(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
MEADOWBROOK CARTING COMPANY, INC. V. BOROUGH OF ISLAND HEIGHTS, ET AL. (A-24-94)
Argued September 27, 1994 -- Decided December 7, 1994
STEIN, J., writing for a unanimous Court.
The issue on appeal is whether a municipality can award a contract to a low bidder that fails to
include with its bid a required consent of surety to provide a performance bond.
The Borough of Island Heights (Borough) had a three-year contract with Meadowbrook Carting Co.,
Inc. (Meadowbrook) for the collection and removal of garbage. That contract was to expire on February 1,
1993. Pursuant to the requirements of the Local Public Contracts Law (LPCL), the Borough advertised in
November 1992 for bids on a new three-year contract beginning February 1, 1993. The advertisements
notified potential bidders that they were required to submit a sealed bid in accordance with the bid
specifications by January 29, 1993.
The bid specifications were consistent with various provisions of the LPCL and included
requirements for, among other things, a submission with the bid proposal of a consent of surety guaranteeing
that a bonding company will issue a performance bond in accordance with the bid specifications. Pursuant to
the LPCL, the award would go to the lowest responsible bidder providing the bid complies in all respects
with the requirements specified in the bid. The Borough reserved the right to waive, in its sole discretion,
minor informalities, defects or nonconformities in the bid documents if determined to be in the interests of
the Borough. As well, the municipality reserved the right to reject the bid if the bidder failed to furnish any
of the information or documents required by the specifications.
The bids were opened on January 29, 1993. Meadowbrook and Consolidated Waste Services, Inc.
(Consolidated) were the only bidders for the proposed contract. Consolidated was the low bidder but failed
to include in it's bid either a consent of surety, a Certificate of Insurance, or an adequate ownership-disclosure statement, all requirements of the bid specifications. Meadowbrook's bid complied in all respects
with the bid specifications but was over $100,000 higher in price.
Consolidated delivered the Certificate of Insurance to Borough officials about one-half hour after
the opening of the bids. Four days later, Consolidated provided the Borough with a consent of surety from
Acstar Insurance Company. About eight days later, Consolidated provided the Borough with an ownership-disclosure statement complying with the specifications.
Meadowbrook objected to the award of the contract to Consolidated because of Consolidated's
failure to provide a consent of surety and an adequate ownership-disclosure statement with its bid. The
Borough waived those deficiencies and adopted a resolution awarding the contract to Consolidated.
Meadowbrook then instituted suit challenging the validity of that resolution and seeking to compel the
Borough to award the contract to Meadowbrook. The trial court dismissed Meadowbrook's complaint,
finding that the submission of the incomplete ownership-disclosure statement was a nonmaterial defect that
had been cured, and that Consolidated's failure to submit a consent of surety with its bid had been cured by
furnishing it four days after the bid opening.
The Appellate Division affirmed substantially for the reasons stated by the trial court. The Supreme
Court granted Meadowbrook's petition for certification which addressed only the issue of Consolidated's
failure to submit a consent of surety with its bid.
HELD: The failure of Consolidated Waste Services, Inc. to include a consent of surety with its bid
proposal is a material defect that can be neither waived nor cured. Therefore, the contract
entered into between Consolidated and the Borough of Island Heights is void. Under the
circumstances, however, all bids are to be rejected and the contract readvertised.
1. The competitive-bidding process is incorporated in the LPCL. According to that statute, publicly
advertised contracts must be awarded to the lowest responsible bidder. The Court has interpreted that
requirement to mean that the contract must be awarded to the lowest bidder that complies with all the
substantive and procedural requirements in the bid advertisement and specifications. Thus, all bids must
comply with the terms imposed, and any material departure invalidates a nonconforming bid as well as any
contract based on it. Minor or inconsequential discrepancies and technical omissions can be waived.
However, the cases have been somewhat inconsistent in articulating the difference between a material defect
in a bid that cannot be waived and an immaterial defect that can be waived. (pp. 5-8)
2. There is a two-part test for the determining whether a defect in a bid is material and thus
nonwaivable: 1) 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 2)
whether the defect is of such a nature that its waiver would adversely affect competitive bidding by placing a
bidder in the position of advantage over other bidders or by otherwise undermining competition. (pp. 8-10)
3. The consent of surety provides the local government with some assurance at the time of the bid
submission that the low bidder will have the capacity to perform the contract and to supply the necessary
bonds. The requirement that a consent of surety be submitted with the bid proposal should be understood
to enhance the municipality's ability to determine the lowest responsible bidder, thereby minimizing the risk
of default by the successful bidder. To permit waiver of a consent-of-surety requirement would undermine
the stability of the public-bidding process. Consolidated's failure to include a consent of surety with its bid
submission had the capacity to affect the fairness of the bidding process. Therefore, Consolidated's failure to
include the consent of surety with its bid proposal is a material defect that cannot be waived. To the extent
that other cases disagree with this holding, they are overruled. (pp. 10-21)
4. Prohibiting the waiver of the consent-of-surety requirement occasionally may result in additional
costs to the public, however, the overriding interest in ensuring the integrity of the bidding process outweighs
such concerns. Moreover, any exception would encourage bidders not to provide consent of surety, a result
contrary to the purpose of the LPCL. (p. 22)
6. Because the Borough could not waive the consent-of-surety requirement, the contract entered into
between Consolidated and the Borough is void. However, because Meadowbrook's bid was more than 18" higher than Consolidated's, the bids are to be rejected and the contract readvertised. Consolidated must
continue during the rebidding process to provide garbage-collection services for the Borough under the terms
of the present contract on a per diem basis in accordance with the contractual rate. The Borough shall
advertise for new bids to be received within sixty days. The performance of the new contract should begin
promptly after the contract has been awarded. (pp. 22-23)
Judgment of the Appellate Division is REVERSED.
CHIEF JUSTICE WILENTZ and JUSTICES CLIFFORD, HANDLER, POLLOCK, O'HERN, and
GARIBALDI join in JUSTICE STEIN's opinion.
SUPREME COURT OF NEW JERSEY
A-
24 September Term 1994
MEADOWBROOK CARTING COMPANY,
INC., a New Jersey Corporation,
Plaintiff-Appellant,
v.
BOROUGH OF ISLAND HEIGHTS and
CONSOLIDATED WASTE SERVICES,
INC.,
Defendants-Respondents.
Argued September 27, 1994 -- Decided December 7, 1994
On certification to the Superior Court,
Appellate Division.
David J. Haber argued the cause for
appellant.
J. Mark Mutter argued the cause for
respondent Borough of Island Heights.
Edward T. Feurey argued the cause for
respondent Consolidated Waste Services, Inc.
Thomas S. Cosma submitted a brief on behalf
of amicus curiae, Construction Industry
Advancement Program (Connell, Foley & Geiser,
attorneys).
The opinion of the Court was delivered by
STEIN, J.
The issue before us is whether a municipality can award a contract to a low bidder that fails to include with its bid a
required consent of surety to provide a performance bond. In an
unreported opinion, the Appellate Division affirmed the trial
court's ruling that the omission of a consent of surety from the
bid is a defect that can be temporarily waived and subsequently
cured. We granted certification,
136 N.J. 30 (1994), and now
reverse.
The essential facts are undisputed. Defendant Borough of Island Heights (Borough) had a three-year contract with plaintiff, Meadowbrook Carting Company, Inc. (Meadowbrook), for the collection and removal of garbage, which was due to expire on February 1, 1993. Pursuant to the requirements of the Local Public Contracts Law, N.J.S.A. 40A:11-1 to -49, the Borough advertised in November 1992 for bids on a new three-year contract commencing February 1, 1993. The advertisements notified potential bidders that they were required to submit a sealed bid in accordance with the specifications by January 29, 1993.
The bid specifications were consistent with various provisions of the Local Public Contracts Law. Pursuant to N.J.S.A. 40A:11-21, the bid specifications required "[b]id security in the form of a certified check, cashier's check or bid bond in the amount of 10" of the bid but not to exceed $20,000" to be submitted with the bid proposal. The specifications also required the party to whom the contract was awarded to furnish a "[performance] bond of any indemnity company authorized to do
business in the State of New Jersey and satisfactory to the
Borough for the full amount of the bid, as accepted, and [to] pay
all premiums due thereon." As required by N.J.S.A. 40A:11-22,
the bid specifications mandated that bidders submit with their
bid proposal a consent of surety guaranteeing that a bonding
company will issue a performance bond in accordance with the bid
specifications. The specifications defined a "consent of surety"
as a "statement submitted with a bid, from a surety company duly
authorized to do business in New Jersey and satisfactory to the
governing body to the effect that said surety company will
furnish a bond for the bidder, if awarded the contract." Each
bidder was also required to provide a statement disclosing the
identity of the owners of the bidding enterprise, and a
Certificate of Insurance verifying that the bidder had in force
insurance coverage with respect to the risks listed in the
specifications and with the required amount of coverage.
The Borough reserved the right to reject a bid if the bidder
failed to furnish any of the information or documents required by
the specifications. The specifications further provided that an
"award, if made, will be to the lowest responsible Bidder
providing his bid complies in all respects with the requirements,
as contained herein, of the Borough of Island Heights." However,
the Borough "reserve[d] the right to waive, in its sole
discretion, any minor informalities, defects or non-conformities
in any bid documents submitted if it is determined to be in the
best interest of the Borough of Island Heights to do so."
The bids were opened on January 29, 1993, and Meadowbrook
and defendant Consolidated Waste Services, Inc. (Consolidated)
were the only bidders for the proposed contract. Consolidated's
bid for the three-year contract was $556,300, while Meadowbrook's
bid was $657,405. Consolidated's bid, however, failed to include
either a consent of surety or a Certificate of Insurance as
required by the bid specifications. Consolidated's bid also did
not contain an adequate ownership-disclosure statement.
Meadowbrook's bid, however, complied in all respects with the bid
specifications.
Consolidated delivered the required Certificate of Insurance
to Borough officials approximately one-half hour after the
opening of bids. Four days later, on February 2, 1993,
Consolidated provided the Borough with a consent of surety in the
form of a letter from Acstar Insurance Company (Acstar) that
stated: "In the event that Consolidated Waste Services, Inc.
should be awarded the contract for the Borough of Island Heights
project, ACSTAR Insurance Company as Surety, will furnish a
Payment and Performance Bond providing Consolidated Waste
Services, Inc. continues to meet ACSTAR Insurance Company's
underwriting and collateral requirements." Consolidated
furnished to the Borough an ownership-disclosure statement
complying with the specifications on February 8, 1992.
Although Meadowbrook objected to the award of the contract
to Consolidated because of its failure to provide a consent of
surety and an adequate ownership-disclosure statement with its
bid, the Borough's governing body elected to waive those
deficiencies and adopted a resolution awarding the contract to
Consolidated.
Meadowbrook instituted this action challenging the validity
of the resolution awarding the contract to Consolidated and
seeking to compel the Borough to award the contract to
Meadowbrook. The Law Division dismissed Meadowbrook's complaint,
determining that the submission of the incomplete ownership-disclosure statement was a nonmaterial defect that had been
cured, and that Consolidated's failure to submit a consent of
surety with its bid had been cured by the furnishing of a consent
of surety four days after the bid opening. The Law Division also
concluded that the conditional terms of the consent of surety
eventually furnished were commercially reasonable and therefore
complied with the specifications.
On appeal, Meadowbrook again challenged Consolidated's
failure to submit the consent of surety with its bid, and its
submission of the inadequate disclosure statement. The Appellate
Division affirmed substantially for the reasons stated by the
trial court. In its petition for certification, Meadowbrook
raises only the issue of Consolidated's failure to submit a
consent of surety with its bid.
The competitive-bidding process is incorporated in the Local Public Contracts Law. N.J.S.A. 40A:11-3 and -4 require that
municipalities and counties advertise for bids on public
contracts that exceed the statutory threshold amount. The
purpose of the Local Public Contracts Law is to "secure for the
public the benefits of unfettered competition." Terminal Constr.
Corp. v. Atlantic County Sewerage Auth.,
67 N.J. 403, 410 (1975);
see also Township of River Vale v. R.J. Longo Constr. Co.,
127 N.J. Super. 207, 215 (Law Div. 1974) (stating that purpose of
competitive bidding for local public contracts is not protection
of individual interests of bidders, but rather advancement of
public interest in securing most economical result by inviting
competition in which all bidders are placed on equal basis). The
statutes authorizing competitive bidding accomplish that purpose
by promoting competition on an equal footing and guarding against
"favoritism, improvidence, extravagance and corruption."
Township of Hillside v. Sternin,
25 N.J. 317, 322 (1957); see
also L. Pucillo & Sons, Inc. v. Mayor of New Milford,
73 N.J. 349, 356 (1977) (L. Pucillo) (stating that purpose of act is "`to
guard against favoritism, improvidence, extravagance and
corruption'") (quoting Terminal Constr. Corp., supra, 67 N.J. at
410)).
Accordingly, the statutory rule in New Jersey is that
publicly advertised contracts must be awarded to "the lowest
responsible bidder." N.J.S.A. 40A:11-6.1; see also Hillside,
supra, 25 N.J. at 323, 326 (construing predecessor to Local
Public Contracts Law). This Court has interpreted that
requirement to mean that the 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. Hillside, supra, 25 N.J.
at 324 ("The significance of the expression `lowest bidder' is
not restricted to the amount of the bid; it means also that the
bid conforms with the specifications."); see also William A.
Carey & Co. v. Borough of Fair Lawn,
37 N.J. Super. 159, 165
(App. Div. 1955) ("The lowest bidder, within the contemplation of
the statute [the predecessor of N.J.S.A. 40A:11-1 to -49][] is
the one whose bid is not only the lowest for the work to be done
but also conforms to the requirements of the notice to
bidders.").
Strict compliance is required, and a municipality generally
is without discretion to accept a defective bid. See L. Pucillo,
supra, 73 N.J. at 356; 426 Bloomfield Ave. Corp. v. City of
Newark,
262 N.J. Super. 384, 387 (App. Div. 1993). "The long-standing judicial policy in construing cases governed by the
Local Public Contracts Law * * * has been to curtail the
discretion of local authorities by demanding strict compliance
with public bidding guidelines." L. Pucillo, supra, 73 N.J. at
356. This Court has adopted that approach largely as a
prophylactic measure. Ibid. As Justice Francis observed in
Hillside, supra, "In this field it is better to leave the door
tightly closed than to permit it to be ajar, thus necessitating
forevermore in such cases speculation as to whether or not it was
purposely left that way." 25 N.J. at 326.
As a result, all bids must comply with the terms imposed,
and any material departure invalidates a nonconforming bid as
well as any contract based upon it. Id. at 323. "It is firmly
established in New Jersey that material conditions contained in
bidding specifications may not be waived." Terminal Constr.
Corp., supra, 67 N.J. at 411 (citing Hillside, supra, 25 N.J. at
324). However, minor or inconsequential discrepancies and
technical omissions can be the subject of waiver. Ibid;
Hillside, supra, 25 N.J. at 324. That limitation on the doctrine
of strict compliance was acknowledged in Terminal Construction
Corp., supra:
Essentially this distinction between conditions
that may or may not be waived stems from a recognition
that there are certain requirements often incorporated
in bidding specifications [that] by their nature may be
relinquished without there being any possible
frustration of the policies underlying competitive
bidding. In sharp contrast, advertised conditions
whose waiver is capable of becoming a vehicle for
corruption or favoritism, or capable of encouraging
improvidence or extravagance, or likely to affect the
amount of any bid or to influence any potential bidder
to refrain from bidding, or which are capable of
affecting the ability of the contracting unit to make
bid comparisons, are the kind of conditions [that] may
not under any circumstances be waived.
In River Vale, supra, 127 N.J. Super. at 216, Judge Pressler set forth a two-part test for determining "whether a specific noncompliance constitutes a substantial and hence nonwaivable irregularity." As the Appellate Division observed in L. Pucillo & Sons, Inc. v. Township of Belleville, 249 N.J. Super. 536, 547, certif. denied, 127 N.J. 551 (1991) (Pucillo), "the test of
materiality has been reduced to [a] * * * two-prong analysis."
It requires a determination
"[`]first, 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.[']"
[Ibid. (quoting Palamar Constr., Inc. v. Township of
Pennsauken,
196 N.J. Super. 241, 255 (App. Div. 1983)
(quoting River Vale, supra, 127 N.J. Super. at 216)).]
Application of the River Vale criteria to the question
whether a consent-of-surety requirement can be waived requires
that we focus on the function of the consent of surety in the
public-bidding process. The specifications state that the
purpose of a performance bond from a surety is to guaranty that
the contractor will "execute the work in accordance with the
terms of the specifications and contract." If the advertisements
or specifications for a bid subject to the Local Public Contracts
Law require a surety-company bond, then N.J.S.A. 40A:11-22
mandates a consent of surety:
When a surety company bond is required in the
advertisement or specifications for a contract or
agreement, every contracting unit shall require from
any bidder submitting a bid in accordance with plans,
specifications and advertisements, as provided for by
law, a 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.
This certificate from a surety company, referred to as a consent
of surety, assures the public entity that the surety will provide
the performance bond if the contract is awarded to and signed by the bidder. See L. Pucillo, supra, 73 N.J. at 353. The significance of a consent of surety is that it provides the local government with some assurance at the time of the bid submission that the low bidder will have the capacity to perform the contract and to supply the necessary bonds. See Albanese v. Machetto, 7 N.J. Super. 188, 191 (App. Div. 1950) (holding that low bidder's failure to comply with specifications requiring consent of surety to be submitted with proposal constituted material defect because omission concerned bidder's ability to carry out obligations under contract to remove garbage); DeSapio Constr., Inc. v. Township of Clinton, 276 N.J. Super. 216, 221 (Law Div. 1994) (determining that failure of low bidder to include consent of surety with bid deprived municipality of assurance that contract would be fulfilled). Moreover, our courts have held that the ability to secure a proper consent of surety is a consideration that could affect bid calculations. See, e.g., Pucillo, supra, 249 N.J. Super. at 547 (stating that failure to submit consent of surety threatens policies underlying competitive-bidding statutes); DeSapio Constr., supra, 276 N.J. Super. at 221-22 (holding that conditional consent of surety was material defect because it provided bidder with a competitive advantage over other bidders); cf. George Harms Constr. Co. v. Ocean County Sewerage Auth., 163 N.J. Super. 107, 110 (App. Div.) (holding that "requirement that the surety be licensed to do business in this State was a material condition of the
instructions to bidders and not a mere technicality"), certif.
denied,
78 N.J. 410 (1978). But see Prismatic Dev. Corp. v.
Somerset County Bd. of Chosen Freeholders,
236 N.J. Super. 158,
161, 165 (App. Div.) (observing, in dictum, that consent of
surety was waivable), certif. denied,
118 N.J. 205 (1989);
Murdock Contracting Co. v. Borough of Verona,
47 N.J. Super. 102,
108-09 (Law Div. 1957) (holding that failure to submit consent of
surety was not substantial defect affecting competitive bidding).
In Pucillo, supra, the Appellate Division concluded that the
municipality could waive neither the requirement that the consent
of surety guarantee a performance bond in the full amount of the
bid nor the requirement that the performance bond be posted for
the full amount of the bid. 249 N.J. Super. at 547. There, the
plaintiff, a potential bidder on a contract for scavenger
services with the Township of Belleville, filed suit challenging
the Township's award of the contract to the defendant Dominick
Pucillo Disposal, Inc. and seeking a declaration that the award
was void, a judgment compelling the readvertisement of the
proposals for the scavenger contract, and an order restraining
that defendant from continued performance of the contract. Id.
at 538. The plaintiff claimed that the defects in Dominick's
bid--the failure to include a consent of surety and performance
bond for the proper amount--were material and not subject to
waiver, and alleged that it had been discouraged from bidding by
the very requirements with which Pucillo had failed to comply.
Id. at 542. Applying the two-prong test enunciated in River
Vale, supra, 127 N.J. Super. at 216, the court held that the
Township could not waive the security requirements set forth in
its bid specifications, reasoning that other bidders may have
been deterred by the surety requirements in the specifications.
Pucillo, supra, 249 N.J. Super. at 547 (citing L. Pucillo, supra,
73 N.J. at 357-58 ("This considerable outlay of funds [that is, a
bid bond in the amount of ten percent of the bid price for a
five-year contract], coupled with the expense and difficulty of
securing a consent of surety for a performance bond on the five-year contract, may have been beyond the ability of some companies
which would have been fully capable of discharging the
obligations of a shorter contract.") (emphasis supplied).
Likewise, Albanese, supra, involved the low bidder's failure
to submit a consent of surety verifying that the bonding company
would provide the bidder with the performance bond required by
the contract should the bidder be awarded the contract. 7 N.J.
Super. at 190. In that case, the bidder did not furnish the
prescribed consent of surety, furnishing instead its own bond
with an indemnity company as a surety thereon. Ibid. Moreover,
the bidder did not submit satisfactory proof of ownership or
leases for certain equipment. Ibid. Acknowledging that the
municipality was without authority to waive any substantial
discrepancy between the specifications and the bids, the court
concluded that those two defects were substantial because they
affected materially the bidder's ability to perform the contract
and therefore could not be waived. Id. at 191.
Similarly, in DeSapio Construction, Inc., supra, 276 N.J.
Super. at 220, 222, the court held that a conditional consent of
surety was a material defect that could be neither waived nor
cured. There, pursuant to N.J.S.A. 40A:11-22, the bid
specifications for a public construction contract for the
Township of Clinton required that all bidders submit a consent of
surety. Id. at 218. The plaintiff, the low bidder, submitted a
letter from a surety that stated it "would not anticipate any
difficulty providing bonds [for the plaintiff] on the above
captioned project, subject to execution of a contract
satisfactory to [the plaintiff and surety]." Id. at 219. After
submitting its bid, the plaintiff submitted a supplemental letter
from the surety that certified that the surety would provide the
performance bonds to the plaintiff "subject only to execution of
the contract." Ibid. After reviewing the bids, the Township's
attorneys advised the Township that the plaintiff's bid was
materially defective. The plaintiff then sued for a declaratory
judgment. Ibid.
First, the Law Division determined that the letter submitted
with the bid was defective because it was not an unconditional
undertaking to provide the performance bond as required by
N.J.S.A. 40A:11-22. Id. at 220. In addition, the court held
that the defect in the consent of surety was material, on the
basis of the two-prong test advanced in River Vale, supra. Id.
at 221. The Township had no assurance that the contract would be
fulfilled because no guaranty existed on the date the bids were
opened that the surety would provide the performance bond for the
duration of the contract. Ibid. Moreover, that deviation gave
the plaintiff an advantage over other bidders because the
plaintiff could avoid its obligation to accept the bid by not
obtaining the performance bond. Id. at 222. Furthermore, the
court emphasized the overriding goal of insuring the integrity of
the bidding process, stating that "[s]trict standards must be
maintained so that there is no opportunity for unfettered
discretion or favoritism in the public bidding process." Ibid.
However, our cases have been somewhat inconsistent in
articulating the difference between a material defect in a bid
that cannot be waived and an immaterial defect that can be
waived. Palamar Constr., supra, 196 N.J. Super. at 254. In
Murdock Contracting Co., supra, 47 N.J. Super. at 108-09, the
court held that the failure to submit a consent of surety was not
a substantial defect but only a "nominal irregularity which was
without unfair effect either to the municipal functions of Verona
or to the fairness of competitive bidding." There, the
plaintiff, a bidder for a contract to erect a garage and storage
building, filed suit demanding that the Borough of Verona accept
its bid and enter into a contract for the construction. Id. at
103. The Borough and Leone, the next low bidder on the contract,
contended that the plaintiff had not complied with the
specifications in that it had failed to include proof of ability
to furnish a performance bond. Id. at 104. The court found that
the defect did not involve unfair competitive bidding and could
be waived. Id. at 106-08.
Similarly, in Prismatic Development Corp., supra, the
Appellate Division, in dictum, observed that a consent of surety
was waivable. 236 N.J. Super. at 160, 161, 165. In that case an
unsuccessful bidder on a public construction project brought an
action to restrain the award of a contract to the low bidder.
Id. at 159-61. Three issues were presented: (1) whether a
prospective prime contractor for a single overall contract could
name alternative specialty subcontractors when bidding pursuant
to N.J.S.A. 40A:11-16; (2) whether the failure to include a
consent of surety was material or nonwaivable; and (3) whether
the failure to include a non-collusion affidavit was material.
Id. at 160. The court decided that in view of its conclusion
that the subcontractors must be named definitively in the bid,
the issues involving the consent of surety and non-collusion
affidavit need not be addressed. Id. at 165. Nonetheless, "in
light of the possibility of further litigation, [the Appellate
Division] note[d] [its] agreement with the trial judge['s]"
ruling that a bidder's failure to include a consent of surety and
non-collusion affidavit at the time the bid was submitted were
either "waiveable and/or nonmaterial." Id. at 161, 165.
The Borough and Consolidated contend that the omission of the consent of surety was immaterial and could be temporarily
waived and subsequently cured. They assert that the effect of a
waiver would not be to deprive the Borough of its assurance that
the contract will be entered into, performed, and guaranteed in
accordance with the specifications, noting that if Consolidated
were to refuse to sign the contract, the Borough would retain the
bid security. The trial court agreed, noting as well that the
subsequent letter from Acstar "provides the municipality with the
appropriate assurances that the contract would be entered into
and it would be performed in accordance with the terms of the
contract."
We hold that Consolidated's failure to include a consent of
surety with its bid proposal is a material defect that can be
neither waived nor cured. Accordingly, to the extent that
Prismatic Development Corp., supra, 236 N.J. Super at 165, and
Murdock Contracting Co., supra, 47 N.J. Super. at 106-09,
conflict with our holding, they are overruled.
A consent of surety is a direct undertaking by the bonding
company, enforceable by the municipality. Its purpose is to
provide a guarantee to the municipality, at the time of the
submission of bids, that if the bidder were to be awarded the
contract, the surety would issue the required performance bond.
The Borough's bid specifications required that "[t]he party to
whom this contract shall be awarded shall furnish a bond of any
indemnity company * * * for the full amount of the bid." The bid
specifications also required, pursuant to N.J.S.A. 40A:11-22,
that all bidders include a consent of surety with their
submission.
To permit waiver of the consent-of-surety requirement would
undermine the stability of the public-bidding process. For
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. Without a
performance bond, the bidder cannot be required to enter into and
perform the contract. See Hillside, supra, 25 N.J. at 328
(holding that Township could not waive low bidder's failure to
provide required bid security to validate bid and hold bidder to
its terms). In DeSapio Construction, Inc., supra, the court
noted that the low bidder that had failed to include an
unconditional consent of surety with its bid proposal had
acquired a competitive advantage because even if it were awarded
the contract, it "could unilaterally `cancel' the award by
failing to obtain" the consent of surety. 276 N.J. Super. at
222. Moreover, that the municipality can retain the amount of
the bid bond does not necessarily assure that the low bidder will
enter into or perform the contract. If the low bidder determines
that its bid is too low and that its prospective loss on the
contract exceeds the amount of its bid bond, that low bidder may
decide to forfeit its security rather than incur a greater loss
by performing the contract.
In addition, a bidder who fails to submit a consent of
surety with its bid proposal may be unable to obtain a consent of
surety or a performance bond if it is later awarded the contract.
In Albanese v. Machetto,
5 N.J. Super. 605, 607 (Law Div. 1949),
aff'd,
7 N.J. Super. 188 (App. Div. 1950), the low bidder failed
to submit the required consent of surety with his bid. The court
held that the specifications "patently contemplated as a
prerequisite to consideration of the bid that the municipality
have assurance that the bidder if awarded the contract could
supply a performance bond in the amount of the contract." Id. at
608. The specifications' "`obvious purpose was to compel the
bidder to establish, before the award was made, his ability to
perform the contract.'" Ibid. (quoting Tufano v. Borough of
Cliffside Park,
110 N.J.L. 370, 373 (Sup. Ct. 1932)).
The Legislature obviously regarded the financial capacity of
a bidder to be a material and substantial consideration in the
determination of the lowest responsible bidder, as evidenced by
its adopting separate provisions within the Local Public
Contracts Law to provide municipalities with a means of requiring
prospective bidders to furnish in advance a statement of their
financial capacity. N.J.S.A. 40A:11-20 to -22; Hillside, supra,
25 N.J. at 323; see William A. Carey & Co., supra, 37 N.J. Super.
at 166 ("It is an appropriate object of the questionnaire and
specifications that the bid furnish assurance of the possession
by the bidder at the time of submission of the bid of the
physical as well as financial resources for performance of the
contract, particularly where it is so closely related to the
public health and welfare as in the case of garbage
collection."). Moreover, the requirement that a consent of
surety be submitted with the bid proposal should be understood to
enhance the municipality's ability to determine the lowest
responsible bidder, thereby minimizing the risk of default by the
successful bidder. See Hillside, supra, 25 N.J. at 323; William
A. Carey & Co., supra, 37 N.J. Super. at 166.
We are also persuaded that Consolidated's failure to include
a consent of surety with its bid submission had the capacity to
affect the fairness of the bidding process. "This is so even
though it is evident that in fact there was no corruption or any
actual adverse effect upon the bidding process." Terminal
Constr. Corp., supra, 67 N.J. at 410; see, e.g., Pucillo, supra,
249 N.J. Super. at 547 (stating that failure to include consent
of surety with bid submission was material defect because "other
bidders may have been deterred by the surety requirement in the
original specifications"); George Harms Constr. Co., supra, 163
N.J. Super. at 109 (holding that failure to submit consent of
surety from a surety licensed in New Jersey was a material defect
because it had capacity to affect competitive-bidding process);
DeSapio Constr., supra, 276 N.J. Super. at 221-22 (holding that
conditional consent of surety was a material defect because that
deviation gave that bidder a competitive advantage since it was
free to cancel bid award by not obtaining performance bond);
Albanese, supra, 5 N.J. Super. at 608 ("`To permit one bidder to
ignore the[] requirement[] [of submitting a consent of surety
with its bid] would give [it] an advantage over the others, and
to permit him to supply the deficiency later, and after the bids
were opened, would open the door to fraud and favoritism, and
defeat the statutory purpose of protection to the taxpayer.'"
(quoting Tufano, supra, 110 N.J.L. at 373)).
Our specific concern is that the requirement of a consent of
surety "`may have deterred others from bidding who would have bid
had they known that [that] condition[] would be waived.'" L.
Pucillo, supra, 73 N.J. at 358 (quoting Case v. Inhabitants of
Trenton,
76 N.J.L. 696, 700 (E. & A. 1909)). The specifications
in L. Pucillo required the bidder to bid on contracts of one-,
two-, three-, and five-years duration. Id. at 353. The
defendant failed to submit a proposal for the five-year contract
and to provide the requisite bid bond and consent of surety. Id.
at 354. We held that the condition that a bid be submitted on a
five-year contract was material because the defendant's deviation
provided him with "a palpable economic benefit [that] gave him an
advantage over his competitors and undermined the necessary
common standard of competition." Id. at 358. Significantly, we
acknowledged that although the disparity between bids suggested
that the failure to bid on the five-year contract and procure the
consent of surety might not have affected the competitive-bidding
process, we were not prepared to rule out the possibility that
other bids would have been submitted if it were known that the
failure to bid on and bond the five-year contract were subject to
waiver. Id. at 357-58. The "considerable outlay of funds,
coupled with the expense and difficulty of securing a consent of
surety for a performance bond on the five-year contract, may have
been beyond the ability of some companies which would have been
fully capable of discharging the obligations of a shorter
contract." Id. at 357-58.
Other considerations also persuade us that to permit waiver
of a consent-of-surety requirement could affect the fairness of
the competitive-bidding process. A bidder's ability to perform a
project might improve between the time the bids are submitted and
the time the bids are awarded, with the result that a surety
initially unwilling to supply a bond might be willing to do so
later. Furthermore, a bidder that is determined to be the low
bidder on a project may be willing to invest additional capital
and take other steps necessary to obtain the required consent of
surety, which it would not have done without the assurance that
it would then be awarded the contract. Moreover, by permitting a
waiver of the consent-of-surety requirement, those bidders with
limited bonding capacity would not need to deplete that capacity
by obtaining the consent of surety, which would allow them
simultaneously to submit bids for other contracts.
Courts should not casually "transform the mandatory
requirement in these specifications [of including a consent of
surety at the time the bid is submitted] into a polite request."
L. Pucillo, supra, 73 N.J. at 356. Public bidders should regard
the specifications as requiring the submission of bids on the
terms specified. See ibid. "Awarding the contract to one who
fail[s] to submit bids on all terms necessarily create[s] an
inequality in the bidding and an opportunity for favoritism."
Ibid. As Justice Francis stated in Hillside, supra: "Every
element [that] enters into the competitive scheme should be
required equally for all and should not be left to the volition
of the individual aspirant to follow or to disregard and thus to
estimate his bid on a basis different from that afforded the
other contenders." 25 N.J. at 322-23.
We recognize that to prohibit the waiver of the consent-of-surety requirement occasionally may result in additional cost to
the public, but we have no doubt that the overriding interest in
insuring the integrity of the bidding process is more important
than the isolated savings at stake. If an exception were made,
its effect would be to encourage bidders not to provide consents
of surety, a result contrary to the purpose of the Local Public
Contracts Law.
Because we find that the Borough's waiver of the consent-of-surety requirement was beyond its authority, the contract entered
into between Consolidated and the Borough is void. See L.
Pucillo, supra, 73 N.J. at 358-59. In its specifications, the
Borough has reserved the right to reject any bid "for any * * *
justifiable reason which in the judgment of the governing body
requires the governing body to reject all Bid Proposals in the
best interest of the Borough of Island Heights." We note that
Meadowbrook's bid was more than $100,000--or approximately
eighteen percent--higher than Consolidated's. Under the
circumstances, we hold that all bids are to be rejected and the
contract readvertised. See Gannett Outdoor v. City of Atlantic
City,
249 N.J. Super. 217, 220-22 (App. Div. 1991) (sustaining
rejection of all bids and stating that municipality should not be
required to accept bid if there is only one bid, or where it
considers price too high); Marvec Constr. Corp. v. Township of
Belleville,
254 N.J. Super. 282, 293-94 (Law Div. 1992) (holding
that municipality that has reserved right to reject all public
bids can do so when it believes that rebidding would probably
bring a lower price). A condition of our invalidation of
Consolidated's contract is that Consolidated continue during the
rebidding process to provide garbage-collection services for the
Borough under the terms of the present contract. Its
compensation for past and future services shall be paid on a per
diem basis in accordance with the contractual rate. See L.
Pucillo, supra, 73 N.J. at 359.
The Mayor and Council of the Borough shall advertise for new
bids to be received within sixty days. The Borough, in its
discretion, may solicit proposals for any term up to the
statutory maximum of five years. N.J.S.A. 40A:11-15(3); see L.
Pucillo, supra, 73 N.J. at 359. The performance of the new
contract should begin promptly after the contract has been
awarded.
Judgment reversed.
Chief Justice Wilentz and Justices Clifford, Handler,
Pollock, O'Hern, and Garibaldi join in this opinion.
NO. A-24 SEPTEMBER TERM 1994
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
MEADOWBROOK CARTING COMPANY,
INC., a New Jersey Corporation,
Plaintiff-Appellant,
v.
BOROUGH OF ISLAND HEIGHTS and
CONSOLIDATED WASTE SERVICES,
INC.,
Defendants-Respondents.
DECIDED December 7, 1994
Chief Justice Wilentz PRESIDING
OPINION BY Justice Stein
CONCURRING OPINION BY
DISSENTING OPINION BY