Case Law Summaries

Entech Corporation v. City of Newark

• Opinion Date: January 9, 2002
• Business Law
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PUBLIC BIDDING— The statute that provides that bid specification challenges be brought at least three days before bid opening allows a public agency to decide to go ahead with the bidding procedure or to risk a post-award challenge.

A municipality placed a sewer rehabilitation project out for bid. Although apparently the low bidder, a company’s proposal was rejected in favor of the second lowest bidder whose offer was 60 percent higher. The reason for the rejection was that the low bidder proposed to us shotcrete or gunite when the bid specifications called for the use of a cured-in-place pipe lining or Fiberglass Reinforced Plastic segmental sewer lining. Even though shotcrete had been used in other sewer rehabilitation projects in the municipality and was less expensive than the two specified methods, the municipality excluded the low bidder’s challenge to the exclusion of shotcrete as an alternate method of sewer rehabilitation. When the low bidder became concerned that the bid openings on certain contracts excluded shotcrete as a rehabilitation method, it wrote to the municipality’s engineer to request that shotcrete be considered as an alternate method. It received a response that while shotcrete had been acceptable for some projects in the past, it could not be used for four of the five contracts now out for bid. The engineer gave no explanation for his conclusion. In response, the low bidder sent another letter arguing that shotcrete had historically been accepted for sewer rehabilitation projects and was more cost effective than the other methods chosen. It received no written response. Notwithstanding this history, it submitted a bid proposing the use of shotcrete or gunite. Its bid was rejected with a notice that the “alternate bid proposal ... cannot be accepted.” The contractor did not file a bid protest within three days prior to opening of bids. Rather, approximately one month after the bids were opened, it filed a Complaint in Lieu of Prerogative Writs seeking an injunction against the award of the contract to any entity other than itself.

The Court examined a great deal of technical material concerning the lining of brick sewer systems. It took particular note of the municipality’s consultant’s notation that the “successful installation of a high quality gunite liner is heavily dependent on the skill and experience of the nozzleman, gun operator and job superintendent,” concluding “that if gunite were used in the project, stringent experience and certification requirements would be mandated.” The consultant also noted that gunite was also more susceptible to corrosion than a cured lining and less resistant to abrasion than liners. In conclusion, the consultant noted that the use of shotcrete was an economical method, but that its “life expectancy and long term stability” were questionable.

The Court was constrained to the principal that it could not overturn the decision of a municipal body unless it found that the decision to be arbitrary, capricious, and unreasonable. Also, the Court pointed out that “there must be a clear abuse of discretion by the municipality in order for such a decision to be overturned by a court.” Public bidding must be fair and free from fraud and public bidding statutes “should be enforced by the courts to promote that objective.” Under the Local Public Contracts Law, “contracts generally must be awarded to the lowest bidder who submits a bid conforming to the specifications.” As such, bid proposals “must not materially deviate from the specifications set forth by the contracting authority.” Material deviations cannot be waived. Where a bidder wants to challenge bid specifications, it can do so not less than three business days prior to the opening of bids. “Challenges filed after that time shall be considered void and having no impact on the contracting unit or award of a contract.” Where an action challenging bid specifications is made prior to the bid submission date, the challenger has standing. This put a public entity on notice prior to the bidding openings “that a potential bidder is challenging the specifications so that the entity then has an opportunity to re-evaluate the specifications and either quickly respond to the challenge before the opening, postpone the bid opening to address the challenge and perhaps change the specifications, or to proceed with the opening without addressing the challenge with the knowledge that the bid award may be subject to a post-opening challenge.” It also gives the public entity the assurance “that if no challenge to the specifications is made within the statutory time frame, the specifications cannot later be attacked.” The lower bidder argued that it was entitled to a hearing on its specification challenge before the bid was awarded. Unfortunately for it, nothing in the explicit language of the governing statute requires a hearing on a challenge. Consequently, the Court held that the relevant statute “affords potential bidders the right to preserve a bid specification challenge which can then be perfected after the bid opening, and affords the contracting entity the flexibility to address the challenge before the opening or defer it until after the opening with the knowledge that the bid award may then be brought into question. A challenge to a bid specification need not be formal. As long as the public contracting agency provides a fair opportunity for challenges for bid specifications to be heard, “either before or after the bid awards, the statutory provision is satisfied.” Here, about four days before the bid opening, the low bidder filed a bid specification challenge concerning the exclusion of shotcrete as a rehabilitation alternative. This challenge met the three-day requirement for a bid specification challenge. The challenge was rejected without explanation. The bidder did not seek to restrain the bid opening as it could under the case law. Instead of filing a post-opening bid specification challenge with the municipality, the low bidder filed a complaint in court seeking to set aside the bid due to the municipality’s exclusion of shotcrete as a rehabilitation method. By rejecting the challenge to the bid specifications without any opportunity for a hearing and without explanation before the bid award, the municipality opened itself to a post-award challenge. The Court expressed a preference that such challenges be bought before the public contracting entity in the first instance so that a record could be made by the governmental body for the Court to review. Nonetheless, the Court pointed out that it would not insist on such a procedure.

The municipality and its consultant’s “refusal to provide reasons to [the low bidder] ... was shortsighted at best, ..., because the record show[ed] that [the low bidder’s] questioning the exclusion of shotcrete was reasonable and merited a substantive response.” Having said all of that, the Court reviewed the consultant’s reports and found it clear that the municipality acted reasonably and well within its discretion to exclude shotcrete for this particular brick sewer rehabilitation project. It felt that the municipality’s “decision to exclude shotcrete from [the contract in question was] supported by reasonable technological concerns and [was] neither arbitrary nor capricious.” It didn’t matter that municipal officials appeared at the ceremonial opening of trading of stock for the manufacturer of the specified sewer liners. In fact, that manufacturer was not the lowest bidder and the contract was awarded to another company. Moreover, “[a]n unsupported allegation of favoritism to a local bidder does not suffice to establish that an abuse of discretion occurred.”

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