Opinion
DOCKET NO. A-3780-13T2
05-23-2014
C&H INDUSTRIAL SERVICES, INC., Plaintiff-Respondent, v. CITY OF VINELAND, Defendant-Respondent, and INFRASTRUCTURE AND INDUSTRIAL ENERGY, LLC, Defendant-Appellant.
Edward T. DeLisle argued the cause for appellant Infrastructure and Industrial Energy, LLC (Cohen, Seglias, Pallas, Greenhall & Furman, PC, attorneys; Mr. DeLisle and Jennifer R. Budd, on the brief). Edward F. Duffy argued the cause for respondent City of Vineland. John F. Palladino argued the cause for respondent C&H Industrial Services, Inc. (Hankin Sandman Palladino & Weintrob, attorneys; Mr. Palladino and Colin G. Bell, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Waugh, Nugent and Accurso.
On appeal from Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-157-14.
Edward T. DeLisle argued the cause for appellant Infrastructure and Industrial Energy, LLC (Cohen, Seglias, Pallas, Greenhall & Furman, PC, attorneys; Mr. DeLisle and Jennifer R. Budd, on the brief).
Edward F. Duffy argued the cause for respondent City of Vineland.
John F. Palladino argued the cause for respondent C&H Industrial Services, Inc. (Hankin Sandman Palladino & Weintrob, attorneys; Mr. Palladino and Colin G. Bell, on the brief). PER CURIAM
In this dispute over the award of a public contract, defendant Infrastructure and Industrial Energy, LLC (IIE), appeals two Law Division orders that invalidated its contract to construct a simple cycle power plant for the City of Vineland and denied its motion for a stay pending appeal. The Law Division invalidated the contract after determining that IIE had violated the Local Public Contracts Law (LPCL), N.J.S.A. 40A:11-1 to -51, as well as Vineland's bidding and proposal requirements, by failing to make full disclosure of all of its ten percent owners. The Law Division further concluded that IIE's incomplete disclosure was a material defect in its proposal that Vineland could not waive. For the reasons that follow, we affirm.
These are the facts on the record before us. Vineland advertised for public bids on "One (1) Simple Cycle Power Plant at Clayville Generating Station Unit #1." Three companies bid on the project: IIE, plaintiff C&H Industrial Services, Inc. (C&H), and a third party. Although C&H was the low bidder, Vineland rejected the three bids because they all exceeded the project engineer's budget estimate.
Before oral argument, C&H Industrial Services, Inc., filed a motion to supplement the record, which IIE did not oppose provided it was also permitted to supplement the record. We have granted the motion and considered the supplemental submissions of the parties.
Vineland advertised for bids a second time and the same three companies submitted bids. C&H was the low bidder, but Vineland again rejected the bids. Following a hearing on C&H's bid, a hearing officer concluded that Vineland was "within [its] rights . . . to reject the bid of C&H[.]" C&H's bid had been rejected because it "did not demonstrate the level of experience called for in the bid specs" and because C&H did not provide a "Critical Path Schedule" as required by the bid specifications. In a written decision, the hearing officer explained:
The bid specs call for very specific experience as the lead responsible party for bringing to completion power plant construction similar to the proposed Clayville project. I believe the Utility and the City have the right and the responsibility to require a level of experience that provides the highest degree of confidence that this project will be completed on time, on budget and correctly. Falling short of this level of experience is not immediately correctable and the experience presented by C&H, while impressive, does not seem to meet the level called for in the specs. Additionally, lowering the required experience level, even if permissible, would be against the advice of the Utility engineers charged with developing this project and not anything I am prepared to recommend.
The record is not entirely clear whether C&H's bid also exceeded the project's estimated cost. Vineland rejected the remaining bids, and possibly that of C&H as well, because they exceeded the estimates to construct the power plant. Vineland decided to negotiate the bid, a process statutorily authorized in limited circumstances following two unsuccessful attempts by a municipality to obtain reasonably-priced bids through the public advertisement process. See N.J.S.A. 40A:11-5(3). C&H and IIE participated in the negotiations. The third bidder declined to do so. As part of the negotiating process, Vineland required C&H and IIE to submit sealed proposals that conformed with a document entitled "City of Vineland General Instructions." The General Instructions included the following provision under section VII E, entitled "Stockholder Disclosure":
N.J.S.A. 52:25-24.2 provides that no corporation, partnership, limited partnership, limited liability corporation, limited liability partnership, Subchapter S corporation or sole proprietorship, shall be awarded any contract for the performance of any work or the furnishing of any goods and services, unless, prior to the receipt of the bid or accompanying the bid of said corporation, partnership, limited partnership, limited liability corporation, limited liability partnership, Subchapter S corporation or sole proprietorship, bidders shall submit a statement setting forth the names and addresses of all stockholders in the corporation or partnership who own (10%) ten percent or more of its stock of any class, or of all individual partners in the partnership who own a ten percent or greater interest therein. The included Statement of ownership shall be completed and attached to the bid proposal. This requirement applies to all forms of corporations and partnerships, including, but not limited to, limited partnerships, limited liability corporations, limited liability partnerships and Subchapter S corporations. Failure to submit a stockholder disclosure document shall result in rejection of the bid.
The General Instructions included a "Corporate Disclosure Statement" that stated, among other things:
Chapter 33 of the Public Laws of 1977 ([N.J.S.A.] 52:25-24.2) provides in pertinent part that no partnership or corporation shall be awarded any contract by the State, County, Municipal or School District, or any subsidiary or agency thereof, for the performance of any work or the furnishing of any materials or supplies unless prior to the receipt of the bid or accompanying the bid of said partnership or corporation, there is submitted a statement containing the following information:
1. If the bidder is a partnership, then the statement shall set forth the names and addresses of all partners who own a 10% or greater interest in the partnership.
2. If the bidder is a corporation, then the statement shall set forth the names and addresses of all stockholders in the corporation who own 10% or more of its stock of any class.
3. If a corporation owns all or part of the stock of the corporation or partnership submitting the bid, then the statement shall include a list of the stockholders who own 10% or more of the stock of any class of that corporation.
4. If the bidder is other than a corporation or partnership, bidder shall indicate the form of corporate ownership as listed below. (see next page).
IIE completed the Corporate Disclosure Statement by identifying itself as a "Limited Liability Corporation" and disclosing the following information about its ownership structure:
Infrastructure and Industrial Constructors USA, LLC, One Bigelow Square, Suite 724, Pittsburgh, PA 15219 (100% financial ownership of form of corporation checked above)
Infrastructure and Industrial Constructors USA Holdings, Inc., One Bigelow Square, Suite 724, Pittsburgh, PA 15219 (100% financial ownership of Infrastructure and Industrial Constructors USA, LLC)
FdG Capital Partners II, LP, 485 Lexington Ave., 23rd Floor, New York, NY 10017 (88.13% of Infrastructure and Industrial Constructors USA Holdings, Inc. through Private Equity Funds)
The ownership information was incomplete. Unaware of the incomplete disclosure, Vineland accepted IIE's proposal and awarded it the contract.
Vineland officials were apparently unaware that IIE had failed to comply with the statute when it submitted bids in response to Vineland's first and second advertised request for bids.
Two days later, C&H filed a complaint in lieu of prerogative writs in the Law Division. C&H asked the court to declare IIE's proposal non-responsive because IIE had not fully disclosed all ten percent owners. Specifically, C&H alleged IIE had failed to disclose that FdG Capital Partners II, LP, had at least one entity that held an ownership interest in excess of ten percent. C&H also asked the court to compel Vineland to award the project to C&H.
IIE opposed the relief C&H sought in its complaint, and filed a certification that included the following statements from its president:
3. Infrastructure and Industrial Constructors USA, LLC with an address of One Bigelow Square, Suite 724, Pittsburgh, PA 15219 owns 100% of IIE, the contract awardee.
4. Infrastructure and Industrial Constructors USA Holdings, Inc. with an address of One Bigelow Square, Suite 725, Pittsburgh, PA 15219 owns 100% of Infrastructure and Industrial Constructors USA, LLC.
5. FdG Capital Partners II, LP with an address of 485 Lexington Ave., 23rd Floor, New York, NY 10017 owns 87.9596% of Infrastructure and Industrial Constructors USA Holdings, Inc.
6. I recently learned that two public pension funds, which themselves are neither entities nor individuals, own more than 10% of FdG Capital Partners II, LP as follows:
a. The New York City Employees' Retirement System with an address of 335 Adam Street, Suite 2300, Brooklyn, NY 11201-3724 owns 11.2721% of FdG Capital Partners II, LP; and
b. The Teachers' Retirements System of the City of New York with an address of 55 Water St., New York, NY 10041 owns 11.2721% of FdG Capital Partners II, LP.
7. I also recently learned that J.P. Morgan U.S. Pooled Corporate Finance Institutional Investors II, LLC with a registered agent's
address of 80 State Street, Albany, NY 122072543 owns 12.3417% of FdG Capital Partners II, LP.
8. I understand that J.P. Morgan U.S. Pooled Corporate Finance Institutional Investors II, LLC may have two individuals, or entities, that own 10% or more of the equity of that entity, but I do not have access to that information and, to my knowledge, that information is not publicly available.
9. I was unaware of the ownership structure of FdG Capital Partners II, LP at the time that IIE responded to the City of Vineland's invitation to negotiate.
In the Law Division action, C&H argued that IIE's incomplete ownership disclosure in its proposal was a material, non-waivable, and incurable defect. IIE argued that its incomplete disclosure was unintentional, non-material, and waivable by Vineland. Vineland agreed with IIE, and also argued that if the court required it to contract with C&H, the court would in effect be requiring Vineland to accept a bid it would have rejected due to C&H's lack of experience. Vineland argued that it would be more acceptable if the court required it to start the bidding process anew.
The court rejected the arguments of IIE and Vineland, invalidated Vineland's contract with IIE, and ordered Vineland to negotiate with C&H and "make a determination that it deems appropriate." Vineland subsequently awarded the contract to C&H.
During oral argument, Vineland's attorney represented to us that the governing body never formally rejected C&H's second bid based on its lack of experience. Counsel further represented that Vineland has satisfied itself that C&H's contractors and subcontractors fulfill the experience requirement, and that C&H can complete the project at a cost less than the bids that were rejected as exceeding the project's estimated cost.
IIE asked the court to stay its decision pending an appeal. The court declined to do so. IIE then moved before us for leave to file an emergent application for a stay. We granted the motion and scheduled oral argument. During oral argument, the parties agreed to have us decide the case on its merits. We now do so.
The issues raised by the parties require us to resolve legal issues based on undisputed facts. Under those circumstances, our review is de novo. State ex rel. K.O., 217 N.J. 83, 91 (2014); Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
The LPCL requires, among other things, that a municipality advertise for bids on public contracts that exceed a statutory threshold. After receiving bids, the municipality is generally required to award a contract to the lowest responsible bidder. N.J.S.A. 40A:11-4(a). The lowest responsible bidder is the bidder "(a) whose response to a request for bids offers the lowest price and is responsive; and (b) who is responsible." N.J.S.A. 40A:11-2(27). "'Responsible' means able to complete the contract in accordance with its requirements, including but not limited to requirements pertaining to experience, moral integrity, operating capacity, financial capacity, credit, and workforce, equipment, and facilities availability." N.J.S.A. 40A:11-2(32). "'Responsive' means conforming in all material respects to the terms and conditions, specifications, legal requirements, and other provisions of the request." N.J.S.A. 40A:11-2(33).
In the case before us, Vineland included in the "terms and conditions, specifications, [and] legal requirements" of its advertised bids, as well as its "General Instructions" for the proposals it solicited during the negotiation process, the requirements of N.J.S.A. 52:25-24.2 (the ownership disclosure statute), which provides:
No corporation or partnership shall be awarded any contract nor shall any agreement be entered into for the performance of any work or the furnishing of any materials or supplies, the cost of which is to be paid with or out of any public funds, by the State, or any county, municipality or school district, or any subsidiary or agency of the State, or of any county, municipality or school district, or by any authority, board, or commission which exercises governmental functions, unless prior to the receipt of the bid or accompanying the bid, of said corporation or said partnership, there is submitted a statement setting forth the names
and addresses of all stockholders in the corporation or partnership who own 10% or more of its stock, of any class or of all individual partners in the partnership who own a 10% or greater interest therein, as the case may be. If one or more such stockholder or partner is itself a corporation or partnership, the stockholders holding 10% or more of that corporation's stock, or the individual partners owning 10% or greater interest in that partnership, as the case may be, shall also be listed. The disclosure shall be continued until names and addresses of every noncorporate stockholder, and individual partner, exceeding the 10% ownership criteria established in this act, has been listed.
The disclosure requirements of N.J.S.A. 52:25-24.2, "[w]hen required by the bid plans and specifications, . . . shall be considered mandatory items to be submitted at the time specified by the contracting unit for the receipt of the bids[.]" N.J.S.A. 40A:11-23.2(c). If a bidder fails to submit "[a] statement of corporate ownership pursuant to [the ownership disclosure statute]," the failure "shall be deemed a fatal defect that shall render the bid proposal unresponsive and that cannot be cured by the governing body[.]" Ibid.
Considered together, the LPCL and ownership disclosure statute make clear that "a public contract award is not determined simply by the lowest bid, but rather by the lowest bid that complies with the substantive and procedural requirements in the bid advertisements and specifications." Muirfield Constr. Co., Inc. v. Essex Cnty. Improvement Auth., 336 N.J. Super. 126, 132 (App. Div. 2000) (citation and internal quotation marks omitted). For that reason, "all bids must comply with the terms imposed, and any material departure invalidates a non-conforming bid as well any contract based upon it." Meadowbrook Carting Co. v. Borough of Island Heights, 138 N.J. 307, 314 (1994).
The issue in the case before us is whether IIE's failure to comply completely with the ownership disclosure requirement, specified by Vineland as a term and condition of the negotiated proposal, is a material deviation that invalidates IIE's proposal, and therefore its contract. We conclude that it is.
IIE argued in the Law Division that N.J.S.A. 52:25-24.2 did not apply to this case because IIE is an LLC, not a corporation or a partnership. Assuming the statute does not apply by its own terms to LLCs, it is evident from Vineland's bidding requirements and proposal requirements that it demanded disclosure be made of LLCs as well as corporations and partnerships. Indeed, IIE purported to comply with the requirement.
When deciding whether a bidder's non-compliance with bidding requirements, other than those enumerated in N.J.S.A. 40A:11-23.2, is material and non-waivable, a court must evaluate the specific non-compliance under the following two-part test:
[F]irst, 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.
[Meadowbrook, supra, 138 N.J. at 315 (citations and internal quotation marks omitted).]
Returning to N.J.S.A. 52:25-24.2, its purpose is "to ensure that all members of a governing body and the public be made aware of the real parties in interest with whom they are asked to contract." George Harms Constr. Co. v. Borough of Lincoln Park, 161 N.J. Super. 367, 372 (Law Div. 1978). Requiring bidders to fully disclose ten percent owners serves several purposes: it ensures that the governing body's members are aware of the real parties in interest; it ensures that the public will be made aware of the real parties in interest; it enables public officials to identify conflicts of interest before a public contract is awarded; and it provides public officials with the information necessary to assess the capability, financial stability, and moral integrity of bidders. Ibid.
A bidder's failure to completely disclose ten percent owners undermines the purposes of the ownership disclosure statute and can potentially delay projects and increase their cost. For those reasons, non-compliance with N.J.S.A. 52:25-24.2 "deprive[s] the municipality of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements[.]" Meadowbrook, supra, 138 N.J. at 315 (citations and internal quotation marks omitted). In other words, IIE's non-compliance with the statute satisfies the first part of the test for materiality.
IIE's statutory non-compliance also satisfies the second part of the test for materiality; that is, failure to comply completely with the ten percent disclosure requirement is "of such a nature that its waiver would adversely affect competitive bidding by placing . . . [IIE] in a position of advantage over other bidders or by otherwise undermining the necessary common standard of competition." Ibid. (citations and internal quotation marks omitted). In Muirfield, supra, 336 N.J. Super. at 136-37, we explained why this is so. If, after opening bids, a non-conforming lowest bidder decides that it does not want the award, it can simply refuse to comply with the disclosure requirements. Id. at 136. Further, failing to comply completely with the statutory disclosure requirements places the non-compliant bidder in a position of advantage over other bidders who might have bid on the project had they known they could avoid timely filing of the disclosure statement or that it would be waived. Id. at 136-37. We fail to discern any reason why the same analysis, for the same reasons, would not apply to the identical disclosure requirement as a term and condition for submitting a proposal during the negotiation process.
IIE's central contention is that the trial court erred by applying N.J.S.A. 52:25-24.2 to "proposals submitted in response to a request to negotiate." IIE emphasizes that N.J.S.A. 52:2524.2 requires that the disclosure statement be made prior to the receipt of the bid or accompanying the bid. IIE further emphasizes the language in N.J.S.A. 40A:11-23.2 providing that "[w]hen required by the bid plans and specifications, the following requirements shall be considered mandatory items to be submitted at the time specified . . . for the receipt of the bids"; and that non-compliance shall be "deemed a fatal defect that shall render the bid proposal unresponsive and that cannot be cured by the governing body[.]" (emphasis added). IIE notes that N.J.S.A. 52:25-24.2 and N.J.S.A. 40A:11-23.2 only discuss the requirement of the disclosure statement "in the context of bidding," and reasons that because the contract with Vineland was not awarded to it through the public bidding process, but rather through the negotiating process, the mandatory disclosure requirements do not apply.
To support its argument, IIE relies on Att'y Gen. Formal Op. 1980-9. There, the question the Attorney General addressed "is whether the term 'bid' should be interpreted to mean the taking of competitive bids after public advertisement or whether it should be given its more general meaning of an offer to perform work or to supply materials." After reviewing the "well established legislative scheme governing the making of contracts by the State and by local government units," the Attorney General concluded "the term bid should be construed to have been used in the [ownership disclosure statute] in the same sense as it was used in these statutes regarding public contracts[,]" namely, to mean the taking of competitive bids after public advertisement.
We reject IIE's argument for several reasons. First, regardless of whether compliance with the ownership disclosure statute was statutorily required during the negotiation process, Vineland required compliance.
Next, IIE failed to comply with the bidding requirements each time it submitted a bid in response to Vineland's advertisement for bids. Permitting a municipality to waive non-compliance under such circumstances would subvert both the strong public policy underlying compliance with the disclosure statute and the legislative mandate set forth in N.J.S.A. 40A:11-23.2.
Lastly, IIE's reliance on Att'y Gen. Formal Op. 1980-9 is unpersuasive. The Attorney General's opinion concluded with this paragraph:
Finally, although the [ownership disclosure statute] only requires disclosure statements where publicly advertised bidding is involved, we note that [it] does not prohibit the imposition of more extensive disclosure requirements than those mandated by [it]. The purpose of the disclosure statements is to make the members of the governing body aware of the real parties in interest with whom they are dealing and to identify "any real or potential conflicts of interest arising out of the awarding of public contracts." [Statement on the Bill, Assembly
No. 22] (1976); [George Harms Constr. Co., supra, 161 N.J. Super. at 372]. Clearly, a voluntary administrative extension of the disclosure requirement to include nonadvertised bidding should be encouraged as a means to further protect the integrity of the government's procurement process.
Here, Vineland extended the requirements of the disclosure statute to the non-advertised negotiating process. As the Attorney General's opinion points out, even if not required, such disclosure "should be encouraged as a means to further protect the integrity of the government's procurement process." IIE has offered no sound reason why, in view of Vineland's explicit requirement and the policy underlying disclosure requirements, it should be relieved from the disclosure requirements. The policy considerations underlying the non-waivability of a material defect in a bid apply with equal force to a case such as this, where IIE did not comply with the disclosure statute when it twice bid on the Vineland power plant project and thereafter when it submitted its proposal during negotiations.
In view of the inapplicability of the Attorney General's opinion to the facts of this case, we need not determine whether Opinion 1980-9 remains valid in view of intervening amendments to the LPCL and the policy considerations underlying the requirement of disclosing ten percent owners of entities that bid on public projects.
--------
For the reasons we have explained, we conclude that the disclosure requirement is non-waivable.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF APPELLATE DIVIDION