In January, the New Jersey Department of the Treasury announced plans to implement a privately designed electronic management system for public contract bidding. The purpose of the anticipated system, which is expected to require all bid proposals for state contracts to be submitted electronically, is to reduce the number of errors and illegal provisions contained in both bids and contracts for public work. This announcement came only days before President Obama signed into law the $50.5 billion Hurricane Sandy relief package (large portions of which no doubt will be distributed through the New Jersey public bidding process), and almost one year to the day after Gov. Chris Christie ordered a comprehensive review of New Jersey’s public bidding process and procurement laws.

While the planning for the new system is still in its early stages, and its impact is not yet known, many are hopeful that the system will prove to be a meaningful step down the long road of New Jersey public bidding and procurement reform. Still, it is unlikely that the implementation of the new system will cure New Jersey’s confusing body of public bidding laws. This area has long been a complicated maze for vendors attempting to do business, on both the state and local levels, with New Jersey public entities. The acknowledged likelihood of errors in the bid award process, compounded with the many precarious and conflicting aspects of the public bidding laws that the new electronic system is unlikely to remedy, compels the conclusion that those seeking to do business with New Jersey public entities must employ both vigilance and competent legal counsel at all stages of the procurement process.

Disclosed Data Reveals Frequent Errors in Awarded Public Contracts

In January 2012, Gov. Christie ordered a comprehensive review of New Jersey’s public contracting process and bidding laws. This came in the wake of a report, based on previously confidential figures from the State Comptroller’s Office, demonstrating that one in five contracts awarded by the state worth in excess of $2 million — and one in three contracts worth in excess of $10 million — were illegal and violated New Jersey’s public bidding laws. Similarly, on the local level, the figures revealed that more than one in five multimillion-dollar contracts issued by counties, municipalities and local agencies were legally flawed. The Department of the Treasury believes that, in many cases, such errors are caused by the complicated bid submission process.

The review ordered by Gov. Christie was aimed at identifying the errors most commonly made by bidders when responding to requests for proposals (RFPs) issued by state and local public entities for government contracts, and to simplify the process. According to the Department of the Treasury, Division of Purchase and Property (DPP), the most common mistakes that vendors make when submitting a proposal in response to an RFP involve: (1) failing to include all forms required by the RFP; (2) submitting proposals containing contradictory terms and conditions; (3) failing to submit the proposal on a timely basis before the bidding deadline; and (4) failing, at the time of submission, to possess the required licensing and registration required by the RFP (e.g., Public Works Contractor Registration for a procurement that is a public work).

The DPP’s announced plan for an electronic bidding management system is designed to address these issues by replacing paper with a fully electronic RFP and bidding process. The state is reviewing proposals from vendors to design and implement the electronic system and plans to make a final decision within the next several months. While the DPP currently lists available bid opportunities on its website, and vendors may participate in the bid process online, electronic submission of proposals is not mandatory. In fact, the state still receives a large number of paper bids.

N.J.’s Public Bidding Laws Remain a Complicated Landscape

While the DPP’s new online electronic bidding system may help to reduce certain application errors common in the paper bidding system, it is not likely to address the issues that make New Jersey’s public bidding laws a tangled web, fraught with increasingly litigious vendors and legal uncertainty. New Jersey’s public bidding laws are intended to safeguard the process by which public entities bid and award contracts for goods and services paid for with public funds. Although intended to promote fairness and legitimacy, in reality, they are a virtual maze of statutes and regulations that impose strict requirements as to how to advertise, bid upon and ultimately award public contracts to vendors.

Numerous, Often Conflicting, Sources for Bidding Requirements

New Jersey lacks a unified set of bidding regulations. Perhaps, as Gov. Christie suggests, this is yet another instance of having too much "government" in New Jersey. Whatever the reason, a business seeking to contract with a New Jersey public entity faces a different set of rules and procurement regulations depending on what body offers the procurement, be it the state, a county or local government, or one of the state’s many independent authorities and agencies. Thus, vendors and public entities often are faced with different key bidding requirements such as timing, advertising, bid content and amendments, standard for award, etc. Virtually any material diversion from these often conflicting requirements creates fertile ground for legal challenges, resulting in delays to the public procurement process and expensive litigation.

For example, a different standard for the award of a contract will apply depending on which government agency has issued the RFP. For RFPs at the state level, contracts typically are awarded to the proposal that is "most advantageous to the State, [with] price and other factors considered." However, for RFPs issued by local governments, contracts typically are awarded to the "lowest responsible bidder" unless, of course, the local procurement qualifies for "competitive contracting" status — which provides the local purchasing agent with broad flexibility to fashion its own review standard. A number of independent state agencies and authorities, such as the New Jersey Turnpike Authority and the New Jersey Water Supply Authority, apply the "local" lowest responsible bidder standard.

Another dimension of variation is the period of time within which the public entity or agency must award the contract. State level contracts must be awarded with "reasonable promptness." However, more definite timeframes are set forth for other bodies, like local governments, which must award the contract or reject bids within 60 days after bid opening. Certain independent authorities and agencies have required contract award timeframes that differ entirely from those at the state and local levels, such as the Department of Transportation, which must award a contract within 30 working days after bids are received. Requirements for the posting of security also vary depending on which body has issued an RFP. At the state level, bond sums are set by an agency based on its "assessment of the risk presented to the State by the type of contract and other relevant factors." However, there is less discretion at the local level.

Erosion of "Standing" Requirements for Challenging Specifications

Prior to 2009, typically only taxpayers and prospective bidders had the ability to challenge public bidding specifications. In 2009, the New Jersey Supreme Court expanded the list of entities who have standing through its ruling in Jen Electric Inc. v. County of Essex, 197 N.J. 627 (2009). Now, the list of potential challengers to bid specifications is far broader and includes the potential suppliers, materials vendors and subcontractors of the prospective bidders themselves. While the Supreme Court seemed to indicate that its ruling would apply only to challenges of bid specifications, and not to challenges of contract awards, a more recent decision by New Jersey’s Appellate Division, In re N.J. State Contract A71188, 422 N.J. Super. 275 (2011), makes this less clear — especially within the realm of cooperative purchasing agreements (CPAs). There, the Appellate Division ruled that an agency’s incumbent suppliers have standing to challenge the agency’s decision to join a CPA, even though those incumbents did not participate in the bidding on the CPA.

While these decisions leave several open issues, they do make clear that New Jersey’s courts are trending toward further erosion of standing requirements for public bid challenges in favor of a broader overall ability to bring such contests. As bid challenges could become more frequent, this trend further illustrates the need for a unified set of bidding rules. Moreover, since the pool of potential bid challengers is now greater than ever, businesses engaged in New Jersey public bidding (as well as their suppliers and vendors) must take proactive steps to identify and appreciate the complex labyrinth of New Jersey’s public bidding requirements.

Conclusion

While the DPP’s forthcoming online electronic bidding management system may provide some much-needed uniformity to the manner in which bids are submitted for public contracts, it will be far from a panacea. The currently inconsistent landscape of New Jersey’s public bidding laws, coupled with more relaxed standing requirements, will continue to ensure unneeded complexity, costly litigation and pitfalls for the unwary vendor. Those seeking to do business with New Jersey public entities should not lower their guard upon the introduction of the new electronic system, but instead should continue to approach public bidding in New Jersey with vigilance and caution, with the support of competent legal counsel, at all stages of the procurement process. Those that fail to do so expose themselves to the potential for lost business opportunities and costly protracted litigation. •