Firm Partner Paul Fader Article in UTCA Magazine

Firm Partner Paul Fader, general counsel for the Utility and Transportation Contractors Association of New Jersey, has published the following article entitled "Are New Jersey Courts Opening The Door for the Conditional Acceptance of Materially Defective Bids?" in the December 2014 edition of UTCA Magazine.  The article is considered necessary reading for all contractors and public officials involved in the bidding process. 

"Are New Jersey Courts Opening The Door for the Conditional Acceptance of Materially Defective Bids?"

A New Jersey Trial Court recently issued an opinion that a general contractor’s listing of an electrical subcontractor without an electrical license at the time of the bid does not constitute a material defect provided that the license holder becomes an “officer, partner of employee” of the subcontractor prior to commencement of the work.

In Terminal Construction Corporation v. County of Bergen, the project at issue concerns the construction of a county building and parking garage. Pursuant to the Local Public Contractors Law (“LPCL”), the County’s bid package required each bidder to submit with its bid an “Identification of Subcontractors.” The statutory provision requires that the bidder – here Dobco – submit with its bid the name or names of all major trade subcontractors.

The project was awarded to Dobco as the low bidder. Dobco’s bid listed Abco as its electrical subcontractor. Both Dobco and Abco are owned by the same two individuals; however, the trial court held this fact in itself did not violate any statute, regulation, or caselaw. Abco listed its required electrical license holder as Robert E. Duva and submitted Duva’s electrical license certified by the Board of Examiners of Electrical Contractors.

The second low bidder challenged the award of the contract to Dobco because Duva was not, at the time of the bid, an “officer, partner or employee” of Abco as required by the Electrical Contractor’s Licensing Statute, N.J.S.A 45:5A-9 (“Licensing Statute”).

Abco argued that Duva had an “association and relationship” with Abco, had “received compensation” from Abco in the past, and would be employed by Abco prior to performing the electrical work of the contract, thereby resolving the licensing issue.

The trial court found that Duva’s associational relationship with Abco was not sufficient, and that the Licensing Statute does in fact require that Duva be an “officer, partner or employee of Abco. . .”. However, in a quick twist, the trial court refused to “accept the proposition” and that the LPCL required a contractor’s bid to be “invalidated because the license holder is not employed by the permittee prior to the commencement of the work.”

On this matter of first impression in New Jersey, the trial court went on to state that “the county would be well within its bounds of discretion to accept such a bid with the proviso that Duva formalize his relationship with Abco.” However, the court did not indicate when that condition must be satisfied. Prior to the contract award? Prior to the signing of the contract? After the work has started but before the electrical subcontract work begins?

The trial court merely stated that under the Licensing Statute, Abco may perform the electrical work provided that when Duva “undertakes that work he is an officer or employee of Abco. . .” 

The trial court seemingly misread the Licensing Statute as contemplating that an electrical subcontractor’s permit could issue subject to its hiring the needed licensee. In this regard, the trial court cited the Licensing Statute’s reference to the requirement that the licensee “is or will be actively engaged” in overseeing the electrical work. Such prospective oversight ought not to be confused with the necessity that the licensee be employed by the permittee at time of issuance of the permit.

The notion that a contracting unit subject to the LPCL can make conditional acceptance of a bid, pending the subsequent cure of a defect in the license of the bidder’s listed trade subcontractor, does violence to fundamental competitive bidding principles. Under such circumstances, the contracting unit has no assurance that the bid will be honored. The bidder, effectively, has the impermissible opinion, after inspecting the pricing of its competitors, to decline, with impunity, to cure its bid. No claim can be made against its bid bond because the condition of acceptance was never satisfied. Its competition, on the other hand, was unavoidably bound by their bids. 

The trial court’s decision was appealed on an emergent basis to the New Jersey Appellate Division, which temporarily stayed the ruling to forestall construction on the project. However, the Appellate Division lifted the stay after several days and the Supreme Court of New Jersey declined to hear any further emergent applications. Construction on the project continues and the case presently remains on appeal to the Appellate Division on a non-emergent basis. 

UTCA magazine is the official publication of the Utility and Transportation Contractors Association of New Jersey. Click here to view the magazine online.

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