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Titan Management Group, LLC and Delfina Palhete Barbosa v. State of New Jersey


November 20, 2012


On appeal from the State of New Jersey, Department of Treasury, Division of Property Management and Construction.*fn1

Per curiam.


Submitted September 19, 2012 -

Before Judges Messano, Lihotz and Kennedy.

Plaintiffs Titan Management Group, LLC and Delfina Palhete Barbosa (collectively, Titan) appeal from an August 3, 2010 final decision of the Director, Division of Property Management and Construction (the DPMC), a unit of the Department of Treasury that handles leases for the State. The Director's decision rejected Titan's challenge to the DPMC's award of a contract to defendant MVC Equities, LLC (MVC) to lease office space for a State agency. Titan argues the bid award to MVC and the rejection of its challenge to that decision were arbitrary and capricious because MVC's bid was non-conforming and not the most cost-effective bid submitted. We are not persuaded and affirm.


The DPMC issued a request for proposal (RFP) to lease 20,000 to 22,000 square feet of commercial office space for a period of ten years, to be used by what is now known as the Division of Child Permanency and Protection (the Division). The Division was occupying Titan's building pursuant to a lease that expired on April 30, 2010.

In addition to seeking proposals through newspaper advertisements, the DPMC relied on its database of Property Profile Forms, N.J.A.C. 17:11-5.4(a). The RFP set forth the necessary specifications, including a required "minimum of 175 parking spaces[.]" The parking requirements included a provision stating spaces needed to be "in close proximity to the proposed building[,]" barrier free, eight feet wide, and compliant with the Americans with Disabilities Act, 42 U.S.C.A. §§ 12101 to 12213.

The four responding potential bidders each completed a Leased Space Proposal Form (LSPF). Each LSPF contained the proposed lease terms and a detailed cost analysis setting forth the proposed unit rate for identified categories of expenses. The DPMC eliminated one proposal as not qualifying, leaving Titan, MVC, and defendant Hillside Office Park, LLC (Hillside) as the remaining bidders.

On March 11, 2010, the DPMC requested the prospective bidders to file their best and final offers (BAFOs). A DPMC employee mistakenly sent MVC an attachment with Titan's proposal information, and sent Titan an attachment with MVC's proposal information. MVC contacted the DPMC regarding the error and both Titan and MVC agreed to continue their respective participation in the process.

On April 14, 2010, the DPMC issued a notice of intent (NOI) to award the lease to MVC, which it determined had submitted the most cost-effective bid. The NOI outlined the proposed terms and conditions of the lease and provided the procedure for filing written challenges, which were required to be submitted "no later than the close of business, Wednesday, April 28, 2010."

Titan had received an email advising "the spread between [its] proposal and the most cost effective [proposal] . . . [was] approximately $51,000 per year"; however, Titan did not receive the NOI. The DPMC responded to Titan's April 28, 2010 facsimile, noting the NOI was mistakenly sent to an incorrect address. Titan immediately faxed its intent to challenge the proposed award of lease to MVC, arguing the DPMC miscalculated the most cost-effective lease proposal.*fn2 Titan awaited a divisional review of its bid challenges and expected notice of assignment of the matter to a hearing officer.

Titan's challenges asserted its proposal was "financially superior to MVC's proposal [and] me[t] the State's goals of reducing costs, converting to environmentally safe forms of energy and providing a safe work environment." Specifically, Titan maintained the DPMC erred because:

* The State incorrectly calculated, to Titan's detriment in the review, the energy savings offered to the State by Titan;

* The State did not account for the "cost to move and furniture . . . [of] $150,000" to relocate to MVC's property . . . in evaluating the "cost efficiency" of simply remaining in the current location under the new lease terms set forth in Titan's proposal; and

* The State failed to account for the holdover tenancy costs that will be incurred under its current lease with Titan, in addition to its lease payment obligation to MVC until MVC's property is ready for occupation.

If these adjustments were made to the gross bid, Titan reasoned, its bid would be equivalent to $499,077, while MVC's would be equivalent to $534,334.

In a follow-up letter, dated June 17, 2010, Titan again inquired as to the appointment of a hearing officer to consider its challenges. The next day, the Director of the DPMC advised Titan a review pursuant to N.J.A.C. 17:11-8.2 was underway.

On August 3, 2010, the DPMC's director, Steven Sutkin, issued the agency's final decision. He was "satisfied" he had "more than sufficient information to fully and fairly review this matter," and found no benefit in conducting a full hearing. After considering Titan's three challenges, the Director concluded "that the manner in which the lease [proposal review] was administered was fair to Titan, that it met the regulatory requirements at issue, and that it ultimately resulted in the selection of the most cost effective lease proposal that will serve the best interests of the State." The Director concluded "the DPMC will deny Titan's [c]hallenge and recommend the award of the lease proposal submitted by MVC[.]"

Titan requested reconsideration and a full hearing, asserting its prior submission was not complete because Titan anticipated making a presentation before a hearing officer. Titan's request also included two new arguments. First, it asserted MVC's bid should be disqualified because it did not comply with the "State's safety considerations and dedicated parking requirements." Second, Titan maintained its discovery requests were ignored, as "the State blatantly failed to produce documents regarding MVC's compliance with the RFP's dedicated parking requirements."

Before the Director could respond, Titan filed a verified complaint in lieu of prerogative writs in the Law Division. Pursuant to Rule 1:13-4, the matter was transferred to this court as it involved review of a final agency decision.



Generally, our review of a final administrative determination is limited. In re Carter, 191 N.J. 474, 482 (2007) (citations omitted). An agency determination will not be vacated "in the absence of a showing that it was arbitrary, capricious or unreasonable, or that it lacked fair support in the evidence." Ibid. (quoting Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963)). Under this standard, appellate review is limited to four inquiries:

(1) whether the agency's decision offends the State or Federal Constitution; (2) whether the agency's action violates express or implied legislative policies; (3) whether the record contains substantial evidence to support the findings on which the agency based its action; and (4) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.

[Karins v. City of Atl. City, 152 N.J. 532, 540 (1998) (quoting George Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27 (1994)).]

This same standard applies to our review of a determination challenging a bid's conformity with State requirements, and we must find "the determination was not arbitrary or unreasonable." DGR Co. v. State, Dep't of Treas., Div. of Prop. Mgmt. and Constr., 361 N.J. Super. 467, 474 (App. Div. 2003) (citing In re On-Line Games Contract, 279 N.J. Super. 566, 593 (App. Div. 1995)).


Our review also considers the statutory authority and regulatory responsibility of the DPMC and the Director when awarding a lease contract. The applicable statutory provisions and regulations promulgated thereunder reflect the Legislature's intent to confer broad discretionary power to the Director to award or reject bids. Cf. Keyes Martin & Co. v. Dir., Div. of Purchase & Prop., Dep't of Treas., 99 N.J. 244, 252 (1985). We recite some basic provisions governing the bidding and selection process.

The DPMC is entrusted with the authority to approve or disapprove agency requests for space, solicit lease proposals, and negotiate leases.*fn3 N.J.S.A. 52:18A-191.3. The DPMC has the authority to select those bids it concludes provide "the most cost-effective proposed lease agreement which will best serve the interests of the State." N.J.A.C. 17:11-6.10. The DPMC also determines which conforming bid proposals best fulfill the agency's "operational concerns and restrictions" and represent the least expensive alternative. N.J.A.C. 17:11-1.3, -6.9. Once bids are solicited and received, the DPMC decides which potential lessor to recommend to SLSUC in the form of a "notice of proposed lease," N.J.A.C. 17:11-6.11, -7.1, essentially choosing the bidder "who will provide the most cost effective proposed lease agreement," N.J.A.C. 17:11-6.10. "Cost-effective" is defined in the regulations as "the least expensive space procurement alternative that can be demonstrated to conform to criteria provided by DPMC in the Request for Leased Space Proposal and to the operational concerns and restrictions of the State agency." N.J.A.C. 17:11-1.3. The remaining participating bidders are then notified and given the opportunity to challenge the DPMC's recommendation. N.J.A.C. 17:11-6.11, -8.3.*fn4

If a challenge is received, the DPMC holds its recommendation rather than forwarding it to the SLSUC, unless the failure to award a lease would "result in substantial cost to the State or if the public exigency so requires." N.J.A.C. 17:11-8.3(c). The Director is tasked with resolving any challenges by review of the written record including, but not limited to, the written challenge, the terms, conditions and requirements of the RFP and Scope of Work, the proposals submitted in response to the RFP, pertinent administrative rules, statu[t]es and case law, and any associated documentation the Director deems appropriate. Such review of the written record shall, in and of itself, constitute an informal hearing. [N.J.A.C. 17:11-8.3(d).]

In conducting this review, "[t]he Director has sole discretion to determine if an oral presentation by the challenger is necessary to reach an informed decision on the matter(s)[,]" N.J.A.C. 17:11-8.3(d)(1), though he may determine to only review "the written record or conduct an oral presentation directly, or . . . appoint a hearing officer[,]" N.J.A.C. 17:11-8.3(d)(2). Following review, the Director issues a written decision. N.J.A.C. 17:11-8.3(d).


On appeal, Titan renews each argument presented to the Director, maintaining a three-fold challenge to the bid award. First, it contends the Director's award to MVC was arbitrary and capricious because it ignored the fact that Titan's bid submission was more cost-effective. Second, Titan argues MVC's bid submission was nonconforming. Third, Titan asserts the bidding process was fundamentally tainted from inception and, therefore, the award must be set aside.

Hillside also submitted a brief seeking to set aside the proposed lease award to MVC. Hillside supports Titan's challenges to the propriety of MVC's bid and the bidding process.


Titan renews its position that the State incorrectly computed energy savings and did not adjust MVC's bid to account for the Division's relocation costs and holdover tenant expenses resulting because MVC's premises is not completed. Titan argues these expenses and savings must be used to adjust the bids, making its proposal more cost-effective than MVC's. We reject Titan's argument that the Director's "failure to account for these undisputed savings was arbitrary, capricious, and unreasonable."

According to Titan, upgrades from the anticipated installation of a solar energy system would eliminate electric costs and significantly reduce gas costs, affording the State "a total savings in excess of $60,000 per year." Titan maintains it gave oral assurances regarding these proposed energy savings, which were not considered.

In his review, the Director noted Titan's BAFO included a $3 per square foot charge for electric and gas and attached a letter explaining it expected to upgrade and make further energy improvements. The letter did not commit to pass all additional savings to the State, but suggested savings from these "green" efforts would be "shared with the State during the entire lease term." There is no evidence to support the now claimed energy cost of a mere $.33 per square foot. Despite the speculative nature of the claimed savings, and that Titan was not even bound to make the proposed energy improvements, DPMC accepted Titan's representation of "approximately 30% to as much as 45%" energy savings by using $1.95 per square foot when comparing the bids.

The Director concluded "Titan was given a reasonable benefit of the doubt" by the DPMC, which considered a 35% reduction of electric and gas expenses from the sums stated in Titan's BAFO. See N.J.A.C. 17:11-6.7 (stating after a bidder submits the BAFO, the DPMC is limited to asking bidders for clarification, but cannot seek modified bids).

Next, Titan asserts the Director erred because he rejected Titan's argument to increase MVC's bid by $150,000 for the Division to relocate. Titan also maintains $33,405 per month will need to be spent in rent due as a holdover tenant under the expired Titan lease because MVC's building was not immediately available. We disagree.

The Director identified the difference between Titan's bid and MVC's bid as $62,000 per year, or $620,000 over the lease period. Although consideration of the relocation expense could be made weighing the two bids, the DPMC may not favor Titan as the current landlord by increasing the other bids with the cost of moving. The Director found the short-term savings of $150,000, were relocation avoided by accepting Titan's bid, would not offset the long-term increased rental expense to the State over the lease term because of the differential in annual lease cost. The cost difference between Titan's and MVC's bid is mostly attributable to the amount of lease space proposed:

Titan offered to charge $23.57 per each of 22,737 square feet, while MVC offered to charge $23.68 for each of 20,000 square feet; a difference of $62,311.09 per year.

Further, rejection of the holdover cost adjustment resulted because the Division would need to pay rent for space. The Director explained: "DPMC will continue to pay rent at the existing site so long as it occupies the space. With regard to the new space, DPMC will not pay rent until the property is fully constructed and ready to be occupied." Had the DPMC considered the rent differential between the current monthly rental under the expired lease and the prospective monthly rental under MVC's proposed lease for the time anticipated to allow the Division to commence its tenancy, the amount of Titan's bid would remain higher than MVC's.

The bidding specifications state the DPMC would not consider holdover costs or moving costs; the purpose of this and similar provisions is to assure fairness and so that "conditions and specifications . . . apply equally to all prospective bidders. Otherwise, there is no common standard of competition." Hillside Twp. v. Sternin, 25 N.J. 317, 322 (1957). See also Dugan Constr. Co. v. N.J. Tkp. Auth., 398 N.J. Super. 229, 240-41 (App. Div.), certif. denied, 196 N.J. 346 (2008); D'Annunzio Bros., Inc. v. N.J. Transit Corp., 245 N.J. Super. 527, 532-33 (App. Div. 1991).

Following our consideration of Titan's bid adjustment arguments, we find no flaw in the Director's rejection of Titan's challenge. The Director found the DPMC's choice to award the contract to MVC was based on specific, competent evidence. Acceptance of that recommendation was not arbitrary, capricious, or unreasonable.


For the first time on appeal, Titan argues MVC should have been disqualified from consideration because its bid did not conform to the RFP. This argument was not raised in Titan's challenge to the NOI. See N.J.A.C. 17:11-8.3(b)(1)(ii) (requiring a challenger to include "[a]ll arguments, materials and/or other documentation that may support the challenger's position that the proposed award should be overturned"). It is a well-settled principle that "appellate courts will decline to consider questions or issues not properly presented to the trial court when an opportunity for such a presentation is available." Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973).


Titan also has not previously raised its challenge to the procedures employed in the bidding process. Nevertheless, our review of the merits of this claim does not reveal a process that was unfairly "tainted." For completeness, we include these brief remarks. Titan was aware the bidding proposals had been mixed up, as it received MVC's proposal as an attachment to the DPMC's email seeking BAFOs. If it believed the error created a disadvantage or tainted the process, it should have objected at that point. Titan admits "it was able to disregard MVC's initial bidding information." The challenge made on this basis, only after Titan's challenge to the bid award was rejected, cannot stand.


We decline to address claims raised in Hillside's brief. Hillside did not exhaust its available administrative remedies, as it did not challenge the DPMC's decision. See R. 2:2-3(a)(2) (precluding appeals where appellant did not exercise an "available . . . right of review before the administrative agency"). Also, Hillside did not seek to intervene in the matter or appear as an amicus before this court. R. 1:13-9.


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