January 23, 2012
By Seth Tipton
As published in NJ Biz Magazine
In a recent decision, Brockwell & Carrington Contractors Inc. v. Kearny Board of Education, the New Jersey Appellate Division held that subcontractors must certify compliance with New Jersey Treasury aggregate rating limits when submitting bids for public school construction work.
Consequently, the court affirmed the disqualification of a general contractor's entire bid where it included a subcontractor's inaccurate certification of aggregate rating compliance.
On Sept. 15, 2010, the Kearny Board of Education unsealed bids and awarded a multimillion-dollar construction project to the lowest bidder, Dobco Inc. Dobco's bid designated Environmental Climate Control Inc. as a subcontractor, and included ECC's Notice of Classification and State of New Jersey Form DBC 701 as required by the Division of Property Management and Construction. To ensure that contractors have the wherewithal to successfully complete projects, the DPMC classifies contractors according to an aggregate rating. A contractor's bid may not exceed the aggregate rating when added to the value of that contractor's backlog of uncompleted work.
As part of its bid to Dobco, ECC submitted a Form 701 indicating that it had a $3.5 million dollar backlog of uncompleted work that, together with its bid for $7.5 million dollars, did not exceed its $15 million dollar aggregate rating. Unfortunately for Dobco, ECC had recently submitted a Form 701 to Brockwell & Carrington Contractors Inc., for an unrelated project.
In that Form 701, ECC had valued its backlog of uncompleted work at $9.5 million dollars. Therefore, Brockwell & Carrington suspected that ECC was disqualified from bidding on the Kearny project because its $7.5 million bid exceeded its aggregate rating limit. As the second-lowest bidder for the Kearny project, Brockwell & Carrington moved for, and obtained, an order to show cause disqualifying the entire Dobco bid for including an unqualified subcontractor.
Dobco was granted permission to appeal on an emergent basis after the trial court disqualified its bid. It argued that pursuant to a provision in the Educational Facilities Construction and Financing Act, a subcontractor's backlog of uncompleted work is not considered when assessing its compliance with its aggregate rating limit. Further, Dobco argued that if it were required to bid within its aggregate rating, the law permitted ECC to deduct up to 85 percent of the value of its backlog of contracts.
The court rejected all of Dobco's arguments. After finding that ECC was a firm that bid within the meaning of the law, the panel held that the law requires both general contractors and subcontractors to certify that their bid and backlog of uncompleted work do not exceed their aggregate rating. The court explained that although any contractor may employ the 85 percent reduction provision, a contractor could only reduce the value of backlogged subcontracted work on "single prime contracts". Therefore, ECC would have to identify "backlogged contracts" in which it is a prime contractor and has subcontracted a portion of that contract. Because ECC had not identified uncompleted work entitled to this reduction, Dobco's bid was properly disqualified for its inclusion of a materially defective subcontractor bid.
Brockwell eliminates any ambiguity in the requirements of aggregate rating compliance for general contractors and subcontractors bidding on school construction projects. Subcontractors must bid within their DPMC aggregate rating, and failure to do so can jeopardize a general contractor's entire bid. This decision also provides greater incentive for general contractors not selected to perform work to carefully review the lowest bidder's documents for inaccuracies. General contractors should conduct a detailed review of a subcontractor's bid to ensure the validity of the subcontractor's aggregate rating certification.
Further, subcontractors concerned about compliance with their aggregate rating should calculate the value of backlogged single prime contracts to capitalize on the 85 percent reduction.
Seth R. Tipton is an associate with Florio Perrucci Steinhardt & Fader, in Phillipsburg.