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Longview of Ocean County, Inc. v. Borough Council of the Borough of Point Pleasant

A-3498-98T2 (N.J. Super. App. Div. 2000) (Unpublished)

PUBLIC BIDDING; MATERIAL DEFECTS; SURETIES—A Consent of Surety that requires the successful bidder to “make application” is a conditional consent and does not satisfy a bidding requirement that a Consent of Surety be furnished with a bid; as such, it is a material defect.

The second lowest bidder on a waste disposal contract challenged the award of the contract to the lowest bidder. A municipality simultaneously received bids for a separate contract for the collection of recyclable material. The successful bidder on the disposal contract was not successful on the recycling contract. The disgruntled bidder contended that the winning bid did not comply with the specifications in two respects. Its first contention that was with regard to the “consent of surety” required in the bid specifications and by statute, the winning bidder did not provide the required “certificate from a surety company stating that it will provide the contractor with a bond in such sum as is required in the advertisement or in the specifications.” In particular, the unsuccessful bidder contended that the winning bidder’s certificate was fatally conditional. In the certificate’s language, the winning bidder was required to make application for the required bonds. In response to the loser’s contentions, the municipality received a letter of explanation from the attorney for the surety. In that letter, it was explained that “the use of the words ‘make application to [the surety] for the required performance and payment bonds’ is not a condition which affects the obligation of the surety to issue the bonds.” The attorney explained that the language was added to reflect the fact that once a bidder was successful it must inform the company so that the company would know to whom to issue the bond. At a hearing before the lower court, the unsuccessful bidder conceded that assuming that it was the lowest responsible bidder, it would still have to fill out some forms and give them to the bonding company. The attorney for the surety also testified and reiterated that the “makes application” language in the consent of surety was “merely a logical, a recitation of the logical sequence.” He testified that once the bidder notified the surety that it was successful, no additional requirements or credit review was required. According to the attorney for the surety, the surety had already guaranteed the issuance of the bond. The lower court concluded that the “makes application” language in the Consent of Surety did not rise to the level of non-waivable material defects and upheld the grant of the award. The Appellate Division reversed. In its view, local governments are without discretion to accept defective bids because a “contract must be awarded not simply to the lowest bidder, but rather to the lowest bidder that complies with the substantive and procedural requirements in the bid advertisements and specifications.” According to the Court, non-waivable irregularities require examination as to “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.” Case law has held that a conditional consent of surety is a material defect because it provides the bidder with a competitive advantage over other bidders. According to the Court, in the present case, the consent of surety submitted by the successful bidder, while arguably less problematic than those found in prior cases, nevertheless was qualification of the surety’s obligation to issue a bond by subjecting it to a post-award process. “It imposed on a successful bidder an obligation to make an application. Such an application implies a power in the bonding company to reject the application.” Further, if the successful bidder in this case decided not to make an application to the performance bond, it could avoid the contract. This same issue was suggested in a case cited by the Court, where it was stated “[f]or example, if a low bidder that had failed to submit a consent of surety decided it no longer sought the contract because it had determined that its bid was too low, that bidder could decline to obtain the consent of surety and the performance bond.”


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