N.J.A.C. 17:19-2.13(c) provides in pertinent part that “[a] firm shall not be awarded a contract which, when added to the backlog of uncompleted construction work . . . would exceed the firm’s aggregate rating.”  In Brockwell & Carrington Contractors, Inc. v. Kearny Board of Education, ___ N.J. Super. ___ (App. Div. 2011), which involved a bidding dispute over a school building project, the Appellate Division was confronted with the issue of whether that regulatory requirement applied to general contractors as well as subcontractors.  The Appellate Division held that “the regulation applies to both subcontractors and contractors pursuant to the Public Schools Contract Law (PSCL), N.J.S.A. 18A:18A-1 to -59, and the Educational Facilities Construction and Financing Act (EFCFA), N.J.S.A. 18A7G-1 to -48.”

 

On September 15, 2010, the Kearny Board of Education (“Board”) opened bids on an aircraft noise abatement and renovation project.  The lowest bidder was Dobco, Inc. (“Dobco”), and the next lowest was Brockwell & Carrington (“B&C”).  Dobco was awarded the contract.  The heating, ventilation, and air-conditioning (“HVAC”) subcontractor for Dobco’s bid was Environmental Climate Control, Inc. (“ECC”).  ECC indicated it would perform that work for $7,500,000.

Governing regulations, which were intended not to let contractors take on more work than they could handle, classified contractors by their “permissible aggregate work volume,” which put a limit on the value of contracts that they could have at one time based on their financial records.  At the time that Dobco submitted its bid, ECC had an aggregate limit of $15,000,000.  ECC submitted a form as part of the bid that indicated that it had a backlog of uncompleted contracts in the amount of $3,500,000, which meant that it could be Dobco’s subcontractor without exceeding its $15,000,000 limit.

B&C challenged Dobco’s bid and claimed that it was defective.  Specifically, it claimed that ECC had underbid the project because the HVAC work was valued at approximately $9,500,000.  B&C also asserted that ECC had a backlog of uncompleted contracts in an amount exceeding $9,000,000.  According to B&C, ECC’s paperwork on the disputed bid was incorrect and also that its bid exceeded ECC’s aggregate limit.

The Board investigated the situation and learned that ECC had bid the HVAC work at $7,500,000 because Dobco intended to do some of the HVAC work itself.  In addition, ECC disclosed that its backlog of uncompleted work was $10,125,579, which meant that its bid put it over its aggregate limit.

B&C moved to disqualify Dobco’s bid.  Dobco and the Board opposed that request by arguing that the governing statutory and regulatory law did not apply to subcontractors.  The trial court rejected that argument and, relying upon the EFCFA, Advance Electric Co. v. Montgomery Township Board of Education, 351 N.J. Super. 160 (App. Div. 2002), and the Legislature’s intent that the bidding requirements insure that quality work be performed, determined that ECC was subject to the aggregate rating limit contained in N.J.A.C. 17:19-2.13(a).  The court ruled that Dobco’s bid was defective and it denied Dobco the opportunity to cure it; instead, it ordered the Board to award the contract to B&C.

The Appellate Division granted Dobco’s request for a stay and expedited the appeal.  Dobco presented three arguments to the Appellate Division:  1) as a subcontractor, ECC was not subject to the aggregate rating limit; 2) if ECC was subject to the limit, it could deduct 85% of the value of the work it was subcontracting to others under the governing regulations, thereby allowing its bid to remain under its aggregate rating limit; and 3) the Appellate Division should not consider whether ECC’s submission of the erroneous form was fraudulent.  The Appellate Division did not reach the third argument and rejected the first two.

In affirming, the Appellate Division reasoned that “the PSCL and Advance Elec. support the conclusion that any subcontractor's bid on a project must not exceed the subcontractor's aggregate rating limit.  Moreover we conclude that EFCFA, which was enacted subsequent to the Advance Elec. decision, provides an independent basis for holding that ECC must meet the requirements set by N.J.A.C. 17:19-2.13(c).  ECC's non-compliance is a material defect that is fatal to Dobco's bid.”  The Appellate Division also determined that because ECC could not take advantage of the 85% deduction for subcontracting work provided by the regulations, its bid exceeded its aggregate rating.  Accordingly, the Appellate Division affirmed the trial court’s decision.