New Jersey Appellate Division Rules Conditional Character of Surety’s Commitment to Provide Performance Bond Made Contractor’s Bid Nonresponsive

Nova Crete, Inc. v. City of Elizabeth
2010 N.J. Super. Unpub. LEXIS 101 (N.J. Super. Ct. App. Div. Jan. 15, 2010)

The Court held that the consent of surety submitted by Nova Crete, Inc. (“Nova Crete”) did not comply with the bid specifications provided by the City of Elizabeth because its issuance was conditioned on an event other than the award of the contract to Nova Crete, and it therefore did not comply with the applicable New Jersey statute. Furthermore, this defect was material and could not be waived or cured. As a result, Elizabeth properly determined that Nova Crete was not the lowest responsible bidder on the project.

Elizabeth publicly solicited bids for the Elizabeth Avenue Streetscape Enhancement Construction Project (the “project”). Each bidder received a packet of information stating that “[e]ach bidder must submit with his bid a certificate from a responsible surety company stating that the said surety company will provide, in the event that he should be the successful bidder, a surety bond in the amount of one hundred (100%) of the contracted price.” The bid package also advised all bidders that, pursuant to N.J.S.A. 40A:11-22, the submission of the certificate from a surety company was mandatory, and that the failure to submit same may be cause for the bid to be rejected.

Elizabeth received nine bids. Nova Crete’s was the lowest; JOGI Construction, Inc.’s (JOGI’s) was the second lowest. However, Nova Crete’s bid failed to provide an unconditional consent of surety, which was a material defect. Specifically, it stated that the surety “hereby consents and agrees that if the Contract for [the project] be awarded to Nova Crete…the undersigned surety agrees…to execute the final bond as required by the specifications and to become surety…provided we are requested by [Nova Crete.]” The bid was deemed nonresponsive and rejected, and the contract was awarded to JOGI.

Nova Crete filed a complaint seeking temporary injunctive relief and an order awarding it the contract. The judge entered the temporary restraints and set the matter down for a hearing. After the hearing, the judge entered an order permanently enjoining Elizabeth and JOGI from proceeding under the contract, but he denied Nova’s Crete’s request to rescind the JOGI contract and award it to Nova Crete.

JOGI sought reconsideration. It argued that Nova Crete’s consent of surety was not unconditional, thus making the bid nonresponsive. Nova Crete countered that the judge had properly determined that the consent of surety was acceptable, that its bid was fully responsive, and that it was the lowest responsible bidder.

On appeal, the decision of the lower court was reversed. The Court first noted that public contracts must be awarded “to the lowest bidder that complies with the substantive and procedural requirements in the bid advertisements and specifications. Any material departure invalidates a nonconforming bid as well as any contract based upon it.” In this case, Nova Crete did not provide the proper consent of surety, which gives the local government some assurance at the time of the bid submission that the low bidder will have the capacity to perform the contract and that the surety would issue the required performance bond. This requirement has always been deemed non-waivable, even before the enactment of N.J.S.A. 40A:11. If it were not, the stability of the public-bidding process would be threatened because successful bidders who did not provide an unconditional consent of surety could unilaterally cancel the award by failing to obtain the bond after the fact. The court concluded that because the certificate submitted with Nova Crete’s bid was conditioned upon a further request by Nova Crete to the surety, it did not meet the specifications, and it was an invitation to further litigation if the bond was not issued over whether the issuance of the bond was properly requested. Therefore, the contract was properly awarded to JOGI, as the lowest responsive bidder.

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