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When Judges Stray: The Proper Roles of the Branches of Government in Public Contracting

November 2007

New Jersey League of Municipalities Magazine

In a hotly contested lawsuit filed in Essex County Superior Court late last year, two potential vendors and the County of Essex became locked in a struggle over the award of a significant public contract.ii At stake: the multi-million dollar health care service contract for the Essex County Jail.

The parties to the lawsuit assumed familiar roles: the plaintiff / would-be contractor alleged unfairness and procedural irregularities in the evaluation of the proposals. The plaintiff claimed this led to an unfair recommendation of the award to the incumbent vendor. The defendant, here the county, defended the integrity of its procurement. The incumbent, and likely winning vendor, sought to protect the integrity of the process, hoping to convert the county's favorable recommendation into a formal contract award. A court order suspending the county's ability to consider or make a contract award maintained the status quo while the lawsuit got under way.

After six months of litigation, certain important facts became apparent; namely that the county had failed to abide by certain procedural requirements and failed to properly safeguard against conflicts of interest-facts that the county conceded. Having made these concessions and never actually having awarded the contract, the county sought to invoke its statutory right to reject all proposals and conduct a re-bid pursuant to N.J.5.A. 40A:11-13.2. The trial court denied the county the re-bid and then issued a decision that came as a real surprise. Rather than order a re-bid pursuant to the statute, the trial court instead delivered the contract to the plaintiff/would-be contractor, leaving the governing body, here the Board of Chosen Freeholders, which is the only Essex County entity empowered to enter into contracts, without any input whatsoever.

The judge's unusual decision in this matter raised the stakes beyond this one public contract. What are the roles of the respective branches of government in public contracting? Is there any justification for the judiciary to adopt or, as the county and incumbent have argued in their appeal of the trial court's decision, usurp the roles statutorily granted to the legislative and executive branches of government? An appellate court will be considering these questions, and all the parties involved in this matter anxiously await the outcome.

Optional County Charter Law Essex County and the incumbent vendor have argued that in awarding this contract, the trial court exceeded its authority by supplanting its own judgment for that of the board which never had the opportunity to even consider the county's original recommendation, let alone award the contract. Essex and four other counties operate under a County Executive Plan pursuant to the Optional County Charter Law (the "Act"), N.J.S.A. 40:41A-1 et seq,iii The Act, enacted in 1972, was created to provide counties with the flexibility to choose the form of government best suited to their characteristics, needs and preferences. iv "It is the intent of [the] Act to confer on the board general legislative and such investigative powers as are germane to the exercise of its legislative powers, but to retain in the head of the Executive Branch full control over the county administration and over the administration of county services provided for in this Act.v"

Under the Act, the term "governing body" of the county shall be construed to include both the board and the County Executive, and each plays a particular role. vi The executive power of the county is exercised by the County Executive, who negotiates contracts for the county subject to board approval, vii and the legislative power of the county is vested in the board.viii Included in the board's powers is the authority to award contracts. ix Though a trial court has the authority to review a county's award of a contract, N.J.S.A. 40:41A-38(n) clearly vests the authority to award a contract in the board to the exclusion of any other office or entity, including the judiciary.

In this case, only the initial phase of the contracting process was completed when the evaluation committee, and then the purchasing department, made a recommendation to award the contract to the incumbent vendor. Prior to any consideration by the board of this recommendation, the contracting process was brought to a standstill by the filing of the lawsuit and the entry of the initial court order. Then, without affording the board any opportunity to consider the matter, the trial judge awarded the contract to plaintiff/would-be contractor despite a lack of authority to do so. Indeed, the trial court's decision never even discussed its authority to render the decision picking the contractor, Indeed, there is neither statutory authority nor judicial precedent to support the court's decision.x

Overstepping Its Bounds The RFP for the contract in question here was issued pursuant to the Competitive Contracting in Lieu of Public Bidding Statute, N.J.S.A. 40A:11-4.1-4.5 which is part of the Local Public Contracts Law ("LPCL") N.J.S.A. 40A:11 et seq. Under this statute, contracts are awarded by resolution of the governing body of the contracting unit. The LPCL vaguely defines "governing body" as the governing body of the county when the purchase is to be made or the contract or agreement is to be entered Into by a county. However, the Optional County Charter Law, which is applicable here and must be construed in conjunction with the LPCL, offers further guidance by defining the "governing body" of the county as consisting of the Board of Chosen Freeholders and the County Executive. Based on the foregoing, the contract at issue could only be awarded by the board, and consequently, the trial court usurped the board's statutorily granted contracting authority by awarding the contract itself.

The trial court also abused its discretion in denying the county its right to re-bid the contract; ignoring the fact that the county is statutorily authorized to do so.xi The LPCL has long recognized the right of a public entity to reject all proposals.xii Specifically, the LPCL provides that a public entity may reject all bids when the purpose or provisions (or both) of the LPCL is being violated.xiii Relevant case law also demonstrates that a re-bid is necessary in situations such as the one at hand.xiv

Here, once it became evident that there were defects in the RFP process which frustrated the purpose and provisions of the LPCL, the county sought to reject all proposals and direct a re-bid. Nevertheless, the trial court decided to award the contract without even addressing the county's statutory authority to a re-bid, discussing either its own statutory authority or the judicial precedent enabling it to make the contract award and ignoring the county's concession that its bidding procedures were fatally flawed.

The state's intermediate appellate court will consider the arguments advanced by the county and the vendors in September. In the event that the court upholds the authority of the trial judge to make a contract award, that decision will be a substantial setback for the ability of government entities to exercise authority over their own contracting processes, and raises the likelihood that the county may need to seek the final word on the subject from the New Jersey Supreme Court.

Melissa A. Salimbene is a counsel at the firm. Ms. Salimbene can be reached at (973) 530-2092 or via email at: msalimbene@wolffsamson.com.


ENDNOTES

ii CFG Health Systems, LLC v. County of Essex & Correctional Health Services, LLC, ESX-l-005751-06.

iii See Prunetti v, Mercer County Bd. of Chosen Freeholders, 350 N.J.Super 72,81 (Law Div.2001)

iv See id. at 86

v N.J.S.A.40:41A-86.

vi See NJ.S.A.40:41A-32.

vii See N.J.S.A.40:41A-36.

viii See N.J.S.A.40:41A-38.

ix See N.J.S.A.40:41A.38(n).

x Of the more than 30 court decisions published in the past ten years there are only three cases where a court awarded a public contract, and in all of those cases the court intervened after the proper governing body had already awarded the contract. In other words, the court was simply reviewing the governing body's award of the contract, and where the court determined that the governing body acted improperly, most often by not disqualifying a vendor, the court imposed the disqualification and awarded the contract to the next lowest bidder. There is not a single case where the court awarded a contract to a bidder prior to the governing authority first awarding the contract.


xi See N.J.S.A. 40A:11-4.3.

xii See N.J.S.A. 40A:11-2(2)(a).

xiii See N.J.S.A. 40:41A-32.

xiv See N.J.S.A. 40A:11-13.2

xv See N.J.S.A. 40A:11.24.

xvi N.J.S.A. 40A:11-13.2(e); see also N.J.S.A. 40A:11-4.5(d) (stating that the governing body "shall have the right to reject all proposals for any of the reasons set forth in section 21 of P.L 1999, c.440 (C.40A:11-13.2)").

xvii See Waste Management of New Jersey, Inc. v. Board of Commissioners of the Jersey City Incinerator Authority, A-3743-00T5 (App. Div. June, 4, 2002)(upholding the city's rejection of all bids due to a material deficiency in the city's submission, and noting that "[i]f the public entity in good faith believes that the purpose of the bidding statue is being violated, it may reject all bids."); Gannett Outdoor Co.,Inc. v. City of Atlantic City, 249 N.J. Super. 217 (App.Div.1991)(holding that the public entity was entitled to order a re-bid simply because it had a good faith reason to believe that a re-bid would yield a lower bid, and noting that "a municipality should not be required to accept a bid if there is only one bid, where it considers the price too high, or it decides it may be unwise to proceed with the project. If a municipality were forced to accept a bid, whether or not it gave detailed reasons for the rejection, the potention for the misuse of the bidding statutes to the detriment of local governments and the taxpayers is obvious."); Marvec Const.Corp.v.Tp.of Belleville, 254 N.J.Super.282, 288(Law Div. 1991)(upholding township's rejection of all bids noting that the purpose of the bidding statute "is to preserve the integrity of the competitive bidding process and prevent the misapplication of public funds.").


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