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Cfg Health Systems, L.L.C v. County of Hudson

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 19, 2012

CFG HEALTH SYSTEMS, L.L.C., PLAINTIFF-RESPONDENT,
v.
COUNTY OF HUDSON, HUDSON COUNTY BOARD OF CHOSEN FREEHOLDERS, DEFENDANTS-RESPONDENTS, AND CORRECTIONAL HEALTH SERVICES, L.L.C., DEFENDANT-APPELLANT.

On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-6428-10.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 18, 2012

Before Judges Yannotti, Espinosa and Kennedy.

Defendant Correctional Health Services, LLC (CHS) appeals from a judgment entered by the trial court on April 1, 2011, which ordered the Board of Freeholders (Board) of the County of Hudson (County) to adopt a resolution awarding a medical services contract for the County's correctional system to plaintiff CFG Health Systems, LLC (CFG). We affirm.

I.

This appeal arises from the following facts, which we draw from the record before the trial court.

A. First Procurement Process.

In September 2003, the County awarded a five-year contract to CHS to provide medical and mental health services to inmates at the Hudson County Correctional Center (HCCC) and the Hudson County Juvenile Detention Center (HCJDC). Prior to the expiration of the contract, the County issued a publicly-advertised request for proposals (RFP) on a new five-year contract for the services. In November 2008, CFG and CHS submitted bids in response to the RFP.

The County established an evaluation committee, which reviewed the proposals and recommended that the contract be awarded to CHS. Thereafter, the County had an expert review the staffing needs for the correctional facilities. Before receiving the expert's report, the Board adopted a resolution awarding the contract to CHS.

Thereafter, the County received the report, which recommended a substantial reduction in the number of staffing hours required under the contract. The County and CHS agreed to change the contract's staffing requirements and in August 2009, the Board adopted a resolution awarding a revised contract to CHS based on its bid and the agreed-upon revised staffing requirements.

CFG filed an action in the Law Division challenging the award of the modified contract. On December 16, 2009, the trial court filed an opinion in which it concluded that the revised contract was invalid because it reflected material, post-award changes to the RFP in violation of the Local Public Contracts Law (LPCL), N.J.S.A. 40A:11-1 to -51. The court rejected, however, CFG's demand for an order requiring a re-bid of the contract, noting that the County had the discretion to terminate the original contract awarded in April 2009 and re-bid the contract.

The trial court entered an order memorializing its decision. CHS and the County appealed, and CFG cross-appealed. We affirmed the trial court's order on the appeal and cross-appeal. CFG Health Systems, LLC v. County of Hudson, 413 N.J. Super. 306, 322 (App. Div. 2010).

B. Second Procurement Process.

The County subsequently elected to terminate the original agreement and seek new bids on the contract. On March 2, 2010, the County issued a publicly-advertised RFP. Thereafter, CFG and CHS submitted proposals. The CFG bid was $21,326,472, and the CHS bid was $21,406,008. The County established an evaluation committee, which reviewed the proposals and recommended an award to CHS, noting that CHS had received a total score of 567 in the evaluation, while CFG received a score of 535.

The Committee's recommendation was presented to the Board on August 10, 2010. One Board member expressed concerns about the recommendation. The Board took no action on the contract and instead referred the matter to the Board's Contract Review Committee (CRC) for further consideration.

The CRC met on September 8, 2010, to discuss the recommendation. Three members of the evaluation committee were in attendance: the Deputy County Administrator, the County Director of Corrections, and Dr. Francis Molinari (Dr. Molinari), the Physician Liaison to the County Corrections Department.

At the meeting, two members of the Board inquired as to the possible bias of members of the evaluation committee, in view of the fact that CHS had been providing medical health services to the County's correctional facilities for the previous nineteen years. Dr. Molinari stated that he had "intimate contact" with CHS and it was hard for him to make a decision on the contract award when he was working with the company. Dr. Molinari said his "decision was basically tainted because [he] was working in the system."

An Assistant County Counsel stated that Dr. Molinari's statements came as a surprise to her because they were contrary to the advice the doctor had given the evaluation committee. The Assistant County Counsel said she had informed the evaluators that if they felt at any point that there was going to be a conflict, they should not participate in the evaluation. Dr. Molinari commented that a bidder seeking the contract would be at a disadvantage in competing against a bidder that had been providing the services.

County Counsel stated she was concerned about whether the purpose and intent of the LPCL had been violated by Dr. Molinari's participation in the evaluation. County Counsel directed the Assistant County Counsel to review the contracting process to determine whether Dr. Molinari's apparent bias had tainted the process.

County Counsel considered the results of that review. He concluded that Dr. Molinari had been involved in the entire contracting process and his admitted bias in favor of CHS undermined its integrity. He recommended to the County Administrator that the County reject all bids, award a one-year contract to CHS, and seek new proposals on either a three-year or five-year contract.

The Board considered the recommendation in executive session on October 12, 2010. At the Board's October 26, 2010 "caucus" meeting, the County recommended the award of a one-year professional services contract to CHS. The Board reduced the term to eight months and approved the agreement for placement on the agenda for its October 28, 2010 meeting. At that meeting, the Board adopted Resolution 467-10-2010, rejecting all bids on the contract, and Resolution 468-10-2010, awarding an eight-month contract to CHS.

C. Trial Court Proceedings.

On November 29, 2010, CFG filed an action in lieu of prerogative writs in the trial court, seeking a judgment invalidating the County's decision to reject all bids on the contract, declaring CHS's proposal materially deficient, and compelling the award to CFG as the lone responsive bidder. On December 9, 2010, the court issued an order requiring CHS to show cause why the relief sought should not be granted. CHS filed an answer and counter/cross-claims, seeking a judgment rescinding the decision to reject all bids, rejecting CFG's bid, and awarding the contract to CHS.

The trial court heard oral argument in the matter on March 18, 2011. On March 25, 2011, the court filed a written decision in which it concluded that: the County had abused its discretion by rejecting all bids, any deficiencies in CFG's proposal were minor and inconsequential, and CHS's deviation from the RFP requirements was material and non-waivable.

Accordingly, the court entered an order dated April 1, 2011, which invalidated Resolutions 467-10-2010 and 468-10-2010, and directed the Board to award the contract to CFG as the lone responsive bidder. This appeal followed.

II.

We turn first to CHS's contention that the trial court erred by setting aside the County's decision to reject all bids. CHS contends that the County conducted a flawed bidding process, and the trial court erroneously substituted its judgment for that of the County on the question of whether the contract should be re-bid.

The LPCL empowers a local contracting unit to reject all bids for the following reasons:

a. The lowest bid substantially exceeds the cost estimates for the goods or services;

b. The lowest bid substantially exceeds the contracting unit's appropriation for the goods or services;

c. The governing body of the contracting unit decides to abandon the project for provision or performance of the goods or services;

d. The contracting unit wants to substantially revise the specifications for the goods or services;

e. The purposes or provisions or both of the [LPCL] are being violated;

f. The governing body of the contracting unit decides to use the State authorized contract pursuant to [N.J.S.A. 40A:11-12]. [N.J.S.A. 40A:11-13.2.]

Although the right to reject all bids "serves an important function in that it provides a 'strong inducement' for bidders to submit as low a bid as possible[,]" the contracting unit's authority to exercise this discretion "is not without limit." Bodies by Lembo, Inc. v. Cnty. of Middlesex, 286 N.J. Super. 298, 307-08 (App. Div. 1996) (quoting Cardell, Inc. v. Twp. of Woodbridge, 115 N.J. Super. 442, 450-51, certif. denied, 60 N.J. 236 (1972)). Thus, a trial court may not substitute its judgment for that of the local contracting unit unless the local agency "acted in bad faith or abused its discretion in rejecting all bids[.]" CFG Health Systems, LLC v. Cnty. of Essex, 411 N.J. Super. 378, 386 (App. Div. 2010) (citing PENPAC, Inc. v. Morris Cnty. Mun. Utils. Auth., 299 N.J. Super. 288, 298 (App. Div. 1997), certif. denied, 150 N.J. 28 (1997)).

In this case, the trial court determined that the County abused its discretion by rejecting all of the bids. In its opinion, the court noted that Dr. Molinari was one of six members of the evaluation committee. The court said that Dr. Molinari's failure to disclose his "professed impartiality" until late in the process was unfortunate but did not constitute a per se violation of the LPCL.

The court observed that the Assistant County Counsel had reviewed the procurement process but she had not provided a clear basis for her conclusion that Dr. Molinari's "disclosed impartiality" had undermined the integrity of the entire process. The court also observed that the Assistant County Counsel did not explain why the problem could not be remedied by simply disregarding Dr. Molinari's scores in the evaluation, or by forming a new committee to evaluate the bids, which the County believed were responsive to the RFP. The court said that the County appeared to have been concerned about the potential for litigation over the contract, but stated that this was not a proper basis upon which to reject all bids.

The court additionally observed that the procurement had a tortured history, which had created the appearance that CHS was the County's "favorite son." The court stated that this appearance alone contravened the purposes of the LPCL. The court said the arbitrary rejection of all bids will lead to an inference of favoritism that would result in fewer bidders and higher bids, to the detriment of the public.

The court also noted that CHS had been the incumbent vendor for nineteen years and the evaluation committee was mostly comprised of persons who were employed at facilities where CHS was presently performing the services. The committee scored the proposals and recommended an award to CHS even though CFG's bid on the five-year contract was $80,000 lower than that of CHS.

Then, after Dr. Molinari revealed that his evaluation was "tainted" as a result of his daily interaction with CHS, the Board decided to reject all bids and award a professional services contract pending the results of the third procurement process. The court concluded that this history created an "environment of inferred favoritism [that] is detrimental and indeed poisonous to the type of competitive bidding that the LPCL is designed to secure."

We are satisfied that the court correctly concluded that the County abused its discretion in deciding to reject all bids and seek new bids on the contract. We note initially that we do not share the trial court's view that the County's decision to reject all bids would give rise to an inference of favoritism towards CHS.

Indeed, it appears that by rejecting all bids, the County was endeavoring to avoid creating such an inference, in view of Dr. Molinari's disclosure of his perceived bias in favor of CHS. Moreover, if the County wanted to contract with the "favorite son," it would have awarded the contract to CHS, rather than ordering a third round of bidding.

Nevertheless, we are convinced that the County's decision to reject all of the bids and re-bid the contract was an abuse of discretion for the other reasons stated by the trial court. While Dr. Molinari belatedly disclosed his perceived bias in favor of CHS, there was no evidence indicating that any other member of the six-person evaluation committee was biased in favor of any bidder, or that Dr. Molinari's perceived bias tainted the entire process.

As the trial court said, Dr. Molinari's delayed disclosure of his perceived bias did not compel the County to reject all bids. The County could have addressed the problem by having the evaluators re-assess the bids without Dr. Molinari's participation, or it could have formed a new evaluation committee. Thus, the record supports the trial court's conclusion that the County's decision to reject all bids was an abuse of discretion.

Our decision in CFG Health Systems, LLC v. Cnty. of Essex, supra, 411 N.J. Super. 378, does not compel a contrary result. There, Essex County sought bids for a contract to provide medical services at its correctional facility. Id. at 381. Essex County decided to reject all bids because one member of the evaluation committee failed to submit a non-conflict-of interest certification, as required by N.J.A.C. 5:34-4.3. Id. at 387-88. In addition, one of the members of the evaluation committee failed to disclose that his employer had a contract with CHS, which bid on the contract along with CFG. Id. at 388-89.

We concluded that, under the circumstances, Essex County did not act arbitrarily or capriciously in rejecting all of the bids. Id. at 390. We noted that the undisclosed conflict of interest "had the capacity to place CHS in a position of advantage over CFG and thereby undermine the impartiality of the competitive contracting process." Id. at 389. We said that such a conflict undermines the objectives of the bidding laws. Ibid.

The facts presented in this case are significantly different. Here, Dr. Molinari belatedly disclosed his perceived bias in favor of CHS but there was no evidence indicating that his impartiality affected the other evaluators or undermined the integrity of the entire process. Moreover, unlike the situation in CFG Health Systems, Inc. v. Cnty. of Essex, there was no actual conflict of interest that could have potentially affected the procurement process.

We are therefore satisfied that the record supports the trial court's determination that the County's decision to reject all bids was arbitrary and capricious.

III.

We next consider CHS's contention that the trial court erred by ordering the County to award the contract to CFG as the lone responsive bidder. CHS contends that CFG's bid materially deviated from the bidding requirements because it failed to meet the RFP's transition requirement and the RFP's requirements for the initial evaluation of inmates.

It has long been established that strict compliance with the notice to bidders is required and a local contracting unit generally does not have discretion to accept a nonconforming bid. Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307, 314 (1994) (citing Twp. of Hillside v. Sternin, 25 N.J. 317, 323 (1957). Thus, "all bids must comply with the terms imposed, and any material departure invalidates a nonconforming bid as well as any contract based on it." Ibid. (citing Sternin, supra, 25 N.J. at 323).

Material conditions in the bid specifications cannot be waived, but "minor or inconsequential discrepancies and technical omissions can be the subject of waiver." Ibid. (citing Terminal Constr. Corp. v. Atlantic County Sewerage Auth., 67 N.J. 403, 410 (1975); Sternin, supra, 25 N.J. at 324).

"Essentially this distinction between conditions that may or may not be waived stems from a recognition that there are certain requirements often incorporated in bidding specifications [that] by their nature may be relinquished without there being any possible frustration of the policies underlying competitive bidding. In sharp contrast, advertised conditions whose waiver is capable of becoming a vehicle for corruption or favoritism, or capable of encouraging improvidence or extravagance, or likely to affect the amount of any bid or to influence any potential bidder to refrain from bidding, or which are capable of affecting the ability of the contracting unit to make bid comparisons, are the kind of conditions [that] may not under any circumstances be waived." [Id. at 314-15 (quoting Terminal Constr.

Corp., supra, 67 N.J. at 412.]

In determining whether a deviation from the terms and conditions of the bid request are waivable, we undertake a two-prong analysis:

"[F]irst, whether the effect of a waiver would be to deprive the municipality of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements, and second, whether it 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." [Id. at 315 (quoting Twp. of River Vale v. R.J. Longo Constr. Co., 127 N.J. Super. 207, 216 (Law Div. 1974)).

A. The RFP's Transition Requirements.

The RFP provided that the successful bidder must begin performing the services within thirty calendar days after the contract award. The RFP required the bidders to include in their proposals a thirty-day "mobilization and implementation transition plan." CHS contends that CFG deviated from these requirements by indicating in it its proposal that it would complete the transition within 180 days. CHS contends that this deviation was material and not waivable.

The trial court rejected this contention. In its opinion, the court noted that while CFG stated in its proposal that it would be able to transition to the contract within 180 days, the transition plan in the CFG bid indicated that it did not intend to deviate from the thirty-day transition requirement. Indeed, as the court pointed out, the timeframes set forth in CFG's transition plan were all less than thirty days. The record thus fully supports the trial court's determination that CFG complied with the RFP's thirty-day transition requirement.

CHS argues, however, that the court erred by accepting CFG's representation that it did not intend to alter its commitment to a thirty-day transition. In support of that argument, CHS relies upon In re Protest of the Award of the OnLine Games Production and Operation Services Contract, Bid. No. 95-X-20175, 279 N.J. Super. 566 (App. Div. 1995).

In that case, the RFP required the contractor to provide a display unit at each location that would be visible by customers from fifteen feet. Id. at 574-75. The successful bidder submitted a proposal that did not indicate its unit would meet this requirement, but presented three units for consideration to the evaluators. Id. at 579, 580-81.

We reversed the contract award, stating that the bidder deviated from the bidding requirements by failing to propose the required display unit and its post-bid commitment to supply the essential missing item was not a clarification of the proposal. Id. at 599. We also concluded that, the post-bid presentation of three display units constituted an "impermissible supplementation, change or correction" of the bid, which "flies in the face of our public bidding scheme." Id. at 598.

CHS's reliance upon On-Line Games is misplaced. In this case, CFG did not provide a post-bid commitment to supply something missing from its bid. As we have explained, CFG's bid included a transition plan, which plainly indicated it would complete the transition within the required thirty-days. Thus, CFG did not impermissibly supplement, change or correct its bid.

CHS further argues that CFG's transition plan did not comply with the RFP because the plan did not identify key staff by name, as required. CFG did not identify specific individuals by name in the transition plan, but indicated it would assign responsibilities to certain position titles and classes of employees. In addition, CFG's bid included the resumes of the persons in those positions. Therefore, CFG's transition plan conformed to the requirements of RFP.

B. RFP's Requirements for Evaluation of Inmates.

CHS contends that CFG deviated from the RFP by providing for evaluations of inmates within seventy-two hours, rather than within twenty-four hours, as required. CHS argues that CFG also deviated from the bidding requirements by proposing to use physician assistants for the evaluations, rather than physicians as required by the RFP. In addition, CHS maintains that CFG deviated from the RFP by proposing to staff the intake unit at the HCCC from 2:00 p.m. to 5:00 p.m. rather than 2:00 p.m. to 5:00 a.m. According to CHS, these deviations were material and precluded acceptance of the CFG proposal.

The trial court noted that the reference to the hours for staffing of the intake unit in CFG's bid was a typographical error. In any event, the court assumed that CFG had, in fact, deviated from the terms of the RFP, as CHS claimed. The court concluded, however, that the County had not been deprived of the ability to ensure that the contract would be performed according to the terms specified because, in its proposal, CFG stated that it would comply with all the staffing requirements of the RFP.

The court stated that, if CFG endeavored to evade the RFP's staffing requirements, the County could invoke CFG's commitment to meet the RFP's staffing requirements. The court also stated that, because CFG had committed to provide the staffing specified in the RFP, CFG did not obtain a competitive advantage over other bidders.

We are satisfied that the record supports the court's determination that CFG's proposal did not materially deviate from the RFP's requirements. The court correctly applied the Meadowbrook Carting Co. test and properly determined that, to the extent CFG deviated from the terms and conditions of the bid requirements, those deviations did not deny the County of the assurance that it would perform the contract's requirements and no other bidder obtained any competitive advantage from the waiver of these deviations.

We accordingly reject CHS's contentions that CFG's bid was nonconforming and could not be accepted.

IV.

CHS argues that the trial court erred by concluding that its bid materially deviated from the bidding requirements. We do not agree.

The RFP required bidders to set forth on Appendix G the hourly rates for the specified staff positions. Appendix G indicated the hours per week and total hours per year that were required for each category of staff. In addition, the RFP required the bidders to provide "fully loaded firm fixed prices" for each year of the five-year contract on a form in Appendix H to the RFP. The RFP defined "fully loaded firm fixed price" to mean:

A price that is all-inclusive of direct cost and indirect costs, including, but not limited to, direct labor costs, overhead, fee or profit, clerical support, equipment, materials, supplies, managerial (administrative) support, all documents, reports, forms, travel, reproduction and any other costs. No additional fees or costs shall be paid by the County, unless there is a written authorized increase in the hours of staffing.

The bidders were required to separately state the prices for "Staffing Services," "X-ray Services," "Phlebotomy Services," and "All Other Costs and Services," along with the total of these prices for each year of the contract.

On March 16, 2010, CFG submitted two questions to the County for clarification of the RFP:

In Appendix H, is it expected that the "Staffing Service" budget line total for any given year exactly equal the product of the loaded hourly rates for that year reported in Appendix G[] for all positions, times the annual required hours for each position?

In Appendix H[,] [i]s it expected that [the bidders] shall include their profit in the "All Other Costs & Services" budget line?

The County replied "Yes" to both questions and distributed that answer to all prospective bidders in an addendum to the RFP.

In its bid, however, CHS did not include its profits in the line for "All Other Costs & Services" but instead spread its profits across the other four categories of services on AppendiX

H. Consequently, there was a $1.9 million difference between the total of the hourly rates for staffing set forth on Appendix G and the totals for "Staffing Services" reflected in Appendix H of the CHS proposal.

CHS argues that the discrepancy between the cost of staff as set forth on Appendix G and the bid prices for "Staffing Services" on Appendix H are inconsequential. We do not agree.

Here, the trial court determined that CHS deviated from the bidding requirements by failing to include its profits in the category of "All Other Costs and Services," and the deviation was material because it impeded the County's ability to compare the bid proposals and to fully understand the pricing components of CHS's proposal.

The court noted that CHS had not provided any explanation for deviating from the RFP requirements and spreading its profits and other overhead costs across the four categories of Appendix H, rather than place those costs in the category of "All Other Costs and Services." The court said that, in doing so, CHS precluded the County from making an "apples to apples" comparison of the bids.

The record supports the trial court's determination. Indeed, as the court pointed out in its opinion, when the Board considered the award recommendation on August 10, 2010, one of the members observed that "in one case the staffing services is much lower and then all the other costs and services is much higher . . . ." The member wondered "what exactly that is, what does that entail, and is that done in a way that we should be able to save even additional dollars." The member's comments make clear that CHS's failure to adhere to the RFP's requirements undermined the County's ability to compare the bids.

The trial court's determination is supported by In Re Jasper Seating Co., Inc., 406 N.J. Super. 213 (App. Div. 2009). In that case, the State issued an RFP on a contract for the purchase of office furniture. Id. at 217. The State issued addenda to the RFP, which indicated that price lists with "sticker increases" would not be accepted. Id. at 217-18. Even so, a bidder submitted a price list with "sticker increases." Id. at 219.

The State's purchasing director rejected the bid, concluding that the submission of price lists with sticker increases was a material deviation from the bid requirements which could not be waived. Ibid. We affirmed the director's determination, stating that the requirement at issue directly affected the contracting unit's ability to make bid comparisons and therefore it could not be waived. Id. at 223 (citing On-Line Games, supra, 279 N.J. Super. at 594). That principle applies here.

In sum, we conclude that the record supports the trial court's determination that the County abused its discretion by rejecting all bids and deciding to re-bid the contract. The record also supports the court's determination that CFG's bid did not deviate in any material respect from the terms and conditions of the bid, while CHS's deviation from the bidding requirements was material and non-waivable. Therefore, the trial court did not err by ordering the County to award the contract to CFG as the lone responsive bidder.

Affirmed.

20120719

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