding statutes exist for the benefit of taxpayers," and not the bidders. Nat'l Waste Recycling, Inc. v. Middlesex Cnty. Improvement Auth., 150 N.J. 209, 220 (1997). Thus, courts should construe those statutes "with sole reference to the public good." Ibid. N.J.S.A. 52:34-12 requires that the Division choose the bid that "will be most advantageous to the State, price and other factors considered," and the statute expressly permits the Division to reject all bids if the Division finds it to be in the public interest. See also In re Jasper Seating Co., 406 N.J. Super. 213, 222 (App. Div. 2009).
When reviewing an agency's determination regarding bid conformity, we consider whether "the determination was not arbitrary or unreasonable." DGR Co. v. State, Dep't of Treasury, Div. of Prop. Mgmt. and Constr., 361 N.J. Super. 467, 474 (App. Div. 2003); see also On-Line Games, supra, 279 N.J. Super. at 593. In performing that review, "[t]he preliminary inquiry is whether the bid deviates from the RFP." On-Line Games, supra, 279 N.J. Super. at 594. If a bid does not deviate from the RFP, the bid is considered conforming. Ibid.; In re Jasper, supra, 406 N.J. Super. at 223.
Appellant contends that its bid submission for group two, price line 00008 was conforming based on what it describes as the "totality" of its bid, including its cover letter to the Division accompanying its bid submission. As we have already noted, the cover letter states that appellant "used ingredients that are on the United States Environmental Protection Agency, Design for the Environment (DfE), clean [in]gredients list where this was requested." According to appellant, the DfE list excludes the same nonylphenol ethoxylates and phosphate ingredients that are barred by the RFP in Section 1.2. Additionally, appellant emphasizes that it had supplied the Division with phosphate-free products for sixteen years.
Appellant's claim of conformity is unpersuasive. Despite the general representation in its cover letter, appellant provided the Division with an MSDS that specifically listed orthophosphate -- a barred ingredient -- as a component of its product submission for group two, price line 00008. Thus, the Division reasonably concluded that appellant's bid for group two, price line 00008, was non-conforming. The fact that appellant had previously supplied a phosphate-free product during a prior contract did not justify the non-conformity in its current bid. Each bid on each contract is a discrete undertaking.
The Division justifiably refused to waive the deviation in appellant's bid submission for group two, price line 00008. As a matter of law, where a bid contains a deviation, that deviation can only be waived if it is not material. In re Jasper, supra, 406 N.J. Super. at 223-24 (citing On-Line Games, supra, 279 N.J. Super. at 595). If the deviation is material, "the inquiry is over because the bid is non-conforming and a non-conforming bid is no bid at all." On-Line Games, supra, 279 N.J. Super. at 595.
To determine whether a bid deviation is material, courts employ the two-part test enunciated in Township of River Vale v. R.J. Longo Construction Co., 127 N.J. Super. 207 (Law Div. 1974), and which the Supreme Court adopted in Meadowbrook Carting Co. v. Borough of Island Heights, 138 N.J. 307, 315 (1994). See On-Line Games, supra, 279 N.J. Super. at 594-95. First, the court must determine whether a waiver of the deviation would "deprive the [public entity] of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements[.]" River Vale, supra, 127 N.J. Super. at 216. Second, the court must decide whether the deviation "is of such a nature that its waiver would adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders or by otherwise undermining the necessary common standard of competition." Ibid.
Appellant concedes that it inadvertently submitted an incorrect MSDS for FG Sour 2010 -- the proposed product for price line 00008. Appellant argues that this was only a minor clerical error that the Division should have waived. This argument is unconvincing because the deviation in appellant's bid would frustrate one of the central requirements of the contract, which was repeated several times in the RFP. The RFP plainly stated that "purchasing laundry chemicals with no alkyl phenol ethoxylates in them would be in strict compliance with EO 76." Additionally, the RFP instructed that "related surfactant forms of all APE including Nonyl and Octyl Phenol ethoxylates are also prohibited from all formulations." Furthermore, the RFP specified that "[p]roducts bid are to be free of phosphates."
Appellant's inclusion of orthophosphate, a prohibited ingredient, in its bid submission was material because it would "deprive the [Division] of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements[.]" Ibid. Although appellant maintains that the price for a phosphate-free FG Sour 2010 would be the same as the price in its original bid submission, there is no assurance that appellant would not have gained a competitive advantage over the other bidders by originally proposing a non-conforming product. See ibid.
Additionally, EO 76, which was issued in January 2006, predated appellant's award under the prior contract. Thus, there is additional support for a finding that the deviation in the 2011 bid submission was material, because appellant should have been aware of the State's public policy to use only cleaning products that "minimize potential impacts to human health and the environment[.]" Executive Order 76.
Appellant further argues that its submission of a corrected MSDS for group two, price line 00008, is evidence that it intended to offer phosphate-free products. This argument is without merit because appellant only submitted that corrected MSDS on July 6, 2011, well after the Division had notified bidders of its intent to make contract awards on May 18, 2011.
The applicable case law does not permit bidders to remedy a material deviation by clarification once bids are opened. See In re Jasper, supra, 406 N.J. Super. at 224. As this court explained in On-Line Games, "[i]n clarifying or elaborating on a proposal, a bidder explains or amplifies what is already there. In supplementing, changing or correcting a proposal, the bidder alters what is there." On-Line Games, supra, 279 N.J. Super. at 597. "Allowing alteration of the original proposal, post-opening, contradicts our public bidding scheme and undermines the integrity of the bidding process." In re Jasper, supra, 406 N.J. Super. at 224
Where "deviation from the RFP is found to be substantial [i.e., material] under the River Vale standard, it may not be waived and the inquiry is over because a 'non-conforming bid is no bid at all.'" Id. at 223 (quoting On-Line Games, supra, 279 N.J. Super. at 595). The Division properly applied this principle in declining to waive the patent non-conformity in appellant's bid submission.
We also reject appellant's claim that the Division did not review its bid protest sufficiently. The Division promptly responded to appellant's protest letters on three separate occasions. In those letters, the Division manifestly considered the facts and legal arguments presented by appellant. We detect nothing arbitrary or capricious about the manner in which the Division dealt with appellant's protests.
Appellant next argues that its submission for group three, price line 00009 was conforming. It notes that its original submission for this particular price line did not contain the prohibited ingredient, nonylphenol ethoxylate, and therefore did not violate the RFP. That may be so, but when the Division requested that it submit a product sample, appellant provided an MSDS and a product sample that included the prohibited ingredient.
Appellant argues that its original bid submission for group three should control, and not its second submission. It also contends that the non-conformity in its second submission was a clerical error that should have prompted the Division to clarify the discrepancy.
These arguments concerning the group three bid are unavailing. The RFP clearly authorized the Division to request bidders to provide samples, and put bidders on notice that such samples had to meet the RFP's specifications. It is undisputed that appellant's samples did not meet the specifications. This likewise amounted to a material deviation that could not be waived. Meadowbrook Carting, supra, 138 N.J. at 314-15. Given the non-conforming sample and the equally non-conforming MSDS, the Division could not be certain that appellant would perform the contract according to the contract's specified requirements. River Vale, supra, 127 N.J. Super. at 216. Additionally, the Division had ample reason to be concerned that appellant would receive an unfair competitive advantage if the Division waived the requirement of submitting accurate samples. Ibid.
Alternatively, appellant contends that under Section 188.8.131.52 of the RFP, nonylphenol ethoxylate is not a prohibited ingredient for group three, price line 00009. Appellant asserts that unlike the requirements for groups one, two, and four, group three did not contain a specific prohibition banning surfactants "of the Alkyl phenol ethoxylates (APE) type or Nonylphenol ethoxylates [type] (NPE)." That omission from the text for group three is not dispositive. Section 1.2 of the RFP plainly states, in an overarching and all-inclusive manner, that "the related surfactant forms of all APE including Nonyl and Octyl Phenol ethoxylates are also prohibited from all formulations." (Emphasis added). The general statement prohibiting APE is contained in the background section of the RFP, and applies to the entire RFP. The portion of the RFP discussing group three ingredients did not contain a provision explicitly permitting the use of APE, it merely did not mention these ingredients. Thus, the general statement prohibiting APE, as spelled out in Section 1.2 of the RFP, logically should apply.
For the first time on appeal, appellant contends that the Division should have found Interline's bid for group three, price line 00009, non-responsive for failing to demonstrate experience with contracts of similar scope and size. Although we have the discretion to ignore this new argument, see Nieder v. Royal Indemn. Ins. Co., 62 N.J. 229, 234 (1973), we choose not to do so for the sake of completeness and to dispel any residual uncertainty about the propriety of this public bidding matter.
Pursuant to RFP Section 184.108.40.206, bidders had to complete a Bidder's Data Sheet in order to describe the vendor's experience. The Bidder Data Sheet required that the bidder "list other contracts of similar size and scope performed within the last three (3) years[.]" Interline responded that it had supplied contracts for "Household Janitorial Supplies" to Camden County Division of Purchasing; "Janitorial Equipment and Supplies" to Burlington County; and "Custodial Supplies" to Richard Stockton College. There is no indication in the record that these disclosures were incomplete or untruthful.
Appellant argues that Interline's response to Section 220.127.116.11 rendered its competing bid non-conforming, because the listed contracts were for janitorial and custodial supplies, not laundry chemicals, and also because Interline had not supplied a product to the college or to the two counties on a statewide basis. Appellant contends that the Division, in effect, waived a defect in Interline's bid without justification, and thus did not treat all bidders equally.
These belated challenges to Interline's bid submission are unavailing. Interline forthrightly disclosed its past contracts with two counties and a state college. The Division did not require those past contracts to be identical in size or in scope, but only "similar." Janitorial and custodial supplies are cleaning products that are reasonably analogous to laundry chemicals. It was not arbitrary or capricious for the Division to treat Interline's past experience in supplying such products to other government agencies and to a state college as relevant to the present matter.*fn3
In sum, the Division fairly denied appellant's protest of the contract awards, and that agency determination was not arbitrary, unreasonable, or capricious. Appellant's bid was non-conforming in at least two important respects, and the Division properly declined to waive such material deviations in appellant's submissions. Additionally, the Division reasonably determined that Interline's bid was conforming.
Although we are mindful that appellant was the low bidder for group two and thus may have saved taxpayer dollars had it received an award, that loss of savings is adequately justified by the Division's insistence on proper responsive bids. Such insistence promotes not only the integrity of the present contracts, but also the Division's procurement process as a whole and the responsiveness of bidders on other State contracts.