Public Contracting Law: A Look at Consent of Surety and Its Implications

for the Governmental Purchasing Association of New

Jersey, Inc. April 10, 2014

Richard D. Trenk, Esq. 973-243-8600 rtrenk@trenklawfirm.com

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WHAT IS A CONSENT OF SURETY? Statement submitted with a bid, from a surety company duly authorized to do business in New Jersey and satisfactory to the governing body to the effect that said surety company will furnish a bond for the bidder, if awarded the contract. Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307, 311 (1994).

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WHAT IS A CONSENT OF SURETY? A consent of surety is a direct undertaking by the bonding company, enforceable by the municipality. Its purpose it to provide a guarantee to the municipality, at the time of the submission of bids, that if the bidder were to be awarded the contract, the surety would issue the required performance bond. Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307, 321 (1994).

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WHAT IS A CONSENT OF SURETY? The significance of a consent of surety is that it provides the local government with some assurance at the time of the bid submission that the low bidder will have the capacity to perform the contract and to supply the necessary bonds. Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307, 316 (1994).

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MATERIALITY ANALYSIS Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307 316 (1994). Township of River Vale v. R.J. Longo Construction Co., Inc., 127 N.J. Super. 207 (Law Div. 1974)

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MATERIALITY ANALYSIS [T]o determine whether a specific noncompliance constitutes a substantial and hence nonwaivable irregularity – first, whether the effect of a waiver would be to deprive the municipality of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements, and second, whether it is of such a nature that its waiver would adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders by otherwise undermining the necessary common standard of competition. River Vale, 127 N.J. Super. at 216; see also Meadowbrook, 138 N.J. at 315 (applying the same analysis).

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MATERIALITY ANALYSIS Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307 (1994). We hold that Consolidated’s failure to include a consent of surety with its bid proposal is a material defect that can be neither waived nor cured. Id. at 320. To permit waiver of the consent-of-surety requirement would undermine the stability of the public-bidding process. For example, if a low bidder that had failed to submit a consent of surety decided it no longer sought the contract because it had determined that its bid was too low, that bidder could decline to obtain the consent of surety and the performance bond. Without a performance bond, the bidder cannot be required to enter into and perform the contract. Id. at 321. Our specific concern is that the requirement of a consent of surety “ ‘may have deterred others from bidding who would have bid had they known that [that] condition[ ] would be waived. Id. at 323 (quoting L. Pucillo & Sons, Inc. v. Mayor and Council of Borough of New Milford, 73 N.J. 349, 358 (1977))

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MATERIALITY ANALYSIS Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307 (1994). As a result of Meadowbrook, a Consent of Surety became a Mandatory Requirement

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CONSENT OF SURETY = MANDATORY REQUIREMENT N.J.S.A. 40A:11-22. Guarantee or surety company; certificate a. A person bidding on a contract for the erection, alteration or repair of a building, structure, facility or other improvement to real property, the total price of which exceeds $100,000, shall furnish a certificate from a surety company, as provided for herein. A contracting unit may provide that a person bidding on any other contract shall furnish a certificate from a surety company, as provided for herein. b. When a surety company bond is required in the advertisement or specifications for a contract , every contracting unit shall require from any bidder submitting a bid in accordance with plans, specifications and advertisements, as provided for by law, a certificate from a surety company stating that it will provide the contractor with a bond in such sum as is required in the advertisement or in the specifications. This certificate shall be obtained for a bond— (1) For the faithful performance of all provisions of the specifications or for all matters which may be contained in the notice to bidders, relating to the performance of the contract , and (2) If any be required, for a guarantee bond for the faithful performance of the contract provisions relating to the repair and maintenance of any work, project or facility and its appurtenances and keeping the same in good and serviceable condition during the term of the bond as provided for in the notice to bidders or in the specifications, or (3) In such other form as may be provided in the notice to bidders or in the specifications. If a bidder desires to offer the bond of an individual instead of that of a surety company, the bidder shall submit with the bid a certificate signed by such individual similar to that required of a surety company. The contracting unit may reject any such bid if it is not satisfied with the sufficiency of the individual surety offered.

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CONSENT OF SURETY = MANDATORY REQUIREMENT Consent of Surety is a Mandatory Requirement when: 1. Contract is for construction for over $100,000; or 2. When the bid specifications require Consent of Surety

Important Note: Consent of Surety is NOT a Mandatory Requirement if it is not required by Specifications

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CONSENT OF SURETY = MANDATORY REQUIREMENT N.J.S.A. 40A:11-23.2. Mandatory requirements When required by the bid plans and specifications, the following requirements shall be considered mandatory items to be submitted at the time specified by the contracting unit for the receipt of the bids; the failure to submit any one of the mandatory items shall be deemed a fatal defect that shall render the bid proposal unresponsive and that cannot be cured by the governing body: a. A guarantee to accompany the bid pursuant to section 21 of P.L.1971, c. 198 (C.40A:11-21); b. A certificate from a surety company pursuant to section 22 of P.L.1971, c. 198 (C.40A:11-22); c. A statement of corporate ownership pursuant to section 1 of P.L.1977, c. 33 (C.52:25-24.2); d. A listing of subcontractors pursuant to section 16 of P.L.1971, c. 198 (C.40A:11-16); e. A document provided by the contracting agent in the bid plans, specifications, or bid proposal documents for the bidder to acknowledge the bidder's receipt of any notice or revisions or addenda to the advertisement or bid documents.

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CONSENT OF SURETY = MANDATORY REQUIREMENT Because Consent of Surety is statutorily listed as a Mandatory Requirement . . . NO MATERIALITY ANALYSIS IS REQUIRED

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FORM OF CONSENT OF SURETY

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FORM OF CONSENT OF SURETY Must serve as an unconditional undertaking to provide the performance bond upon award of the contract.

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FORM OF CONSENT OF SURETY Hypo: Consent of Surety states that “Should Bidder be successful low bidder on the project, we would not anticipate any difficulty providing bonds on the above captioned project, subject to execution of a contract satisfactory to Bidder and Surety. In addition, provisions of such bonds would also be subject to satisfactory evidence of financing in our normal underwriting requirements at the time of such request from our principal.”

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FORM OF CONSENT OF SURETY Hypo: Bidder does not utilize Consent of Surety Form provided in Bid Specifications, but instead issues a form from the Surety which states, “Surety, hereby consents and agrees that if the Contract be awarded to Bidder, the undersigned Surety agrees with the Governing Body to execute the final bond as required by specifications or to become co-sureties with others in the full amount of the contract price for the faithful performance of the contract”

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FORM OF CONSENT OF SURETY Hypo: Bid Submissions are due on December 5, but a bidder submits a Consent of Surety that is dated December 7 by the Surety.

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FORM OF CONSENT OF SURETY Hypo: Bidder submits a bid of $700,000 for a one year contract, $2,000,000 for a three year contract and $3,500,000 for a five year contract. Bidder submits a Consent of Surety that states that: “The Consent of Surety Contained herein is Limited to a Contract award not to exceed $700,000”

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FORM OF CONSENT OF SURETY However . . . For Solid Waste Collection Contracts, please note:

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FORM OF CONSENT OF SURETY N.J.A.C. 7:26H-6.9 Performance Bonds (Department of Environmental Protection Regulations) (a) For a one year collection contract, the successful bidder shall submit a performance bond in accordance with the following: 1. The successful bidder shall provide, at the time and place specified by the contracting unit, a one year performance bond issued by a surety in an amount equal to no more than 100 percent of the award price; provided, however, that the time set for delivery of the performance bond is prior to or concurrent with the time set for the delivery of the executed contract; and

* * * * * (b) For a multi-year collection contract, the successful bidder shall submit performance bonds in conformance with the following: 1. The successful bidder shall provide, at the time and place specified by the contracting unit, a performance bond issued by a Surety in an amount equal to no more than 100 percent of the annual value of the contract; provided, however, that the time set for delivery of the performance bond shall be prior to or concurrent with the time set for the delivery of the executed contract. The “annual value of the contract” shall be included in the notice of award to the bidder and shall be equal to the total bid price for each year of the contract. The contractor shall provide a one year performance bond for each succeeding year of the contract in an amount equal to no more than 100 percent of the annual value of the contract for each succeeding year. The performance bond for each succeeding year shall be delivered to the contracting unit with proof of full payment of the premium 120 days prior to the expiration of the current bond;

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BID CHECKLIST 6.1 BIDDING DOCUMENTS CHECKLIST (Taken from Uniform Bid Specifications for Solid Waste Collection Contract) ____ 6.2. Photo-copies of bidder's certificate of public convenience and necessity and an approval letter

issued in conformance with N.J.S.A. 13:1E-126. ____ 6.3. Statement of bidder's qualifications, experience and financial ability. ____ 6.4. A bid guarantee in the form of a bid bond, certified check or cashier's check in the proper amount

made payable to the [CONTRACTING UNIT]. ____ 6.5. Stockholder statement of ownership. ____ 6.6. Non-collusion affidavit. ____ 6.7. Consent of surety. ____ 6.8. Proposal. Name of Firm or Individual Title u Signature Date

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BID CHECKLIST N.J.S.A. 40A:11-23.2. Mandatory requirements When required by the bid plans and specifications, the following requirements shall be considered mandatory items to be submitted at the time specified by the contracting unit for the receipt of the bids; the failure to submit any one of the mandatory items shall be deemed a fatal defect that shall render the bid proposal unresponsive and that cannot be cured by the governing body: a. A guarantee to accompany the bid pursuant to section 21 of P.L.1971, c. 198 (C.40A:11-21); b. A certificate from a surety company pursuant to section 22 of P.L.1971, c. 198 (C.40A:11-22); c. A statement of corporate ownership pursuant to section 1 of P.L.1977, c. 33 (C.52:25-24.2); d. A listing of subcontractors pursuant to section 16 of P.L.1971, c. 198 (C.40A:11-16); e. A document provided by the contracting agent in the bid plans, specifications, or bid proposal documents for the bidder to acknowledge the bidder's receipt of any notice or revisions or addenda to the advertisement or bid documents.

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BID CHECKLIST 6.1 BIDDING DOCUMENTS CHECKLIST (Taken from Uniform Bid Specifications for Solid Waste Collection Contract) ____ 6.2. Photo-copies of bidder's certificate of public convenience and necessity and an approval letter

issued in conformance with N.J.S.A. 13:1E-126. ____ 6.3. Statement of bidder's qualifications, experience and financial ability. ____ 6.4. A bid guarantee in the form of a bid bond, certified check or cashier's check in the proper amount

made payable to the [CONTRACTING UNIT]. ____ 6.5. Stockholder statement of ownership. ____ 6.6. Non-collusion affidavit. ____ 6.7. Consent of surety. ____ 6.8. Proposal. Name of Firm or Individual Title Signature Date

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BID CHECKLIST Regardless of whether an item is listed on a Bidding Documents Checklist: Items are still subject to Materiality Analysis unless it is listed under N.J.S.A. 40A:11-23.2 as a mandatory requirements. P & A Const., Inc. v. Township of Woodbridge, 365 N.J. Super. 164 (App. Div. 2004)

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BID CHECKLIST

REMEMBER: N.J.S.A. 40A:11-23.2 items are only Mandatory if required by the bid specification

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FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS - Not listed as a mandatory item under N.J.S.A. 40A:11-23.2. - For Solid Waste Collection Contracts, listed on the Uniform Bid Specifications Bidder’s Checklist - Still a Mandatory Item and requirement cannot be waived. P & A Const., Inc. v. Township of Woodbridge, 365 N.J. Super. 164 (App. Div. 2004)

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FINANCIAL STATEMENTS P & A Const., Inc. v. Township of Woodbridge, 365 N.J. Super. 164 (App. Div. 2004) Bid Specifications required “Certified Financial Statements.” However, Bidder submitted non-certified financial statements. Court performed materiality analysis and concluded that a defect in financial statements is a material and non-waivable defect. Quoted language from New Jersey Supreme Court in Meadowbrook. “The Legislature obviously regarded the financial capacity of a bidder to be a material and substantial consideration in the determination of the lowest responsible bidder, as evidenced by its adopting separate provisions within the Local Public Contracts Law to provide municipalities with a means of requiring prospective bidders to furnish in advance a statement of their financial capacity.”

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FINANCIAL STATEMENTS REMEMBER: Financial Statements are only mandatory if required by the bid specifications.

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ADDENDUMS AND ACKNOWLEDGMENTS N.J.S.A. 40A:11-23(c). Advertisements for bids; bids; general requirements c. Notice of revisions or addenda to advertisements or bid documents shall be provided as follows:

1) For all contracts except those for construction work and municipal solid waste collection and disposal service, notice shall 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 contracting unit and be provided to any person who has submitted a bid or who has received a bid package, in one of the following ways: i) in writing by certified mail or ii) by certified facsimile transmission, meaning that the sender's facsimile machine produces a receipt showing date and time of transmission and that the transmission was successful or iii) by a delivery service that provides certification of delivery to the sender. 2) For all contracts for construction work, notice shall be provided no later than seven days, Saturdays, Sundays, or holidays excepted, prior to the date for acceptance of bids, to any person who has submitted a bid or who has received a bid package in any of the following ways: i) in writing by certified mail or ii) by certified facsimile transmission, meaning that the sender's facsimile machine produces a receipt showing date and time of transmission and that the transmission was successful or iii) by a delivery service that provides certification of delivery to the sender. 3) For municipal solid waste collection and disposal contracts, notice shall be published in an official newspaper of the contracting unit and in at least one newspaper of general circulation published in the State no later than seven days, Saturdays, Sundays, and holidays excepted, prior to the date for acceptance of bids.

d. Failure of the contracting unit to advertise for the receipt of bids or to provide proper notification of revisions or addenda to advertisements or bid documents related to bids as prescribed by this section shall prevent the contracting unit from accepting the bids and require the readvertisement for bids pursuant to subsection a. of this section. Failure to obtain a receipt when good faith notice is sent or delivered to the address or telephone facsimile number on file with the contracting unit shall not be considered failure by the contracting unit to provide notice.

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ADDENDUMS AND ACKNOWLEDGMENTS N.J.S.A. 40A:11-23.2. Mandatory requirements When required by the bid plans and specifications, the following requirements shall be considered mandatory items to be submitted at the time specified by the contracting unit for the receipt of the bids; the failure to submit any one of the mandatory items shall be deemed a fatal defect that shall render the bid proposal unresponsive and that cannot be cured by the governing body: a. A guarantee to accompany the bid pursuant to section 21 of P.L.1971, c. 198 (C.40A:11-21); b. A certificate from a surety company pursuant to section 22 of P.L.1971, c. 198 (C.40A:11-22); c. A statement of corporate ownership pursuant to section 1 of P.L.1977, c. 33 (C.52:25-24.2); d. A listing of subcontractors pursuant to section 16 of P.L.1971, c. 198 (C.40A:11-16); e. A document provided by the contracting agent in the bid plans, specifications, or bid proposal documents for the bidder to acknowledge the bidder's receipt of any notice or revisions or addenda to the advertisement or bid documents.

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ADDENDUMS AND ACKNOWLEDGMENTS Failure to submit an Acknowledgment is a Material Defect. No Materiality Analysis is necessary.

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ADDENDUMS AND ACKNOWLEDGMENTS What is a notice? What is a revision? What is an addendum? and . . . What is a clarification?

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ADDENDUMS AND ACKNOWLEDGMENTS Fredco Landscaping, LLC v. Township of Cedar Grove, 2010 WL 4137429 (App. Div. 2010). Contract to build synthetic turf softball field. “Clarification” was issued. “The field turf need only be appropriate for softball without meeting the more stringent requirements of a football/soccer component.”

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ADDENDUMS AND ACKNOWLEDGMENTS Fredco Landscaping, LLC v. Township of Cedar Grove, 2010 WL 4137429 (App. Div. 2010). Does failure to acknowledge receipt of the “Clarification” constitute a material defect that is non-waivable? 36

ADDENDUMS AND ACKNOWLEDGMENTS Fredco Landscaping, LLC v. Township of Cedar Grove, 2010 WL 4137429 (App. Div. 2010). Does failure to acknowledge receipt of the “Clarification” constitute a material defect that is non-waivable? “Clarifications need not be acknowledged in writing.”

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NEW YORKER, AUGUST 5, 2013

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