In a long-awaited decision of tremendous importance to the public contracting industry, the New Jersey Supreme Court issued a stunning reversal of the decisions of the lower courts in Jen Electric, Inc. v. County of Essex, decided on March 4, 2009. Essentially, the Court held that Jen Electric, a supplier of traffic control systems, which had no intent to directly bid on a project solicited by the County, had standing to challenge bid provisions that specified a brand name of equipment. The decision has potentially far-reaching consequences in two respects: (1) non-bidders who can demonstrate that they have a "clear, identifiable, substantial, and real interest in the outcome of [the] challenge" have standing to challenge bid specifications; and (2) public owners who identify brand names of equipment or products in bid specifications, rather than utilizing a generic performance-based specification, do so at their peril.
The County solicited bids and issued specifications for traffic signal operations in Newark. Jen Electric, a supplier of such systems who hoped to act as a supplier to a bidder, but not bid on the contract itself, objected to the specifications because they identified a specific brand of such equipment, which is distributed exclusively by a single vendor. After a series of objections by Jen Electric, followed by some revisions to the original specifications and the receipt and rejection of all bids, the County issued revised specifications and re-bid the project. Despite Jen Electric's protest that the County was effectively sole-sourcing the equipment in violation of Section 13(d) of the Local Public Contracts Law (N.J.S.A. 40A:11-1 et seq., "LPCL"), the revised specifications were actually more restrictive than the original, in that they identified additional equipment by reference to a specific manufacturer.
Jen Electric renewed its protest and the County responded that it "ALWAYS accepts an equivalent to any brand name stated in an advertised bid specification," on condition that the proposed equivalent "must meet or exceed the specification of the brand name stated in the bid," and with the admonition that "it is the responsibility of the bidder to prove that the equivalent meets or exceeds specification." When the County issued a clarification to all bidders to that effect, Jen Electric once again protested that the specifications favored "a particular sole source vendor to supply all the traffic signal equipment … in spite of the fact that generic specifications exist." Significantly, Jen Electric also asserted that the County's engineering staff had advised that it would not accept any products other than the named brand, despite the fact that equipment manufactured by competitors was significantly less expensive, and while the Court did not make a factual determination on that point, it appeared to be influenced by that assertion. The County reiterated that it always accepts equivalents to any brand name product and that such products were commercially available.
Jen Electric then filed an action asserting that the specifications violated Section 13 of the LPCL, which requires that "[a]ny specifications for the provision or performance of goods or services under this act shall be drafted in a manner to encourage free, open and competitive bidding." The complaint also noted that applicable regulations required that "[t]o encourage free, open, and competitive bidding, prior to referencing a 'brand name or equivalent' in a bid specification … a contracting agent or purchasing agent shall first consider using a … generic specification available through a commercial or non-commercial service." N.J.A.C. 5:34-9.29(a)(2).
The trial court determined that because Jen Electric was never going to be a bidder on the project, it had no standing to challenge the bid specifications. The trial court focused on language in N.J.S.A. 40A:11-13 of the LPCL which was added to the law in 2000 and provides that "[a]ny prospective bidder who wishes to challenge a bid specification" must do so in writing at least three business days before the bids are to be opened." The trial court reasoned that this provision should be read as affording only prospective bidders the right to challenge bid specifications. The Appellate Division, in a published opinion, affirmed that decision for essentially the same reasons. Jen Electric, Inc. v. County of Essex, 401 N.J. Super. 203 (App. Div. 2008).
The Supreme Court reversed the lower court decisions on two grounds:
- The above-quoted amendatory language to Section 13 of the LPCL provides a time period by which prospective bidders may file challenges to bidding specifications, but has no impact on whether nonbidders may make such a challenge.
- Only taxpayers, bidders and prospective bidders may challenge the award of a contract to the successful bidder, because "all interested parties have accepted the specifications as drawn, have bid on those specifications, and, at least as far as the successful bidder is concerned, have a vested interest in the contract award itself." By contrast, the Court reasoned, the right to challenge bid specifications should be viewed under settled rules governing standing, which provide that "[e]ntitlement to sue requires a sufficient stake and real adverseness with respect to the subject matter of the litigation [and a] substantial likelihood of some harm visited upon the plaintiff in the event of an unfavorable decision …." (quoting In re Adoption of Baby T, 160 N.J. 332, 340 (1999)). Although the Court did not discuss the point, it is well-settled that taxpayers also have standing to challenge bid specifications, even post-bid.
Thus, the Court found that Jen Electric had standing to challenge the bid specifications because, "as the provider of equal, alternate equipment that would be responsive to a generic, but not a sole-source, bid, plaintiff possessed a sufficient stake in the outcome of this litigation."
Impact On Public Bidding
The Jen Electric decision poses some challenging issues for governmental entities subject to the LPCL. First of all, although the Court took pains to note that its ruling was "very limited" and resulted from Jen Electric being a "pro-active participant in the bidding process," it remains to be seen whether other suppliers will take advantage of the holding and seek to challenge bid specifications which have identified products using a brand name or equivalent.
The decision also revealed an undercurrent of distrust with specifying brand name products at all. Although doing so is clearly permitted under the LCPL, in light of the decision public bodies should be mindful of the regulations that require a contracting or purchasing agent to first consider using a generic specification before determining to use a brand name supplier. Certainly, if such a supplier is named, the specifications themselves should clearly state that an equivalent will be considered rather than resorting to a clarification to make that point.