New Hersey State of Muncicipalities FacebookTwitter Linkedin with NJSLOM       





   

 

A Guide to Local
Public Contracts Law

edward J. Buzak  Tiena M. Cofoni
By Edward J. Buzak
League Assistant Counsel
& Tiena M. Cofoni

3 people reviewing a contract
While the statutory requirements are voluminous and sometimes confusing, an understanding of the purpose of the LPCL provides municipal officials with an essential tool for the successful navigation of the LCPL.

The purchase of goods and services by municipalities is regulated by the Local Public Contracts Law (LPCL) and the regulations that were adopted by the Division of Local Government Services in the Department of Community Affairs (DLGS). N.J.S.A. 40A:11-1 et seq. and N.J.A.C. 5:34-1.1 et seq.

While the statutory requirements are voluminous and sometimes confusing, an understanding of the purpose of the LPCL provides municipal officials and employees with an essential tool for the successful navigation of the LPCL. The primary purpose of the LPCL is to ensure that public contracts are awarded through a fair, open and competitive process. The use of such a process prevents preferential treatment by municipalities and results in the award of a contract for the lowest cost, which is intended to serve the best interests of the public.

GENERAL PROVISIONS
The LPCL establishes the specific procedural and substantive criteria for each category of contract to which the municipality is a party. With certain exceptions, all contracts, costing more than the bid threshold, must be awarded through a public bidding process established in the LPCL.

The LPCL also provides an alternative procedure to public bidding that may be used by municipalities for specific types of contracts that would otherwise have to be awarded through public bidding. The alternative procedure is termed “competitive contracting” and can be used for those contracts as specifically provided by N.J.S.A. 40A:11-4.1. In addition, there are 33 types of contracts that are specifically exempt from the public bidding process irrespective of whether the amount of the contract exceeds the bid threshold. N.J.S.A. 40A:11-5.

Lastly, the LPCL provides specific procedures for the sale or other disposition of personal property owned by a municipality and no longer needed for public use. N.J.S.A. 40A:11-36.

BID THRESHOLD
Unless excepted from public bidding or unless an alternative procedure is authorized, all contracts for the procurement of goods or services by municipalities that in the aggregate exceed the bid threshold, currently $21,000, must be awarded through the public bidding process in accordance with the LPCL. Every five years the bid threshold is modified by the Governor in consultation with the Department of Treasury. N.J.S.A. 40A:11-3; DLGS Local Finance Notice 2005-16.

The governing body of any municipality may establish the office of purchasing agent, a purchasing department or a purchasing board (collectively referred to herein as “purchasing agent”). If created, the purchasing agent has the authority and responsibility for the purchasing activity for the municipality, including but not limited to, the preparation of public advertising for bids and the receipt of bids. N.J.S.A. 40A:11-9a.

Additionally, when the aggregate cost or price of any contract does not exceed in a contract year the bid threshold and when so authorized in the ordinance or resolution, the contract may be awarded directly by the purchasing agent without action by the governing body. Further, if the municipality’s purchasing agent is qualified pursuant to N.J.S.A. 40A:11-9b, the governing body may establish a higher bid threshold, currently $29,000. N.J.S.A. 40A:11-3a and DLGS Local Finance Notice 2005-16.

For those contracts that in the aggregate are less than the bid threshold but exceed 15 percent of the bid threshold, currently $3,150, the LPCL provides that the contracting agent shall award the contract after soliciting at least two competitive quotations, if practicable. By obtaining competitive quotations prior to awarding a contract that is below the bid threshold, the municipality is better able to determine that the contract awarded is for a fair and reasonable price. For all contracts under the public bidding threshold, the LPCL provides that the award shall be made to a vendor whose response is most advantageous, price and other factors considered. N.J.S.A. 40A:11-6.1a.

To avoid the sometimes burdensome nature of public bidding, municipalities may be tempted to divide contracts that would otherwise exceed the bid threshold into several smaller contracts that do not exceed the bid threshold.

However, the LPCL specifically prohibits the division of contracts that would otherwise exceed the bid threshold in an effort to avoid the requirement of public bidding. N.J.S.A. 40A:11-7b. Further, the DLGS has adopted additional rules governing the determination of aggregation for the purpose of whether a contract is subject to public bidding. N.J.S.A. 40A:11-7.1.

PROCEDURES
Except for solid waste related contracts, the LPCL requires that all advertisements for receipt of bids be published in an official newspaper of the municipality a minimum of 10 days prior to the date set for receipt of bids. All advertisements for bids on contracts for the collection and disposal of municipal solid waste must be published in an official newspaper of the municipality circulating in the county or municipality, and in at least one newspaper of general circulation published in the state a minimum of 60 days prior to the date set for receipt of bids. N.J.S.A. 40A:11-23a. On January 17, 2007, a new law took affect, which provides that municipalities cannot require that bids be received on a Monday or any day directly following a state or federal holiday. P.L. 2007, c.4 (A-2527).

The published “Notice to Bidders” must provide a description of the contract, the manner of obtaining the detailed bid specifications and submitting the bid, and the time and place at which bids will be received and opened. N.J.S.A. 40A:11-23b. As a practical matter it is important that the Notice provides clear, concise and accurate information about the contract and requirements associated with submission of a bid. Further, the entire bid specification package must be completed, copied and ready to be distributed to potential bidders by the date the Notice is published.

The preparation and drafting of the bid specifications is the most important step in the implementation of the LPCL and the ultimate award of a contract. Typically, this step includes participation by the municipal employee directly involved in the bid (i.e. the municipal engineer for construction contracts) and the municipal attorney. Inclusion of inaccurate information or requirements or confusing or incomplete provisions often leads to the elimination of potential bidders, or worse, rejection of the lowest bidder. The LPCL provides some direction with regard to drafting of specifications.

For example, the LPCL prohibits any requirement that a bidder be a resident of, or the bidder’s place of business be located in, the county or municipality in which the contract will be awarded or performed, unless the location of the bidder is essential to performance of the contract. N.J.S.A. 40A:11-13(b). Bid specifications can not require the furnishing of a brand name, but may require a brand name, or “its equivalent.” N.J.S.A. 40A:11-13(d). Bid specifications cannot discriminate on the basis of race, religion, sex, national origin, creed, color, ancestry, age, marital status, affectional or sexual orientation, familial status, liability for service in the Armed Forces of the United States, or nationality. N.J.S.A. 40A:11-13(c). Further, the LPCL prohibits drafting of specifications in a manner that the municipality knows will exclude all prospective bidders except one.

In general, contracts for the provision of goods and services are awarded for a period not to exceed 24 consecutive months, although certain specified contracts may be awarded for longer periods as specifically provided by N.J.S.A. 40A:11-15. Contracts for professional services, however, can only be awarded for a period not to exceed 12 consecutive months. All bid specifications must include any option for renewal, extension, or release which the municipality may intend to exercise or require and any terms and conditions necessary for the performance of any extra work. The specifications must disclose all matters necessary to the substantial performance of the contract. N.J.S.A 40A:11-13(e).

The preparation of bid specifications takes considerable time and effort in order to produce clear, concise and accurate documents. However, it is time and effort well spent, since the more accurate the bid specifications, the fewer the problems when the bids are reviewed and the contract is awarded. While it is essential that the entire bid specification package be clear and precise, certain portions of the bid specifications may have a greater effect on the bidding process and eventual award of a contract than others. Thus, careful preparation of the portion of the bid specifications where bidders provide the dollar amount bid, known as the “bid proposal,” is essential. The bid proposal must clearly state the subject matter of the bid and how the municipality will evaluate the bid. If optional items are included, the bid proposal must clearly state whether all bidders must bid on all options and the manner in which the optional items will be factored into the calculation of the lowest bid.

The bid specifications must also clearly set forth the documents that are required to be submitted either with the bid or post bidding. There are specific statutorily mandated documents that are required to be submitted with the bid and others that may be required pursuant to the details set forth in the specifications themselves. The LPCL provides that, when required by the bid specifications, submission of certain documents is mandatory and the failure to submit any of the mandatory documents at the time specified shall be deemed a fatal defect that is not waivable or curable rendering the defective bid proposal unresponsive and invalid, causing the rejection of the bid. The list of the mandatory documents to be submitted with a bid is specifically provided in the LPCL. N.J.S.A. 40A:11-23.2.

In addition to the mandatory items, typically contract documents will also contain a bid proposal; a bidder’s questionnaire; a non-collusion affidavit; a bidder’s affidavit; a form of contract; an affirmative action statement; a checklist of the required documents; a form of performance guarantee; and a requirement that a certificate of insurance be submitted. The inclusion of forms within the bid specifications eliminates the submission of unacceptable documents and enables the municipality to insist upon use of the forms provided in the bid specifications, which have been pre-approved by the municipality.

Contract documents will also include technical specifications, which provide the engineering or architectural details for a construction contract, the required equipment for a vehicle or the specific performance obligations for a service. It is essential that the appropriate municipal employee who is knowledgeable about the service or product review the technical specifications to ensure they are accurate. As previously stated, brand names should not be used unless the brand name is followed by “or its equivalent.” In addition, the technical specifications should not include a space where the bidder is able to check that they have bid with an exception. This practice invites the bidder to provide exceptions and makes it difficult for the municipality to accurately review and compare the bids received. If an item contained in the technical specifications truly is optional, it should be clearly set forth as such and provided for separately on the bid proposal. Before including warranty requirements, the municipality should measure them against industry standards.

Bid specifications for some types of contracts must provide specific requirements related to that contract type. For example, the LPCL provides a separate list of mandatory items that must be included with bid specifications in publicly bid contracts for the erection, alteration, or repair of a building, structure, facility or other improvement to real property. N.J.S.A. 40A:11-23.1. All construction contract documents entered into in accordance with the LPCL must provide that disputes arising under the contract shall be submitted to alternative dispute resolution practices pursuant to industry standards, prior to being submitted to court for adjudication. N.J.S.A. 40A:11-50. A provision that must be included within the bid specifications for all contracts for municipal work, or for work for which a municipality will pay any part of the cost, or work which by contract or ordinance a municipality will ultimately own and maintain, is that only manufactured and farm products of the United States, wherever available, be used in such work. N.J.S.A. 40A:11-18. Bid specifications for municipal solid waste collection and disposal must conform to the uniform bid specifications established by DLGS in accordance with N.J.S.A. 48:13A-7.22.

All interpretations and revisions to the bid specifications must be provided in writing by the municipality and given to all potential bidders who have received the bid package which assures that such interpretations are memorialized and distributed to all potential bidders. If there is a need to clarify or revise a provision contained within the bid specifications an addendum must be issued. Notice of revisions or addenda to advertisements or bid specifications must be published no later than seven days, Saturdays, Sundays and holidays excepted, prior to the date for acceptance of bids, in an official newspaper of the municipality and be provided to any person who has submitted a bid or who has received a bid package. N.J.S.A. 40A:11-23c(1). For municipal solid waste collection and disposal contract, notice of revisions or addenda shall also be published within the same time period in at least one newspaper of general circulation publishing in the state. N.J.S.A. 40A:11-23c(3). Failure of the municipality to advertise for the receipt of bids or to provide proper notification of revisions or addenda to advertisements or bid documents related to bids prevents the municipality from accepting the bids and requires the re-advertisement for bids.

AWARD AND REJECTION
Every publicly bid contract awarded by the municipality must be awarded by resolution of the governing body to the lowest responsible and responsive bidder. N.J.S.A. 40A:11-4a. Of course, the nature of some contracts will dictate that it is not the lowest but instead the highest bid that is entitled to the award. An unresponsive bid is one that does not include information or documents required by the bid specifications or a bid that includes the required information or documents but the information or documents are incomplete or unsatisfactory. An unresponsive bid is considered a “non bid” and is therefore not rejected. A bidder may be deemed “not responsible” by the municipality only if the bidder meets the statutory criteria for “prior negative experience” as specifically defined within the LPCL. N.J.S.A. 40A:11-4b. In order for a municipality to disqualify a bidder because of prior negative experience, the criteria set forth in N.J.S.A. 40A:11-4c must be satisfied.

There may be some situations when the municipality desires to reject all bids despite the fact that the lowest bid has been submitted by a responsible bidder. A municipality may reject all bids received only if (1) the lowest bid substantially exceeds the cost estimates for the contract; or (2) the lowest bid substantially exceeds the municipality’s appropriation for the goods or services; or (3) the governing body of the municipality decides to abandon the project; or (4) the municipality wants to substantially revise the specifications; or (5) the purposes or provisions of the LPCL are being violated; or (6) the governing body of the municipality decides to use a State authorized contract pursuant to N.J.S.A. 40:11-12. N.J.S.A. 40A:11-13.2.

The municipality must award the contract or reject all bids received within such time as set forth within the bid specifications, but in no case more than sixty days after the date set for receipt of bids, which may be extended with the consent of the bidder. The contract must be signed by the parties within the time limit set forth in the specifications, which shall not exceed 21 days after the award of the contract, Sundays and holidays excepted. However, all parties to the contract may agree to extend the time limitation for execution of the contract beyond the 21 day limitation. N.J.S.A. 40A:11-24a.

EXCEPTIONS
Certain types of contracts are specifically exempt from the public bidding process even though the cost or price of the contract exceeds the bid threshold. N.J.S.A. 40A:11-5. Under recently enacted “Anti Pay-to-Play” legislation, participants in non-bid contracts must strictly comply with restrictions on campaign contributions. Professional services contracts, contracts for extraordinary unspecifiable services and contracts made or entered into with a governmental entity are three of the most common exceptions to public bidding. See N.J.S.A. 40A:11-2, N.J.S.A. 40A:11-5 and N.J.A.C. 5:34-2.1 et seq. Another less common but essential exception to public bidding is for emergency contracts. Any contract may be negotiated or awarded without public advertising for bids and bidding, notwithstanding that the contract cost or price will exceed the bid threshold, when an emergency affecting the public health, safety or welfare requires the immediate delivery of goods or the performance of services. N.J.S.A. 40A:11-6. There are 33 other specific exceptions to public bidding provided by the LPCL. N.J.S.A. 40A:11-5(1).

CONCLUSION
The intent of this article is to provide municipal officials and employees with an overview of public contracting in an effort to assist with the preparation of bid specifications and the award of contracts. There is a plethora of case law that explains and unfortunately, many times unnecessarily complicates the implementation of the LPCL. Consult with your municipal attorney regarding whether public bidding is necessary, the particular contents of the bid specifications and the award of the contract may be required to ensure the successful navigation of the LPCL.


Edward J. Buzak is assistant counsel to the New Jersey League of Municipalities and practices law at his own firm in Montville.
Tiena M. Cofoni is an attorney with Mr. Buzak’s firm.
A version of this article was original published in the December 2006 issue of New Jersey Lawyer Magazine, a publication of the New Jersey State Bar Association, and is reprinted here with permission. 

 

 

This article appeared in the June 2007 issue of New Jersey Municipalities magazine.

Privacy Statement | NJLM FAQ
New Jersey State League of Municipalities • 222 West State Street • Trenton, NJ 08608 • (609) 695-3481
  FAX: (609) 695-0151