John Palladino winning successive victories

Winning successive victories in the law division and appellate division, John Palladino obtained relief for client C&H Industrial Services ultimately resulting in an award to the client of a $24,799,000 contract for the construction of a power plant in the city of Vineland.

C&H Indus. Servs., Inc. v. City of Vineland

 

INCOMPLETE DISCLOSURE OF ENTITY OWNERSHIP ‘MATERIAL’ AND ‘NONWAIVABLE’

Contract Bidding

C & H Indus. Servs., Inc. v. City of Vineland, A-3780-13T2, 2014 WL 2131689 (N.J. Super. Ct. App. Div.)

The incomplete disclosure of all 10% or greater owners sunk a contractor’s bid for the construction of a simple cycle power plant when it was held on appeal that a bidder’s failure to fully identify all 10% or greater owners of the bidder is a material nonwaivable defect when that information is required by the bid solicitation or bid advertisement.

The City of Vineland, New Jersey (Vineland) advertised for public bids on the construction of a simple cycle power plant. In response to this advertisement, bids were received from Infrastructure and Industrial Energy, LLC (IIE) and C&H Industrial Services, Inc. (C&H). In the first round of bidding, C&H submitted the lowest bid, but was rejected for exceeding project estimates. In the second round of bidding, C&H was again the low bidder, and was once again rejected. Vineland indicated that C&H did not possess the requisite level of experience as per the bid specifications and, furthermore, had not comported in full with the necessary bidding requirements in neglecting to include a “Critical Path Schedule.” Vineland also rejected IIE’s bid for exceeding project estimates.

After this failed second round of bidding, Vineland opted to negotiate the bid – C&H and IIE again took part in this third round of negotiations. As part of the negotiation process, Vineland required C&H and IIE to submit proposals in accordance with explicit instructions. These instructions included a mandatory requirement that all 10% or greater owners in the entity participating in negotiations have their names and addresses disclosed. IIE submitted an incomplete disclosure and, evidently unaware of this defect, Vineland accepted the IIE proposal and awarded it the contract.

Following the awarding of the contract to IIE, C&H filed a complaint in lieu of prerogative writs asking the Law Division to declare the proposal non-responsive, owing to IIE’s incomplete disclosure – specifically citing their failure to disclose that FdG Capital Partners II, LP an entity that held an ownership interest in IIE, had at least one undisclosed 10% owner. C&H further requested the court to compel Vineland to award it the project.

IIE opposed C&H’s application and included a complete disclosure of its shareholders and their pertinent information. C&H argued that IIE’s incomplete disclosure was a material, non-waivable and incurable defect, while IIE countered that their defect was unintentional, non-material and waivable by Vineland. Further, Vineland alleged that if the Law Division compelled the city to award the contract to C&H, it would be compelling Vineland to accept a bid it would have rejected on other grounds – owing to C&H’s perceived lack of experience. Vineland instead sought relief in permitting the city to start the bidding process over. The court was evidently unconvinced, as the Law Division rejected both IIE and Vineland’s arguments and ordered Vineland to honor the properly-submitted bid and negotiate with C&H – negotiations which culminated in Vineland awarding C&H the contract.

IIE moved before the Appellate Division for leave to file an emergent application for a stay, and the court granted the motion. The court found that, in general, municipalities are required to award contracts to the lowest responsible bidder – statutorily defined as the lowest bidder that is responsible and conforms in all material aspects to the terms and conditions of the request. The sole question before the appellate court, then, was whether the failure by IIE to comply with the disclosure requirement was a material deviation, and thus would have invalidated their bid. The court indeed found that it was a material deviation and invalidated IIE’s bid.

In determining IIE’s deviation was material, the court looked to a two-part test, examining: first whether a waiver would deprive the municipality of its assurance that the contract will be entered into and performed according to its requirements; and second, whether a waiver would adversely affect competitive bidding by placing one bidder at an advantage over others. The court then looked to the legislative purpose of the statutory requirement of disclosure for further guidance in determining the materiality of the disclosure requirement. The purposes of disclosures, as defined in George Harms Constr. Co. v. Borough of Lincoln Park, 161 N.J. Super. 367, 372 (Law Div. 1978), are to make the governing body’s members and public aware of the real parties in interest in the contract, enabling public officials to identify conflicts of interest and “assess the capability, financial stability and moral integrity of the bidders.” Id. The court therefore found the lack of compliance with the disclosure statute to undermine the very purpose of the statute, and thus material under the first prong of the test.

Furthermore, the court found that allowing a non-compliant bidder to be awarded the contract would quite clearly place them in a position of advantage over other bidders. Other bidders that may have opted not to submit a bid purely because they did not wish to comply with the disclosure requirement would quite obviously be severely disadvantaged. Additionally, awarding the bid to a non-complying bidder would give non-complying bidders of the ability to back out of the contract by refusing to cure the defect.

In a last ditch effort, IIE unpersuasively attempted to make the argument that, since it was awarded the contract in the negotiation process and not through the public bidding process, it was not subject to the same disclosure requirements. The court determined that, regardless of whether or not disclosure was statutorily required during the negotiation process, Vineland had extended the requirement to negotiations and the statute was a floor on disclosure requirements, not a ceiling. Additionally, IIE had not complied with the statutory disclosure requirements even during the initial bidding process. IIE being awarded the contract during the negotiations process didn’t absolve them of their disclosure requirements. Thus, the disclosure requirement being material and non-waivable, the holding by the Law Division was upheld and C&H was awarded the contract.