The New Jersey Constitution provides for taking of blighted property for the purposes of development, redevelopment or to clear such property of blight. In a split decision rendered on March 23, 2015, the New Jersey Supreme Court affirmed the City of Hackensack’s designation of two blocks of land as “blighted and in need of redevelopment,” a move that some legal experts believe, marks a significant shift in the Court’s mind-set that cuts back on governmental limits on eminent domain. The affected blocks, comprised of five contiguous lots of mixed commercial and residential uses, contained derelict buildings that the Hackensack Planning Board in 2008 designated as blighted and “in need of redevelopment”. The plaintiff landowners filed a complaint in the Superior Court, arguing that their properties were improperly classified as in need of redevelopment because they did not meet the constitutional standard for blight as set forth in prior New Jersey case law. The Superior Court rejected that argument in favor of the City, while the Appellate Division reversed for the plaintiffs, paving the way for the Supreme Court to once again review the constitutionality under New Jersey law of blight determinations made by a municipality. Ultimately, the Supreme Court determined that “so long as the blight determination is supported by substantial evidence in the record, a court is bound to affirm that determination,” concluding that substantial evidence in the record supported the Hackensack Planning Board’s findings. The Supreme Court, in dicta, affirmed the constitutionality of the standard for blight set forth in the Blighted Area Clause of the New Jersey Constitution. The Supreme Court also affirmed the deferential standard of review to the municipal decision–making for areas in need or redevelopment. Accordingly, “a presumption of validity” applies to a municipality’s designation of blight, and if supported by “substantial evidence” in the record creates an uphill battle for property owners challenging such designations. According to Ronald Chen, acting Dean of the Rutgers School of Law, “the ruling gives the Legislature a lot of latitude for what constitutes blight” and may make it more difficult for property owners to fight a blight designation in the future.
The New Jersey Supreme Court has unanimously held that the administrative process run by COAH in which municipalities show compliance with affordable housing obligations is no longer working and municipalities are no longer protected from builder’s remedy lawsuits in which a developer sues to build housing at a greater density than permitted by ordinance. The Court’s ruling came after COAH failed to adopt Third Round regulations as previously ordered. Third Round Regulations were originally due in 1999, but have been delayed for more than 15 years by court challenges and COAH’s failure to reach a consensus on the adoption of new regulations.
The Court agreed that Builder’s Remedy suits will now be heard by the courts thereby bypassing the COAH administrative process.
So as not to punish municipalities the Court has:
- Delayed implementation of the Order for 90 days to allow an “orderly transition;”
- Established a transition process and time table for municipalities to have their affordable housing plans deemed compliant by the Court.
During the first 30 days following the order’s effective date courts will hear declaratory judgment actions by municipalities seeking to have their affordable housing plans declared constitutionally compliant ;
- Courts can provide municipalities with immunity from Builder’s Remedy lawsuits ( the equivalent of a COAH affordable housing plan certification) but that immunity will not be granted for an “undefined” time period and will be subject to periodic review. Municipalities can be stripped of their immunity if they abuse the process and do not achieve compliance;
- A court can only permit a Builder’s Remedy after it has the opportunity to address the constitutionality of the municipal affordable housing plan and found it to be “wanting.”
Municipalities must now rush to go to Court within 120 days and seek a declaratory judgment that their affordable housing plans are constitutionally compliant otherwise they will lose protection from Builder’s Remedy litigations.
Property owners should be receiving their annual property tax assessment notices (post cards) from the municipal assessor’s office at this time. Receipt of this assessment notice indicates that it is time to determine whether a tax appeal is warranted for the 2015 tax year. Despite what can best be described as uneven improvement in the real estate market across various commercial segments, the need to carefully evaluate property tax relief opportunities continues. The 2015 tax appeal filing deadline is April 1, 2015 unless a town-wide reassessment or revaluation is in place, in which case the deadline is May 1, 2015.
Consequently, it behooves commercial property owners to review their property tax assessments with their professionals now to ensure that their assessments are in line with the present relatively low property values. In this way, taxpayers can potentially lock in assessments at historically low levels before values significantly rise. In New Jersey, the “Freeze Act” compels that assessments be “frozen” at the levels achieved as a result of a successful appeal for a period of two (2) years. In addition, because assessments are generally not disturbed until a town-wide revaluation or reassessment program is implemented (usually every 5-10 years) there is a real prospect that a lower assessment achieved as a result of a successful appeal this year could have real lasting value and provide savings to taxpayers for years to come.
As a result, there continue to be real opportunities for property owners to realize significant tax savings and lock in the present lower values for the foreseeable future. Commercial property owners are therefore encouraged to consult with their real property tax professionals to determine if a tax appeal would be warranted in their particular case at this time
Please feel free to contact Carl Rizzo at firstname.lastname@example.org or by telephone at (201) 525-6350 with any questions.
The New Jersey Tax Court recently ruled in Methode Electronics, Inc. v. Twp. Of Willingboro, Docket Nos. 019012-2010 and 014098-2011 (Tax January 22, 2015) that the assessment on contaminated property located in Willingboro, New Jersey must be reduced to a mere nominal amount due to its undevelopable condition. In Methode, the property owner manufactured printed circuit boards on a 3-acre parcel. As a result of the owner’s manufacturing activities, the property became contaminated with volatile organic compounds and metals. Methode ceased operations in 1999 and no other businesses operated at the property since that time. Except for the floor slab, all improvements were demolished. As part of its environmental cleanup obligations Methode installed a groundwater treatment system consisting of a number of wells. These monitoring wells were required to remain in place indefinitely. In addition, pursuant to a deed notice, the floor slab was also to permanently remain in place as a cap to prevent off-gassing of toxic vapors from soil and groundwater. The remaining portion of the property was paved and previously served as a parking lot and loading area for the facility.
In 2010, the Township of Willingboro (the “Township”) assessed the property at $404,600. That assessment was appealed by the owner and the Burlington County Board of Taxation reduced the assessment to $244,600. Methode thereafter further appealed its case to the Tax Court. Subsequently, in 2011, while the case relating to the 2010 taxes was still pending, the Township again assessed Methode’s property at $404,600. The 2011 tax assessment was then also appealed to the Tax Court and consolidated for trial with the 2010 matter.
In considering this consolidated matter, the Tax Court found that Methode’s proofs provided sufficient evidence to call into doubt the Township’s assessment and thereby overcame the presumption of correctness attaching to all municipal tax assessments. The Court was then required by law to determine the appropriate value of the property. In evaluating the property, the Tax Court concluded that the subject property did not have any utility due to the extensive costs associated with a cleanup of an indeterminate duration; the limited amount of land that remains free from encumbrance due to the required presence of remediation equipment and the maintenance of the 6,800 square foot concrete cap in order to prevent vapors from migrating into the atmosphere, and due to the continuing prospect that any owner or future owner would be exposed to continuing liabilities associated with the contamination.
Consequently, the Tax Court concluded that the property was indeed overassessed and reduced its assessment to the nominal sum of $2,000. In so holding, the Tax Court determined that prior precedence relating to contaminated properties was of little value because here a convincing showing was made that the property lacked utility in its current state and also lacked the prospect for utility into the immediately foreseeable future.
The impact on property value resulting from contamination therefore continues to be a critical component that must be addressed whenever evaluating the merits of a property tax appeal.
In the recent Orient Way Corp. v. Tp. of Lyndhurst (35-2-4760) decision, the Appellate Division upheld the Tax Court’s determination that an arms’ length sale of the subject contaminated property provided credible evidence of true market value. The import of this decision is that where an arms’ length transaction exists, the reliance on the highly subjective process of determining the appropriate deduction to be applied to the value of the property as if “clean” (free from contamination) can now be avoided. As confirmed by a long line of cases, discussed in a previous piece I authored, the valuation methodology in this area requires satisfaction of three critical components:
- First, the taxpayer needs to establish the appropriate amount of the cleanup costs required to return the property to a “clean” state
- Second, the taxpayer must establish the reasonable period required to complete the cleanup
- Third proof must be offered establishing that there has been a cessation of the cause of the property contamination
Once these three elements are satisfied, the cleanup costs can then be capitalized over the expected cleanup period to determine the amount of the appropriate deduction to apply when fixing a final true value for the property in its current contaminated state. While these proofs will undoubtedly continue to be required, the holding in Orient Way makes plain that our courts will now have the ability to afford great weight to an arms’ length sale of the property where the parties were acting with full knowledge of the existing contamination. As the Tax Court recognized in the case below, the impact of the cleanup obligations will have been appropriately built into the sales price and therefore this price will represent the best indicator of the value of the property in its contaminated state.
Echoing down Main Street in Hackensack is the incessant and repetitive booming of the driving of piles into the ground on what was once the visitor parking lot next to the Courthouse and former jail. The pile driving is part of Phase I of the most expensive public works project in Bergen County history that will include, among other things, the construction of a new Bergen County Justice Center and parking deck. In response to the County’s request for bids earlier this year for the construction of those new buildings, Dobco Construction Services (“Dobco”) was low bidder out of seven bids by a substantial margin. Dobco’s $65,925,000 bid was almost $6 million less than the second lowest bidder, Terminal Construction Corporation (“Terminal”).
Dobco’s bid, however, listed as its electrical subcontractor, Abco Electrical Company LLC (“Abco”), a company with the same ownership as Dobco and which admittedly did not have a licensed electrician as an officer, partner or employee. As one might expect with so much money at stake, Terminal was not going down without a fight, and claimed that the listing of Abco as electrical subcontractor in Dobco’s bid was a material and non-waivable defect, which disqualified Dobco’s bid. Terminal’s bid protest to the County, however, was denied.
Terminal then filed an action in lieu of prerogative writs in the Superior Court of New Jersey, Chancery Division (the “Trial Court”), challenging the County’s denial of Terminal’s bid protest and the County’s award of the contract to Dobco. In a lengthy written decision issued on July 28, the Trial Court rejected Terminal’s claims and dismissed its action with prejudice, determining, among other things, that: (1) Abco was fully credentialed and bonded, and thus “responsible,” and (2) the failure of Abco to have a licensed electrician as an officer, partner or employee at the time of bid opening would not prevent the County from awarding the contract to Abco, as long as the particular electrician that was listed in the bid document by license number becomes associated with Abco and is the electrician who actually performs the supervisory work pursuant to N.J.S.A. 45:5A-9(a). Regarding that last point, the Trial Court, citing to the July 23, 2014 New Jersey Supreme Court decision in Mathew J. Barrick v. State of New Jersey (A-8/9-13 (072795), wrote: “the public bidding laws exist for the benefit of the taxpayers and are construed as nearly as possible with sole reference to the public good; their objects are to guard against favoritism, improvidence, extravagance and corruption; their aim is to secure for the public the benefits of unfiltered competition. …The public good is not served by rejecting Dobco’s bid.”
After the Trial Court denied Terminal’s motion to reconsider its decision and Terminal’s application for a stay of the contract pending an appeal, Terminal sought emergent relief from the Appellate Division. Last Monday, August 4, the Appellate Division granted Terminal a slight reprieve, ordering a temporary stay of the performance of Dobco’s contract while it considers Terminal’s motion for its appeal of the Trial Court’s decision to be heard on an emergent basis. The Appellate Division ordered Terminal to file its motion seeking the emergent relief and a notice of appeal no later than last Friday, August 8, and that opposition be filed by Dobco, the County and the County’s Board of Chosen Freeholders no later than Wednesday, August 13. While the Appellate Division’s actions in granting a stay pending an emergent review is uncommon, it is understandable where there is a clear public interest at stake (ensuring that such a highly significant public works project was subject to a fair bid process) and if the appeal were heard in the normal course without a stay in place, the ultimate outcome of the appeal may be rendered moot by Dobco’s actual performance of the contract. Similarly, the Appellate Division would be disinclined to stay the performance of Dobco’s contract pending an appeal in the normal course, as that would cause a substantial delay in the construction of such a critical public project.
In any event, the Appellate Division likely will take prompt action in rejecting or granting Terminal’s appeal, or issuing further orders in regard to its consideration of the appeal. We will continue to monitor this bid dispute and provide an update when the dust has settled.
On September 18, 2013, Governor Christie signed the New Jersey Economic Opportunity Act (the “Act”) into law. The Act is intended to spur job creation, promote redevelopment of underutilized urban and suburban areas, and attract new businesses to New Jersey by expanding state programs that offer tax incentives. In general, the Act extends tax incentive programs to wider geographic areas to include most of the state and significantly lowers program eligibility thresholds. The Act consolidates the State’s five existing economic development incentive programs into two streamlined versions: Grow New Jersey Assistance Program (“Grow NJ”); and the Economic Redevelopment and Growth Grant Program (“Grant Program”). This article provides a general overview of the Grant Program and its potential benefits to any business undertaking a capital investment in a real estate project located in New Jersey.
Under the Act, the Grant Program is now designated as New Jersey’s only redeveloper incentive program and is administered by the New Jersey Economic Development Authority (“EDA”). In particular, the Act expands the existing grant program for economic redevelopment under the Act to close project financing gaps, incentivizes rebuilding public infrastructure vital to redevelopment efforts, and rehabilitates areas impacted by Hurricane Sandy.
For redevelopment, the Grant Program establishes a $600 million cap for qualified projects, which must have a minimum total project cost ranging between $5 million and $17.5 million, depending on the location of the project. A qualified residential redevelopment project refers to a project that is predominantly residential and includes multi-family residential units for purchase or lease, or dormitory units for purchase or lease. Disbursements of the residential redevelopment cap are determined by several categories, broken down by factors such as: county; municipality; net benefits to the community; proximity to urban transit areas; level of economic distress; and designation as a Garden State Growth Zone (“Growth Zone”), presently, Camden, Trenton, Passaic City, and Paterson. Non-residential projects have no financing cap.
For redevelopment grant incentive agreements, the maximum financing disbursement is 100 percent of total project costs for municipal governments or redevelopers, 40 percent for projects located in a Growth Zone, and 30 percent for all other developers. Alternatively, a developer can apply for a state or local incentive grant agreement to recover a credit from the state or local authority of up to an average of 75 percent of the projected annual incremental state and local tax revenues generated by the project or 85 percent of such revenues for projects in a Growth Zone. In the case of a qualified residential project where the state revenues from the project are inadequate to fully fund the grant, the grant award can be converted, at the discretion of the EDA, into tax credits equal to the full amount of the incentive grant.
Each incentive grant agreement entered into is only eligible for funding for a period of 20 years, and the applicant bears the burden of proof to demonstrate the amount required to achieve project feasibility. Developers who have entered into incentive grant agreements are also eligible to sell or assign their rights and interests in their agreements, as well as the incentive grants payable thereunder, to other entities or individuals.
The Act is also designed to achieve a number of laudable public policy objectives by providing a bonus incentive of up to 10% of project costs to projects that fall within one of eleven categories, including: (a) super markets in distressed municipalities; (b) health care facilities in distressed communities; (c) transit projects; (d) disaster recovery projects; (e) tourism destination projects; (f) substantial rehabilitation or renovation of existing structures; or (g) projects located in a Growth Zone. Furthermore, the Act expands the definition of what constitutes a “capital investment” in a Growth Zone to include any and all redevelopment and relocation costs, including, but not limited to, site acquisition, if made within 24 months of application to the EDA, engineering, legal, accounting, and other professional services required; and relocation, environmental remediation, and infrastructure improvements for the project area, including, but not limited to, on-and off-site utility, road, pier, wharf, bulkhead, or sidewalk construction or repair.
As an important reminder, the deadline for developers to apply to the EDA for incentive grants or tax credits under the Grant Program is July 1, 2019.
While New Jersey is known as the Garden State, it is also regrettably fertile ground for contaminated properties as a result of its long history of industrial development. With over 20,000 contaminated sites, New Jersey is infamously ranked number one with the most Superfund sites in the nation. In many instances, but typically as a result of the sale of the property, owners are faced with the obligation to cleanup property contamination. The cleanup of a contaminated property involves significant costs and regulatory delays that can be financially crippling. These considerations are therefore material in any negotiations for the sale or other disposition of the property and undoubtedly negatively impact value.
At the same time, there is frequently a disconnect when considering the property tax obligations for such properties. Although New Jersey’s Constitution requires that all properties are to be assessed at their fair market or true value, tax assessments relating to contaminated properties are often grossly overstated. Assessments on these contaminated properties typically ignore the impact contamination has on the property value, and therefore are frequently out of touch with the economic realities of the situation. Consequently, contaminated property owners, already burdened with significant cleanup responsibilities, are frequently further handicapped by excessive tax bills that adversely impact their ability to simultaneously carry and cleanup these impaired properties.
Although our courts have historically sent mixed messages to contaminated property owners when it comes to pursuing property tax relief, a recent New Jersey Tax Court decision provides real guidance and hope for these property owners. In Orient Way Realty v. Township of Lyndhurst, the Tax Court concluded that, although no formal cleanup plan had been approved by the New Jersey Department of Environmental Protection (“NJDEP”), and the cost of the cleanup was not yet definitively determined, a negative adjustment to the value of the property, to account for the cost of the cleanup, should be applied.1 Because the purchaser of the property was taking the property subject to the expenses of the environmental cleanup the court held that the negotiated, arms’ length, sale of the property represented the best indication of the property’s true value. Through this negotiated sale price, the sophisticated parties involved in the transaction fairly recognized the diminished value of the property attributable to the contamination present and cleanup obligations encumbering the property.
With the addition of Orient Way to New Jersey’s body of existing contaminated property case law, property owners in this state can now more confidently pursue real property tax relief using a variety of recognized valuation methodologies. New Jersey courts have for years been wrestling with the appropriate approaches to account for contamination when assessing value for tax purposes. The Tax Court’s decision in Orient Way has finally closed the loop by adding the arms’ length sale price, where available, to the mix of approaches deemed valid in the pursuit of fixing value in this unique context.
Before Orient Way, while court precedents did consistently sound the bell for the need to account for the discounting affect contamination had on value, there was nonetheless only piecemeal guidance provided on how to calculate such influences. As early as 1988, the New Jersey Supreme Court, in Inmar Associates, Inc. v. Borough of Carlstadt, recognized that cleanup costs associated with contaminated properties no longer in operation should be considered in determining value.2 In this regard, however, the Court concluded that simply deducting the cleanup costs from the value of the property, as if clean, on a dollar for dollar basis, would be inappropriate. Although the Supreme Court did not ultimately decide the proper measure of deduction warranted or provide a particular method for making such calculations, it did suggest that such costs could be treated as a capital expense, capitalized over the term of the expected cleanup period.
More recently, in Metuchen I v. Borough of Metuchen, the Tax Court followed the teachings of Inmar and actually calculated the reduced value of the property due to contamination by subtracting from the unimpaired value of the property, a) the present value of the five (5) year anticipated cleanup costs (discounted by 9%), and b) an entrepreneurial incentive fee determined by taking 10% of the total property acquisition costs.3 Importantly, the court there also recognized that a further “stigma reduction” might also be appropriate where adequate proofs of such a contamination stigma were submitted, but found the proofs lacking in that instance.
Our courts also made clear that a reduction in value due to contamination would only be appropriate where there was a cessation of use of the contaminated property. In Pan Chemical Corp v. Hawthorne Bor., the Appellate Division held that the cessation of use of the contaminated property must occur before any value deductions for contamination cleanup can be applied.4 See also Badishe Corp. (BASF) v. Town of Kearny.,5 288 N.J. Super. 171 (App. Div. 1996). In particular, Pan Chemical confirmed that clean up cost deductions could not be applied where, on the one hand for tax appeal purposes, the owner claimed that an obligation to clean the property existed, but on the other hand, for compliance with New Jersey’s Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. (“ISRA”), maintained that cleanup obligations were not yet triggered because “operations” as defined by ISRA had not ceased.
With this historical backdrop, the Orient Way Court, applying the teachings of all such authorities, concluded that where there is a cessation of operations at the property, contamination must be considered in fixing value. In such an instance, cleanup costs are to be considered even where no final approved cleanup plan is in place. These costs are then properly capitalized in arriving at the appropriate measure of contamination deduction that is then to be applied to reduce the unimpaired “clean” value of the property to reflect its true value.
Where, however, an arms’ length sale transaction occurs during the valuation period in question, the Tax Court may circumvent this exercise and instead rely upon the final sale price as the best indicator of value. The Court in Orient Way recognized that when sophisticated parties negotiate a sale price, operating with full knowledge of the expected scope of the cleanup and the magnitude of the obligation, as they did there, the parties will, by necessity, have applied the discounting dictated by the contamination, culminating in a final sale price that properly reflects the true value of the property as impaired.
Accordingly, contamination and attending cleanup obligations should be carefully evaluated to ensure that the current assessment levels attached to these properties correctly reflect true value. By pursuing this very analysis, the property owner in Orient Way was able to realize a reduction in annual assessment of over $4 million dollars and an annual reduction in taxes of over $67,000. While the magnitude of tax relief will vary on a case-by-case basis, Orient Way provides owners of contaminated properties with a working roadmap as to how to utilize their cleanup obligations to realize meaningful tax relief. Only by consulting with a team of real property tax and environmental professionals can a proper case-by-case evaluation be conducted to determine if tax relief is indicated.
 Orient Way, Tax Court of New Jersey Docket Nos 003895-2006; 00434-2007, and 003219-2008 (N.J. Tax July 22, 2013).
 Inmar Associates, 112 N.J. 593 (1988)
 Metuchen, 21, N.J. Tax 283 (Tax Ct. 2004)
 Pan Chemical, 404 N.J. Super 401 (App. Div. 2009)
 Badishe Corp., 288 N.J. Super. 171 (App. Div. 1996)
The Appellate Division recently affirmed a trial court’s granting of summary judgment in favor of the County of Union (the “County”) on a contractor’s extra work claim for $631,895.27 arising from an ambiguity in the contract specifications. The Court found the ambiguity to be a patent ambiguity, which A. Juliano & Sons, Inc. (“Juliano”), the successful bidder to whom the contract was awarded, should have recognized and raised with the County prior to the submission of its bid. Having failed to identify and raise that ambiguity with the County, Juliano was barred from seeking payment for extra work that was based on its interpretation of the ambiguity in the contract specifications.
In Aspen Landscaping Contracting, Inc. v. A. Juliano & Sons Contractors, Inc., Docket No. A-5436-11T2 (Aug. 9, 2013) (the “Aspen Case”), plaintiff, a subcontractor of Juliano, the general contractor, sought recovery of certain amounts due from Juliano and the County relating to a project to establish a public park in Clark, New Jersey (the “Project”). Juliano filed a cross-claim against the County asserting entitlement to payment for extra work. Juliano’s claim related to amounts claimed due for the cost of borrow excavation material at the Project. The trial court granted summary judgment to the County, concluding that because Juliano’s change order for the borrow material was based on Juliano’s resolution of a patent ambiguity in the bid documents not brought to the attention of the County as required by the specifications, the relief Juliano sought was barred by the “patent ambiguity doctrine.” The Appellate Division affirmed that decision.
A patent ambiguity in a publicly bid contract is one that “either (1) would have been apparent to reasonable prospective bidders from the facts available, or (2) was in fact known to the contractor before submitting its bid.” D’Annunzio Bros., Inc. v. N.J. Transit Corp., 245 N.J. Super. 527, 534 (App. Div. 1991). Where the ambiguity is patent, the bidder has a duty to inquire and the failure to do so bars a claim based on the contractor’s resolution of the ambiguity.
In the Aspen Case, the court considered the bid form, specifications, certifications, post-bid correspondence and deposition testimony to determine the extent of the ambiguity and concluded that there was a glaring ambiguity that a reasonable bidder would have recognized. The specifications provided that the bidders were required to bring any apparent ambiguity, inconsistency, error, discrepancy or omission to the attention of the engineer at least seven (7) working days before the opening of bids. Neither Juliano nor either of the other two bidders requested information or brought any problem with the bid documents to the attention of the engineer prior to submitting a bid.
The ambiguity in the bid documents arose because the documents sought a unit price for a specified quantity of only one type of borrow excavation material, namely “select” material, while, elsewhere, the specifications referenced two types of borrow excavation material – “select” material and “zone 3” material. The specifications never noted a specific quantity of “zone 3” material and did not seek a unit price for the “zone 3” material. The Court found the reference to two types of borrow material to be in direct conflict and inconsistent with other provisions of the bid documents. The Court further noted that the failure to include an item on the bid form calling for a price for “zone 3” material to be blatant conflict, which was a glaring ambiguity.
The Court concluded that a reasonable contractor would have noted the glaring problem with the two types of borrow material and either declined to bid or requested a clarification from the County engineer as the bid specifications directed. The Court found Juliano’s interpretation of the conflict in the bid documents, which led to the claims for extra work, not to be reasonable. As a result, the Court affirmed the trial court’s conclusion that Juliano’s claim is barred by the patent ambiguity doctrine.
The Aspen Case emphasizes the importance of a contractor’s vigilance in reviewing the contract specifications prior to submitting a bid and bringing any ambiguities, discrepancies and/or inconsistencies to the attention of the public contracting entity prior to submitting a bid. The failure to do so can have an adverse impact on any contractor claims relating to or arising from the claimed ambiguity, inconsistency and/or discrepancy. Here, Juliano had sought payment of $631,895.27 for extra work, which is approximately 25% over and above its $2,518,030.75 contract amount.
The Aspen Case is particularly harsh on the general contractor as the Court found a patent ambiguity despite the fact that none of the three bidders, including Juliano, identified the ambiguity prior to submitting their bids. The failure of the other two bidders to also raise the so-called patent ambiguity did not impact the Appellate Division’s decision denying Juliano’s claim.
In our June 3, 2013 blog post, we discussed a decision of the New Jersey Appellate Division upholding a municipality’s rejection of the lowest bid for a waste hauling contract because it was determined to be a material, non-conforming bid. (Click here for our discussion.)
Last week, the Appellate Division again upheld a local government’s rejection of a non-conforming low bid and its award of the subject contract to the second-lowest bidder under the Local Public Contracts Law, N.J.S.A. 40A:11-1, et seq. In A&A Industrial Piping, Inc. v. County of Passaic, A-0978-12T2 (N.J. App. Div. July 16, 2013), the Appellate Division affirmed the determination of Passaic County that the bid of A&A Industrial Piping, Inc. (“A&A”) for a contract to upgrade the County jail’s HVAC and fire protection systems was non-conforming and, therefore, subject to rejection. A&A, despite being low bidder, had failed to include with its bid Department of Property Management and Construction (“DPMC”) pre-qualification certificates for its plumbing crew and structural steel subcontractor, as required by the bid specifications. While A&A attempted to cure this failure after the bid opening, the County rejected the bid and any attempt to cure the non-conformity, and awarded the contract to the only other bidder.
The Appellate Division found that the bid specification’s requirement to include DPMC certifications was not simply a minor, technical requirement for which the County should have waived compliance. Rather, the requirement was properly deemed “substantial” and non-compliance therewith could not be waived by the County. As the court had found in a prior challenge to the same DPMC pre-qualification requirements, they are substantial and non-waivable, because they “could affect a bidder’s overall bid price” and provide the County “a guarantee the work will be performed by pre-qualified prime and subcontractors.”
As evident in these recent Appellate Division decisions, a contractor has a heavy burden when challenging the decision of a local government to reject its bid as non-conforming. A court may not overturn such a decision unless it finds that the local government, in arriving at its decision, did so in an arbitrary, capricious and unreasonable manner. Where, however, a local contracting entity has clearly abused its discretion and overstepped its bounds in rejecting or awarding a contract, a challenge to such a decision may be successful. In such circumstances, the contractor whose bid has been rejected should consult experienced construction counsel immediately.
The A&A case, as well as the recent In the Matter of Protest Scheduled Award of Term Contract T2813 RFP 12-X-22361 Laboratory Testing Service, Equine Drug Testing, Docket No. A-1336-12T1 (N.J. App. Div. July 10, 2013), emphasize that bidding contractors must ensure that they accurately and completely provide the contracting entity with all of the information required by the bid specifications. Even if a contractor is ready, willing and able to meet all of the bid requirements, but fails to provide all information required to reflect such qualification, its non-conforming bid may be deemed uncurable by post-bid submission.