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Seacoast Builders Corporation v. Jackson Township Board of Education

363 N.J. Super. 373, 833 A.2d 84 (App. Div. 2003)

PUBLIC BIDDING; AGGREGATE RATINGS—A bidder’s aggregate rating for a public contract is to be considered both at the time of bidding and the time of award, but needs only cover the base bid and those alternates that are actually awarded.

This case raised “a novel question respecting the financial qualifications for bidders for government contracts.” Prospective bidders for public work are required to be pre-classified by a division of the Department of the Treasury. Classified bidders receive aggregate ratings calculated in accordance with a formula in the administrative code. That rating is based on a variety of financial factors, “including the bidder’s working capital, bonding capacity, and performance rating.” The aggregate rating determines the size of the proposed contract on which the bid may be made. Here, the question was whether a “bidder’s aggregate rating is to be determined as of the date of the bid or the date of the award of the contract.” Also, a question was raised as to whether “the aggregate rating is required to be based on bidder’s base bid or on the bid including all of the alternates.”

A board of education solicited bids for construction of a new high school. It requested both a base bid and a bid on fifty-two alternates. The board intended to use its discretion to choose which, if any, of the alternates would be required. The apparent low bidder had both the lowest base bid and the lowest aggregate bid for the alternates. The board selected several of the alternates. After adding the cost for the alternates to the base bid, the total bid was still less than the second place bidder’s base bid. As a result, the board awarded the general construction contract to the lowest bidder. The second lowest bidder protested, arguing that the lowest bidder’s total bid “exceeded its aggregate rating and hence that it was not qualified to bid on the work.” At the time of bidding, the lowest bidder had a sufficiently high aggregate rating but, after subtracting its outstanding work, what was left of its aggregate rating covered the base bid plus the seven alternates, but did not cover the sum of the successful bidder’s base bid and its aggregate bid for all fifty-two alternates. The board of education disallowed the protest and the second highest bidder sought relief from the court. The lower court concluded that the lowest bidder was disqualified “because its original bid including the fifty-two alternates exceeded its aggregate rating less the value of uncompleted work.” In doing so, the board relied on a portion of the administrative code that read: “(c) A firm shall not be awarded a contract which, when added to its backlog of uncompleted construction work, as shown on Form DPMC 701, would exceed the firm’s aggregate rating… .” The successful bidder responded that subpart (a) of the same administrative code regulation should have been controlling, and that it complied with that subsection. That portion requires bidders to “include with each bid a statement of the current value and status of its backlog of uncompleted work (not to include ‘non-at-risk’ construction management contracts) as of the bid due date and a certification that the award of the subject contract would not cause the firm to exceeds its aggregate rating.”

In the view of the Appellate Division, a bidder must comply with both paragraphs. “That is to say, we think it plain that the bidder must include with its bid the required certification ... and that the condition must also be met at the time of the bid award.” It pointed out that a bidder’s financial situation may change during the period between submitting the bid and the contract award. By example, new contracts might affect the bidder’s aggregate rating. Consequently, the Court believed “that the plain intent of the regulation was to insure the bidder’s financial responsibility to undertake the work by requiring the aggregate-rating compliance both when the bid is submitted and when the contract is awarded.” This, however, did not answer the question about how alternates were to be treated. In that regard, the Court agreed with the lower court that the regulation was ambiguous in that regard and, therefore, it was necessary to look at the public policy underlying public bidding for government contracts.

The lower court concluded that public policy supported the second-place bidder’s position. The Appellate Division disagreed. In reading the lower court’s opinion, the Appellate Division understood that the lower court was relying “most heavily on what it saw as opportunities for manipulation if the bidder’s aggregate rating at the time of bid submission was based on the base bid rather than the bid with all alternates.” It rejected that logic because it felt the “possibility for bidder manipulation” to be remote. Further, it did not appear to the Court that there would “be any advantage to a bidder submitting a bid, a costly and time-consuming process, if it [did] not wish to perform the contract.” It saw no reason why a bidder “whose aggregate rating is within its base bid should not be permitted to take the risk that the chosen alternates would result in exceeding its aggregate rating. The point is that if all bidders are free to take that risk, the playing field stays level.” What seemed to drive the Court’s opinion was revealed in its statement that, “[a]s our cases have made abundantly clear, of at least equal importance to avoiding corruption and favoritism are the objectives of encouraging free and open competition on a level playing field and securing for the public the performance of the work by the lowest responsible bidder.” When alternates are included in a specification, “the value of the contract that will ultimately be awarded is unknown. [The Court took the view] that disqualifying bidders on the basis of unknown factors is antithetical to the public policy embodied by the public bidding laws.”


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