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Nova Crete, Inc. v. City of Elizabeth

A-3211-08T3 and A-3550-08T3 (N.J. Super. App. Div. 2010) (Unpublished)

PUBLIC BIDDING; SURETIES —In a public bidding competition, a requirement that a bidder provide a certification from a responsible surety company that the surety will provide a surety bond in the event the bid is successful will not be satisfied by a conditional certification of a surety obligating it to issue such a bond only if the bidder requests its issuance.

A municipality publically solicited bonds for a project. All bidders were required to submit, with their bids, a certificate from a responsible surety company stating that the surety would provide a surety bond in the event the bidder became the successful bidder. The lowest bid was rejected because the surety’s consent stated that it would execute the final bond, “provided it was requested by the principal,” who in this case was the low bidder. When the second lowest bidder was awarded the contract, the lowest bidder sued seeking injunctive relief and contract rescission.

The lower court held that the lowest bidder substantially complied with the bid requirements. It permanently enjoined the municipality and the second lowest bidder from proceeding under the contract, rescinded the contract, and awarded the contract to the lowest bidder. The municipality and the second lowest bidder appealed, and the Appellate Division reversed. The Court stated that the competitive-bidding process was incorporated in the Local Public Contracts Law and its purpose is to secure for the public the benefits of unfettered competition. To that end, publically advertised contracts must be awarded to the lowest “responsible” bidder. To the Court, this meant the contract had to be awarded not simply to the lowest bidder, but rather to the lowest bidder who complied with the substantive and procedural requirements in the bid advertisements and specifications. All bids must comply with the terms imposed, and any material departure invalidates a nonconforming bid as well as any contract based upon it.

According to the Court, when bid plans and specifications require the surety’s consent, such consent is mandatory and the failure to obtain a proper consent makes the bid proposal unresponsive. Lack of surety consent is one of five bid defects that cannot be waived under any circumstances. The relevant statute required the surety company to guaranty that “it will” provide the bonds for the project “without conditions when the contract is awarded.” In the instant case, the certificate from the lowest bidder’s surety imposed a different obligation upon the surety; it agreed to supply the performance bond, if and only if and when the lowest bidder requested it to do so. Thus, the Court found that the surety’s consent did not comply with the bid specification’s express terms. The Court also noted that the conditions attached to the consent seemed a “virtual invitation” to further litigation. It envisioned a scenario where, even if the lowest bidder did not walk away from the job, litigation would be required to resolve whether it had properly asked the surety to issue a performance bond. It believed the issuance of an unconditional consent of surety was designed to foreclose such a possibility. Thus, it concluded that the municipality correctly decided that the lowest bidder was not the lowest “responsible” bidder. As a result, the Court vacated the injunction and awarded the contract to the second lowest bidder.

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