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Mercer Wrecking Recycling Corporation v. Maztec Environmental, Inc.

A-3027-00T1 (N.J. Super. App. Div. 2001) (Unpublished)

PUBLIC BIDDING; SUBCONTRACTORS—There is no general requirement that an out-of-state subcontractor listed by a contractor in a public bid needs to be authorized to do business in New Jersey at the time of bidding or that a corporate subcontractor must be in good standing at the time of bidding.

The award of a demolition contract by a municipal housing authority to a contractor was challenged by the next lowest bidder. The challenge was based on three alleged defects in the successful contractor’s bid. One complaint was that the bid had been awarded to a particular corporation, but its bid bond and consent of surety documents referred to the entity by another corporate name. The other corporate name was exactly the alternate name of the successful bidder except with the addition of the suffix, “Inc.” The second alleged defect was that the demolition company’s blasting subcontractor was a foreign corporation that had not obtained a Certificate of Authority from the Division of Commercial Recording until after the bid had been awarded. The third allegation was that the corporate charter of the successful bidder’s plumbing subcontractor had been revoked for failure to file annual reports for two consecutive years. The next lowest bidder asserted that these three “irregularities amounted to material defects” in the bid and thus it should have been awarded the bid contract. The lower court set aside the bid award, but required that the contract be re-bid. The Appellate Division reversed. In the award of public contracts, a bidder that does not strictly comply with the bid requirements is not entitled to receive the award and “a municipality generally is without discretion to accept a defective bid.” But only a material defect will disqualify a bidder. A material defect is one that has the effect of depriving the municipality of its assurance that the contract will be entered into, performed, and guaranteed according to its specified requirements, and also one that “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.” According to the Appellate Division, the lower court “cited no authority for the proposition that the failure to possess a Certificate of Authority on the part of a foreign corporate subcontractor subjects the bidder’s bid to a charge that it is materially defective.” Further, “the only standard given for ... qualification as subcontractors is that which is stated in” N.J.S. 40A:11. Nowhere in that statute is there any statement” that subcontractors must comply with all other laws and in particular there is no reference to laws which regulate corporate existence for status.” Further, the corporate statute “specifically provides that the failure to obtain such a Certificate [of Authority] ‘shall not impair the validity of any contract or act of such corporation ... .’” As to the plumbing subcontractor who failed to file any reports, the Court took note that although revocation of a charter “renders all powers conferred on the corporation ‘inoperative and void,’” reinstatement of the charter validates all actions taken in the interim. Consequently, the Court believed “that [t]here is no logical reason to validate corporate actions taken during a period of revocation if no such actions during such a period were proper or possible in the first place.” The Court concluded that neither subcontractor labored under any infirmity. The failings on the part of the subcontractors did not provide either of them with a lawful excuse to withdraw from their subcontracts or for the successful bidder to withdraw its bid. With respect to the surety bond, the Court pointed out that there was no violation of law to improperly use “Inc.” with the authorized alternate name, and even if it was a statutory violation, it would not “impact on the public bidding process so long as the public body is assured that the named guarantor and its surety would guarantee the bidder’s contract.”

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