Defining Government's Role in Public Contracting
New Jersey Lawyer Magazine
On Sept. 25, 2007, the Appellate Division issued a per curiam decision that decided a hotly contested lawsuit filed in Essex County, CFG Health Systems, LLC v. County of Essex & Correctional Health Services, LLC.1 The case pitted two potential vendors and the county of Essex in a fierce struggle over the award of the multi-million dollar healthcare service contract for the Essex County Jail. In deciding for the defendants/appellants, the appellate court reversed and dismissed the trial court's June 1 decision improperly awarding the contract to the plaintiff, leaving the county to decide how to proceed with the contract award.
Just two weeks after the appellate decision, the original parties, plus the board of freeholders, found themselves in a new lawsuit brought by the same plaintiff. In this new case, CFG Health Systems, LLC v. County of Essex, Board of Chosen Freeholders of the County of Essex & Correctional Health Services,LLC,2 the plaintiff challenged the board's right to order a rebid of the contract in response to the Appellate Division's decision. Apparently Yogi Berra was right- "it's not over until it's over."
In the first lawsuit, the parties assumed familiar roles: The plaintiff/would-be contractor alleged unfairness and procedural irregularities in the evaluation of the proposals resulting in an unfair recommendation of the award to the defendant/incumbent vendor. Essex County defended its procurement, and the incumbent, and likely winning vendor, stood by the integrity of the process, hoping the county's favorable recommendation would be converted into a formal contract award. In December 2006, a court order was entered suspending the county's ability to award the contract, thus maintaining the status quo. Six months of litigation followed.
The completion of limited discovery revealed a number of critical issues. Specifically, the county had failed to abide by important procedural requirements and properly safeguard against conflicts of interest. The county conceded these facts, and given it never actually awarded the contract, it sought to invoke its statutory right pursuant to N.J.S.A. 40A:11-13.2 to reject all proposals and conduct a re-bid. In a surprising decision, the trial court denied the county the re-bid, and actually awarded the contract to the plaintiff/would-be contractor. The court's actions left the board, the only entity empowered to award contracts, without any input in the contracting process.3
The trial judge's unusual decision gave rise to an immediate appeal. A review of the more than 30 relevant court decisions published in the last 10 years revealed 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 made the award. In other words, those courts simply reviewed the governing body's award of the contract, and where the court determined it had acted improperly, most often by not disqualifying a vendor, the court imposed the disqualification and awarded the contract to the next-lowest bidder.
The trial court's decision implicated serious questions about the roles of the respective branches of government in public contracting, and thus, expedited review was granted and the appeal was argued just three months after the contract was judicially awarded. The Appellate Division's decision reversing and dismissing the case discussed the administrative aspects of the contracting process in detail, but it never reached the issue of who has the authority to decide contracting issues at the county level. This issue is at the heart of the newly filed lawsuit.
In the first lawsuit, Essex County and the incumbent vendor argued that in awarding the contract the trial court exceeded the scope of its statutory authority by supplanting its own judgment for that of the board, which never had the opportunity to even consider the county's original contract recommendation, let alone award the contract.
Essex and four other counties operate under a county executive plan pursuant to the Optional County Charter Law.4 The law, passed in 1972, was created to provide counties with the flexibility to choose the form of government best suited to their characteristics, needs and preferences.5
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,6
Under the law, the term "governing body" of the county includes both the board and the county executive.7 The executive power of the county is exercised by the county executive, who negotiates contracts for the county subject to board approval, and the legislative power of the county is vested in the board.8 The board's powers also include the authority to award contracts.9 Although a 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. Accordingly, the Appellate Division reversed the trial court's order and dismissed the case as prematurely filed.
The request for proposal (RFP) for the contract in the original lawsuit was issued pursuant to the Competitive Contracting in lieu of Public Bidding Statute, 10 which is part of the Local Public Contracts Law (LPCL).11 According to an Oct. 10, 2007, resolution of the board, the successor RFP will be issued under the same statute.
Under this statute, contracts are awarded by resolution of the governing body of the contracting unit.12 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 in Essex County and must be construed in conjunction with the LPCL, offers further guidance by defining the "governing body" of the county as the
board and the county executive.13
The Appellate Division never specifically reached a decision as to whether the trial court abused its discretion in awarding the contract or denying the county its right to a re-bid. However, a number of the underlying facts from the first lawsuit will remain operative in the new case. A new judge will decide whether the county had the right to seek, and the board had the right to order, a re-bid. Although a temporary restraining order preventing the county from pursuing a re-bid was entered in October, recently the Appellate Division vacated that order and the re-bid was advertised pursuant to the statute.
The LPCL has long recognized the right of a public entity to reject all proposals.14 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. 15 A number of relevant Appellate and Law Division cases also have upheld the government's right to re-bid. Most recently, Waste Management of New Jersey, Inc, v. Board of Commissioners of the Jersey City Incinerator Authority16 upheld the city's rejection of all bids due to a material deficiency in the city's submission, noting "[i]f the public entity in good faith believes that the purpose of the bidding statue is being violated, it may reject all bids."17
As it did in the original lawsuit and in opposing the county's right to seek a re-bid, the plaintiff is likely to rely on Bodies by Lembo, Inc. v. County of Middlesex, 18 which pre-dates the passage of the Competitive Contracting Statute. There, the county was precluded from ordering a re-bid where the underlying facts indicated it was part of a clear and egregious pattern of misconduct by the county designed to direct the contract award to a specific vendor.
At least in the short term, it will be up to the new judge to decide whether the county and the board have the right to use a re-bid to correct substantive procedural errors in the procurement process. Unless the New Jersey Supreme Court intervenes to stay the proceedings pending that decision, it is possible that the new bids will be opened before the trial judge decides the outcome of the case.
Melissa A. Salimbene is a counsel at the firm. She represented Correctional Health Services LLC in the initial lawsuit and successful appeal. The new case against CHS was dismissed on Dec. 1, 2007. Ms. Salimbene can be reached at: firstname.lastname@example.org or phone number:(973)530-2092.
1. Docket No. ESX-L-I0334-06.
2. Docket No. ESX-L-8031-07.
3. See N.J.S.A. 40:41A-38(n).
4. N.J.S.A. 40:41A-l et seq.; see Prunetti v. Mercer County Bd. of Chosen Freeholders, 350 N.J. Super. 72, 81 (Law Div. 2001).
5. Id. at 86.
8. N.J.S.A. 40:41A-36, 38.
11. N.J.S.A. 40A:11 et seq.
12. N.J.S.A. 40A:11-4.3.
15. N.J.S.A. 40A:11-13.2(e) (citing 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...40A:11-13.2").
16. A-3743-0OT5 (App. Div.June 4,2002).
17. See 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, or where it considers the price too high, or it decides it may be unwise to proceed with the project."); Marvec Const. Corp. v. Tp. of Belleville, 254 N.J. Super. 282, 288 (Law Div. 1991) (upholding township's rejection of all bids and 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.").
18. 286 N.J. Super. 298 (App. Div. 1996).
REPRINTED BY PERMISSION OF THE NEW JERSEY STATE BAR ASSOCIATION, New Jersey Lawyer Magazine, February, 2008.