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Surety Mechanical Services v. Bridgeton Board of Education

Superior Court of New Jersey, Appellate Division

December 11, 2013



Argued September 25, 2013

On appeal from the Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-117-13.

John F. Palladino argued the cause for appellant (Hankin, Sandman & Palladino, attorneys; Mr. Palladino and Evan M. Labov, on the briefs).

Matthew W. Ritter argued the cause for respondent (The Ritter Law Office, attorneys; Mr. Ritter, on the brief).

Before Judges Sapp-Peterson and Hoffman.


Plaintiff Surety Mechanical Services (Surety) appeals from the trial court order dismissing its verified complaint and order to show cause (OTSC) in which it sought an order: (1) invalidating a resolution adopted by defendant Bridgeton Board of Education (Board) rejecting all bids it received in connection with a bid invitation to upgrade the Bridgeton High School heating, ventilation and air conditioning (HVAC) systems; and (2) compelling the Board to award the contract to it as the lowest bidder. We affirm.

On November 8, 2012, the Board published a Bid Invitation and Notice to Bidders to upgrade its high school HVAC system. Bids were received and opened on December 13, 2012. Plaintiff's bid was submitted at $4, 499, 170. Although a lower bid had been submitted, it was materially defective. As such, plaintiff's bid was the lowest. However, by resolution dated January 8, 2013, the Board rejected all bids, stating: "Motion by Ms. Bernstein, second by Mrs. Peterson approving the rejection of the BHS HVAC Bids in accordance with N.J.S.A. 18A:18A-22." The Board will modify the scope of work for the control panel and re-bid the project. Motion carried, roll call vote was 6-0.

Two days later, the Board notified bidders that all bids had been rejected and that the specifications would be revised and the project re-bid. When it released the revised specifications, the only change in the specifications was reflected in the identity of the automatic temperature control (ATC) manufacturers, which was originally identified in the bid invitation as Honeywell International (Honeywell). As revised, the manufacturers included Siemens Building Technologies and Johnson Controls, in addition to Honeywell.

Plaintiff filed its verified complaint and OTSC on January 30, 2013 seeking to invalidate the resolution rejecting the bids and to restrain the Board from awarding the HVAC project based upon its January 14, 2013 invitation to bidders to re-bid. The court entered an order permitting the Board to accept bids but restrained it from granting an award. On the OTSC return date, the court took testimony, and at its conclusion dissolved the prior restraints by order dated February 19, 2013. Thereafter, the court denied plaintiff's application for a stay of its order.

Plaintiff filed an emergent application before this court seeking a stay. We denied the stay. Following an emergent application before the Supreme Court and its remand to this court for review of the emergent application, we granted a stay of any contract award pending disposition of the merits of plaintiff's appeal by this court.

The essence of Surety's argument on appeal is that there was no legitimate basis to re-bid the project; thus, it may reasonably be inferred the Board's action reflects a bias against it. Additionally, plaintiff contends, having articulated one reason for rejecting all bids, the Board was precluded from raising, as another reason to reject all bids, the fact that the estimated costs exceeded the projected budget recommended by the Schools Development Authority (SDA), N.J.S.A. 52:18A-237, the public entity providing the funding for the project. Consequently, plaintiff urges the trial court erred in dismissing its complaint at the pleading stage.

To support this contention plaintiff points to a number of facts, which it argues are undisputed. First, plaintiff references the initially articulated reason advanced by the Board as the basis for rejection of the bids, namely, its intent to modify the scope of the work to be performed. Second, plaintiff references the revised bid invitation in which the only change in the scope of the work was the inclusion of two additional control manufacturers. Third, plaintiff notes that in response to its verified complaint and OTSC, the Board submitted a letter brief in which it stated: "What counsel for Surety Mechanical Services failed to indicate to the Court was that the re-bid was based upon a substantial change in the specifications that removed the proprietary requirement for the HVAC controls on this project." Third, plaintiff, points to Paragraph 2.2 of the bid invitation, labeled "PRODUCT SUBSTITUTIONS, " which states:


A. Whenever a product or system is identified on the drawings or in the specifications by reference to manufacturers' or vendors names, trade names, catalog numbers, or the like, it is so identified for the purpose of establishing a basis of design and shall not be construed as limiting competition. Any product or system or other manufacturers or vendors which will perform adequately the duties imposed y he general design will be considered equally acceptable provided the material, article or piece of equipment so proposed is, in the opinion of the Architect, of equal substance, appearance and function.

Next, plaintiff references the hearing at which the Board's Business Administrator (BA), Nicole Schaner, testified the reason for the re-bid "was that we were over the budget. . . recommended by the [SDA] to do so, " but, under cross-examination, she acknowledged the SDA merely recommended that the project be re-bid and never specifically stated the project would not be funded if it were not re-bid.

In vacating the restraints and dismissing plaintiff's complaint, Judge Robert G. Malestein credited the Board's explanation that by specifically listing Honeywell in the specifications, the Board believed there would be savings if Honeywell was retained as the product manufacturer:

Under the SDA's direction and with the District's agreement, the A/E team, architect engineer team, was directed to specify the controls manufacturer currently existing in the District, Honeywell, as the sole source provider in the bid documents.
Rather than complicating the project by allowing a change in controls manufacturer at the high school facility, when all the other schools in the district are operated by Honeywell controls.
And that direction was intended to benefit the District by allowing them to maintain their service provider, simplify services calls, unify contractual arrangements and maintain consistency in ATC operations across the District.
So there was — it was known at the time that 2.2, that section regarding the automatic temperature controls, why it was proprietary with the name Honeywell, and that was done in conjunction with the design, with the architect and with the SDA, as well.
The NJ-SDA directive was that the project was bid with Honeywell as the sole source proprietor for the controls package, with the proviso, of course, to make it legal that there could be alternative products and product substitutions under 2.2A, also.
The price budgeted for the baseline item for HVAC controls was a certain amount and the price budgeted for alternative bid HVAC controls was a certain amount, as well.
It was recommended by the New Jersey SDA and by the architects to — that the —that as a result of that, that they rebid it.
So in other words, there was the presumption that, because of the proprietary nature of the Honeywell automatic —automated temperature control system being specified . . . that, perhaps when you compared it to the recommended, appropriate budgeted amount by the New Jersey SDA.
That's where they found that there was a significant difference between what the bidding came in at and what the budgeted amount was, that was set by the New Jersey SDA.
So when they saw that, that was a determination for them to then go ahead and to rebid the project once again. That recommendation same from the New Jersey SDA, who was funding 100 percent, or will fund or it supposed to fund 100 percent of this project.
It was recommended by the New Jersey SDA that they reject all bids and rebid with the change being in the area of the automated — the ATC, the temperature control system, to remove the proprietary nature of Honeywell being listed.
And to add a couple other names, in an effort to try and bring the price under the budgeted amount that was set by the SDA, since that's where they discovered there appeared to be a significant and substantial difference between what the SDA said should be the line item amount and what was being received by way of bids.
The Court finds that their analysis done by the architect and engineering firm, in conjunction with the S.D. — New Jersey SDA, the State agency that was going to be undoing the . . . the program or the project, rather, was not arbitrary or capricious.
It was based on complete and detailed review by the Bridgton Board of Education, by their architects and design engineers and by the New Jersey SAD.
Meaning, why are we still coming in over our budget? What can we do to change and make a substantial change in order to bring the price down into the budget that the SDA says it should belong?
So there's nothing arbitrary or capricious about making that determination and by making a change in that particular area, which is precisely what they did.

Thus, the judge found the Board complied with N.J.S.A. 18A-22 when it rejected all bids and re-authorized the issuance of another bid. Consequently, Judge Malestein concluded the Board did not act arbitrarily or capriciously in rejecting all bids. It dissolved the restraints and dismissed the complaint. The present appeal ensued.

On appeal, Surety contends the Board's action in rejecting all bids violated New Jersey public bidding laws because the specifications contained in the original invitation to submit bids were not substantially revised and, therefore, the resolution stating that the bid would be modified is binding upon the Board. In addition, plaintiff contends the dismissal of its complaint violated its due process rights. We reject these contentions and affirm substantially for the reasons expressed by Judge Malestein expressed in his cogent February 19, 2013 oral opinion.

Our standard of review of the trial court's review of the Board's action is, at the outset, guided by our recognition that in the context of public bidding the "function of the court is to preserve the integrity of the competitive bidding process and to prevent the misapplication of public funds." Marvec Constr. Corp. v. Twp. of Belleville, 254 N.J.Super. 282, 288 (Law Div. 1992).

In this instance, the Board, as the contracting agent, has the discretion to reject all bids, although this discretion is "not unfettered." Ibid. Because the bids were opened before the Board determined that it would reject all the bids, its rejection requires "'cogent or compelling reasons'" for doing so. Ibid. (quoting Cushman & Doyle, Construction Bidding Law (1990) § 1.7 at p. 9). Additionally, even if we were to entertain doubt as to the wisdom of the Board's rejection of all bids, we will not invalidate it in the absence of clear evidence that it abused its discretion. See id. at 292. This is because it is not our function, as a reviewing court, to substitute our judgment for that of the Board. See id. at 288.

Arbitrary and capricious action is essentially a test of rational action. Worthington v. Fauver , 88 N.J. 183, 204 (1982). Action considered arbitrary and capricious is "willful and unreasoning action, without consideration and in disregard of circumstances. Where there is room for two opinions, action is [valid] when exercised honestly and upon due consideration, even though it may be believed that an erroneous conclusion has been reached." Id . at 204-05 (alteration in original) (citations and internal quotation marks omitted). Therefore, a presumption of validity exists that the Board properly exercised its discretion. Harvard Enters., Inc. v. Bd. of Adjustment of Madison, 56 N.J. 362, 368 (1970).

In New Jersey, public schools are subject to the Public School Contracts Law, N.J.S.A. 18A:18A-1 to -59 (Act), when soliciting bids for construction jobs. Significantly, N.J.S.A. 18A:18A-22 provides the following six circumstances under which a public school may reject all bids for a publicly bid project:

A board of education may reject all bids for any of the following reasons:
a. The lowest bid substantially exceeds the cost estimates for goods or services;
b. The lowest bid substantially exceeds the board of education's appropriation for the goods or services;
c. The board of education decides to abandon the project provision or performance of the goods or services;
d. The board of education wants to substantially revise the specifications for the goods or services;
e. The purposes or provisions or both of N.J.S.A. 18A:18A-1 et seq. are being violated; and
f. The board of education decides to use the State authorized contract pursuant to N.J.S.A. 18A:18A-10.

There is no requirement under the Act that a school board specifically articulate the reason for a decision to reject all bids. Ibid. Attempts to introduce legislation requiring a specific reason for rejecting bids failed in the Legislature in 2008, 2010, and again in 2013. Assemb. 4147 Leg., 215th Sess. (N.J. 2012); Assemb. 3285 Leg., 214th Sess. (N.J. 2010); Assemb. 2561 Leg., 213th Sess. (N.J. 2008). Thus, the Legislature has yet to require that the reason(s) for rejecting all bids must be publicly stated. Consequently, so long as a board of education rejects all bids for any of the reasons permitted under N.J.S.A. 18A:18-22 and the decision was neither arbitrary nor capricious, the rejection is proper. See Dore v. Board of Educ. of Bedminster Twp., Somerset County, 185 N.J.Super. 447, 453 (App. Div. 1982). (stating that agency action is valid if not arbitrary or capricious, is supported by the record, and is consistent with legislative policies or implied in the statutory scheme administered by the agency).

Here, the BA explained, in her testimony, the SDA was fully funding the project and if it decided the Board's project was over budget, the Board would be unable to award the project to anyone. Schaner additionally testified, without objection, that it was her understanding Honeywell was specifically identified as the manufacturer to be utilized in the project because the Honeywell system was "already existing in the high school and in order to maintain the maintenance system with Honeywell, we felt continuing with Honeywell was appropriate." She indicated she conferred with the Board's consulting architect before the bid invitations were published and the architect proposed that the Honeywell systems be utilized. Judge Malestein credited this testimony and found that there would be a savings by retaining Honeywell. This factual determination is entitled to our deference. See Rova Farms Resort, Inc. v. Investors Ins. Co. of America, 65 N.J. 474, 484 (1974).

In challenging the Board's action, plaintiff, both before the trial court and in this appeal, focuses its argument around the proposition that once a reason is articulated, the Board is bound by that publically articulated reason. Plaintiff did not, however, attack the credibility of the BA's explanation or proffering contrary evidence, which raises a factual dispute as to the credibility of this explanation or as to whether the Board acted in good faith when the Board raised the cost factor as the reason for rejecting all bids.

Moreover, the cost factor was not actually a different reason than that which was set forth in the resolution. In the resolution, the Board merely stated that it was rejecting all bids "in accordance with N.J.S.A. 18A:18A-22." Schaner's testimony that the lowest bid exceeded cost estimates for the project as recommended by the SDA is a reason for rejecting all bids, which is expressly set forth under the Act. N.J.S.A. 18A:18A-22. The additional language in the resolution that "[t]he Board will modify the scope of work for the control panel and re-bid the project, " does not speak to the reason for rejecting all bids. Rather, that language expresses what the Board intended to do. The inclusion of Johnson Controls and Siemens Building Technology in the ATC section of the revised bid invitation, in addition to Honeywell International, is consistent with the Board's statement in the resolution that it intended to modify the scope of work for the control panel. Although under Paragraph 2.2 substitutions were already permitted and therefore no bid modification was required, the specific inclusion of additional manufacturers could reasonably be viewed as either clarifying or highlighting Paragraph 2.2's substitution provisions.

In short, the record before Judge Malestein evidenced a rational basis for rejecting all bids. The fact that it was unnecessary to reject all bids in order to permit substitutions does not render the Board's action arbitrary or capricious. Further, there was no evidence proffered that the action was in bad faith. PENPAC, Inc. v. Morris County Mun. Utilities Authority, 299 N.J.Super. 288, 298 (App. Div. 1997).

Finally, we reject plaintiff's contention that the court's dismissal of its action violated its procedural due process rights. Rule 4:67-5 permits the court to try a summary action on the return day and to "hear the evidence as to those matters which may be genuinely in issue and render a final judgment." The court proceeded in this manner, made credibility determinations and rendered judgment thereafter. The court's credibility determination is entitled to our deference. Rova Farms, supra, 65 N.J. at 484. Moreover, there is substantial, credible evidence in the record supporting the court's determination that the Board's action was neither arbitrary nor capricious and that it at all times proceeded in good faith.


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