Marvec Allstate, Inc. v. Gray & Fear, Inc.

• Decision Date: 17 March 1977
• Citation: 372 A.2d 1156,148 N.J.Super. 481
• Parties: MARVEC ALLSTATE, INC., a corporation, Plaintiff-Respondent, v. GRAY & FEAR, INC., a corporation of the State of New Jersey, Defendant-Appellant, and Brick Township Municipal Utilities Authority, a municipal body of the State of New Jersey, Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 481

148 N.J.Super. 481

372 A.2d 1156

MARVEC ALLSTATE, INC., a corporation, Plaintiff-Respondent, v. GRAY & FEAR, INC., a corporation of the State of New Jersey Defendant-Appellant and Brick Township Municipal Utilities Authority, a municipal body of the State of New Jersey, Defendant.

Superior Court of New Jersey Appellate Division.

Argued Feb. 23, 1977.

Decided March 17, 1977.

Stanley L. Geftic, Glen Rock, for appellant Gray & Fear (Rosenberg & Waldman, Glen Rock, attorneys).

Richard M. Salsburg, East Orange, for respondent Marvec Allstate, Inc. (Salsburg & Kraemer, East Orange, attorneys).

Charles E. Starkey, Brick Town, for defendant Brick Tp., Municipal Utilities Authority (Starkey, White & Kelly, Brick Town, attorneys).

Before Judges MATTHEWS, SEIDMAN and HORN.

The opinion of the court was delivered by

MATTHEWS, P.J.A.D.

Pursuant to appropriate public notice, defendant Brick Township Municipal Utilities Authority (Authority) solicited bids on September 25, 1976 on public works contract S--13 for the construction of sewer lines. Plaintiff Marvec Allstate, Inc. (Marvec) and defendant Gray & Fear responded to the solicitation and submitted bids for the work. The notice to bidders required that a 'bid bond' be posted in the amount of 5% Of the total bid. The specifications required that each bid be accompanied by a certified check, cashier's check or bid bond, together with consent of surety attached, in an amount of 5% Of the total bid price. ¹ Since the project is to be funded partially by the Federal Government, the requirement established by the Federal Environmental Protection Agency for a 5% Guarantee was applicable. See C.F.R. 35.935.

Inadvertently, the bid bond submitted by Gray & Fear was limited to a maximum of $20,000. Five percent of the total bid submitted by it ($2,459,265.95) would require a bid bond in excess of $122,000. Since the notice to bidders permitted the Authority to waive any insubstantial or minor defects, the Authority chose to waive the defect as to the amount of the Gray & Fear bid bond. In fact, within 24 hours of the opening of the bids Gray & Fear cured the defect and submitted a bid bond in an amount of 5% Of its total bid. We also note that the consent of surety accompanied the original bid bond in accordance with the specifications.

Plaintiff contends that the federal agencies involved recommended the amendment to N.J.S.A. 40A:11--21 so that they could be assured of ample security in the event of default of the ostensibly lowest bidder. ² Furthermore, it claims, a deviation in excess of $102,000 cannot be deemed minor or inconsequential because the Authority and the federal funding agency are entitled to obtain a guarantee of the execution and full performance of the contract or the full security upon failure to execute the contract. It also argues that bonding capacity is not only determined by the general financial capabilities of the bidder, but also is based on experience in the trade, availability of equipment and other work in process. Consequently, it is a substantial cost which must be factored into any bid; and if one contractor is permitted to submit a lesser bid bond in the first instance and then cure it, the competitive advantage is apparent.

Plaintiff relies principally on Hillside Tp. v. Sternin, 25 N.J. 317, 136 A.2d 265 (1957):

The financial capacity of a bidder is a material and substantial consideration in connection with the award of contracts for public work. Manifestly it is one element which must enter into the determination of responsibility; the statute itself speaks of the lowest 'responsible' bidder. * * * In this connection obviously the Legislature regarded that factor as important because it adopted a separate act to provide municipalities with a means of requiring a prospective bidder to furnish in advance a statement of his financial ability. * * * And in our judgment a demand in a public advertisement for the deposit of some form of security as a guaranty that the contract will be entered into if the bid is accepted, is properly imposed as an aid to the governing body in reaching its decision. Moreover, the deposit is material for another reason. It is recognized that failure of the successful bidder to execute the contract results in its forfeiture * * * and the specifications so provided in this case. Thus, in most instances the municipality may be made whole for any resulting loss or expense by summary action without having to sue for damages. (25 N.J. at 323, 136 A.2d at 268; citations omitted).

Plaintiff concludes that a gross variance in the bid bond submitted from that required 'goes to the heart not only of the bidding procedure, but to the very essence of the requirement.'

The trial judge accepted these arguments of plaintiff and concluded that the Authority did not have the security to which it was entitled and that the bidders were not treated alike because of the substantial discrepancy in the Gray & Fear bid bond. In reaching that conclusion, he stated that the conditions and specifications must apply equally to all prospective bidders, and that any discrepancy or irregularity should not deprive a municipality or authority of its assurance that the contract will be entered into, performed and guaranteed according to specific requirements.

Acceptance of both plaintiff's argument and the conclusions of the trial judge requires that we regard the variance in the amount of the bid bond as the crucial test. We do not believe, however, that the variance in the amount of the bond is at all indicative of Gray & Fear's bonding capacity. It should be apparent that the variance in amount was merely the result of the misapplication of the proper statutory formula--either 10% Of the bid, not to exceed $20,000, or 5% Of the total bid.

As we have mentioned, the notice to bidders issued by the Authority reserved the right to waive any insubstantial or minor defect. In determining the substantiality of a defect regard must be had for its attendant consequences. The law is well settled that a public contracting unit may always waive minor or inconsequential conditions and immaterial variances in the form of the bid. Terminal Constr. Corp. v. Atlantic Cty. Sewerage Auth., 67 N.J. 403, 411, 341 A.2d 327 (1975); Kensil v. Ocean City, 89 N.J.Super. 342, 348, 215 A.2d 43 (App.Div.1965). In Bryan Constr. Co. v. Montclair Bd. of Trustees, etc., 31 N.J.Super. 200, 106 A.2d 303 (App.Div.1954), the notice to bidders issued by the trustees required a guarantee by way of certified check. The specifications themselves also referred to bid bonds and included a blank form of bid bond. Defendant contractor submitted the lowest bid accompanied by a bid bond. The board of trustees accepted the low bid with the bid bond, and subsequently this court held that in the circumstances existing, the submission in the bond in lieu of check constituted substantial, if not precise, compliance. We held that the submission of a bid bond as security did not in any way materially damage competitive bidding:

* * * a municipal body has a greater function in dealing with irregularities in such matters than merely exercising a ministerial and perfunctory role. It has inherent discretionary power, and what is more, a duty to secure, through competitive bidding, the lowest responsible offer, and to effectuate that accomplishment it may waive minor irregularities. * * *

If it can be said any irregularity have existed, it is patent that competitive bidding was not in any wise affected. It prevented no one from bidding, and all those that did bid were on equal footing, having the same opportunities as defendant company to read and utilize the instructions. (at 206--207, 106 A.2d 303, 306).

In P. Michelotti & Sons, Inc. v. Fair Lawn, 56 N.J.Super. 199, 152 A.2d 369 (App.Div.1959), certif. granted, 31 N.J. 75, 155 A.2d 173 (1959), app. dism. 31 N.J. 556, 158 A.2d 453 (1960), we found the deposit of an uncertified check instead of a required certified check under circumstances where the bidder submitted a replacement certified check within 24 hours to be a material and waivable defect. Again, we found that the waiver by the municipality 'in no way affected fair and competitive bidding.'

In Kensil v. Ocean City, 89 N.J.Super. 342, 215 A.2d 43 (App.Div.1965), we held that defendants' check honored on presentment, which was drawn and delivered at the time of sale upon an account which at that time contained insufficient funds to cover its face amount, was a valid payment and that the giving and acceptance of the check constituted compliance with the requirement that 20% Of the highest bid was to be paid at the time of the sale of public lands:

Despite the conclusion that the deposit technically was not paid at the time of the sale, the record shows that the payment was made when the check was duly presented. This fact reveals plaintiff's entire argument as an objection, as best, to a technical defect in defendants' compliance, which the city could waive since the check did not in any way affect fair competitive bidding which is the fundamental objective of a bidding statute. It is well settled in this State that minor and inconsequential variations and technical omissions may be the subject of waiver. * * * (at 347--348, 215 A.2d at 46)

Similarly, in Hanover Tp. v. Inter. Fidelity Ins. Co., 122 N.J.Super. 544, 301 A.2d 163 (App.Div.1973), we upheld municipal waiver of a defect in a bid bond whose stated amount was approximately $1800 less than a required 10% Of the bid. We found that variation to be minimal and insubstantial and therefore waivable by the municipality.

The decisions just mentioned indicate strongly that mere irregularity in the structure of a bid will not ordinarily justify the rejection of such a bid by a municipal body which is charged with the duty of awarding a contract to the lowest responsible bidder. The form of the bid has not...