January 1, 1900

by Anthony L. Velasquez

As privatization becomes increasingly popular in today's political climate, bidders must be aware of the need to move quickly in procurement disputes in order to best protect their business interests. Since traditional remedies are often unavailable in the public contract forum, the bidder who is wrongfully denied a contract award and ultimately prevails in the judicial arena may be left without a real remedy. Thus, the bidder must move quickly and make an application for injunctive relief seeking a stay of contract award.

Damages Are Generally Not Available For Wrongful Bid Rejection

It has been established that even where the State Department of Treasury, Division of Purchase & Property or other agency wrongfully rejects a bid, damages are unavailable. Submission of the lowest bid in answer to a Request for Proposals by the State or agency for public work cannot form the basis of a claim for damages based upon the failure or refusal to accept such a bid. As far as the courts are concerned, until there is acceptance of the bid offer, no contract exists.

In Delta Chemical, the plaintiff's bid was rejected and award was made to another bidder. However, it was later established that the other bid did not comply with the "Buy American" statute and was thus not a "responsible" bidder. The trial judge noted that equitable relief was unavailable since the contract had been performed by the time the appeal was heard. Thus, the judge awarded monetary damages to the wrongfully-denied bidder. On appeal, this damage award was reversed. The Appellate Court stated that an unsuccessful bidder may attack the award of the contract but may not recover money damages, even if the challenge ultimately succeeds.

New Jersey courts have rationalized that to permit a bidder to recover damages when they are successful on appeal would only serve to twice penalize the public: first, for awarding a public contract to the wrong bidder and possibly having to pay the difference between the actual low bid and the bid for which the contract was entered; and second, for paying additional monetary damages to the wrongfully-denied bidder.

Mootness

The sheer passage of time while awaiting judicial review in the Appellate Division may itself render a matter moot if the contract is being performed by another during the interim. In Statewide Hi-Way Safety, a highway construction company challenged the award of a public contract to its competitor based on the failure of the Department of Transportation to publicly open and announce the bid proposal of the apparent low bidder. Award was made to the other firm without the bid being totaled or read aloud, contrary to the required regulations. On emergent application, the Appellate Division denied a stay application. The contract to the competitor went forward, and the work was "substantially completed" by the time the case was argued to the Appellate Division. When it was ultimately heard, the Court apparently regretted its earlier denial of the stay application. Even though the unsuccessful bidder prevailed on the merits of the case, the court disposed of the matter as moot since the contract was substantially completed.

In Statewide, the court undertook review of the merits, regardless of mootness, since it involved a matter of public importance, and it wished to set a precedent for future similar cases. Although its ruling had no practical effect upon the parties, a court may hear a case despite mootness if the matter is of public importance and capable of repetition, but yet evade judicial review. This approach by the courts does not alter the unfortunate position of an unsuccessful bidder who succeeds on the merits of its case.

In instances where a public bid is involved and reversal may heavily penalize the public, the Court may choose to simply dismiss the matter without reference to the substantive arguments made by the appellants. In the recent unpublished decision Communications Workers of America, et. al. v. DiEleuterio, the court refused to address the appellant's arguments and dismissed the matter based on mootness.

In Communications Workers, the state employees' union appealed the award of the seven year contract to the successful bidder, Parsons, for designing, constructing, operating and maintaining the state's motor vehicle inspection system. The contract was sought by the state in order to comply with the strict implementation mandates of the Federal Clean Air Act. The appellants had initially sought a stay of contract award. However, Parsons and the state argued that without immediate contract award, the state would not meet the Clean Air Act's implementation deadlines and would risk millions of dollars in Federal aid as a result.

The stay was denied to the appellants, but the matter was heard on an accelerated basis. Even so, by the time the matter was heard by the court, Parsons had effectively taken over the entire operation of the motor vehicle inspection system. Although well over six years remained on the contract with Parsons, the court noted that the principles cited by the Statewide court were controlling.

Those principles control our decision in this case. Here the project is substantially complete in the sense that Parsons, the only bidder on this project, has completely taken over the operation of the motor vehicle inspection system. Moreover, the State no longer has the personnel to operate the system should this court void the contract. In addition, voiding the contract would open the State to the potential loss of almost $1 billion dollars in federal transportation funds and the imposition of stricter pollution standards that could severely impact economic development in this State.

The Stay Criteria

In order to protect against this ultimate adverse result, when wrongfully denied award of a public contract, quick action must be made for a stay of contract award. The wary bidder should immediately seek a stay of contract award. Generally, there are three criteria to be satisfied in order to be granted this preliminary relief. The applicant must show (1) irreparable harm; (2) a reasonable probability of success on appeal; and (3) a balance of equities in favor of preserving the status quo. While the probability of success on the merits will turn on the specific facts surrounding the wrongful denial of contract award, criteria one and three can often be satisfied by demonstrating that if the contract is substantially performed before an appeal could be heard, no relief would be available. Indeed, in cases where the passage of time will result in substantial performance of the contract, it can easily be argued that denial of a stay would result in "irreparable harm" since money damages would be unavailable if or when the appellant ultimately prevails.

If the Department of Treasury, Division of Purchase and Property denies to grant a stay, relief may be sought at the Appellate Division. The rules governing the New Jersey courts authorize the Appellate Division to stay the effect of administrative decisions if an agency has denied a petitioner's request for a stay. Additionally, the court on its own motion or on the motion of a party may accelerate the schedule of appeal. A stay will pose the least inconvenience to the public, for whose benefit the public contract is sought, if granted in conjunction with accelerated disposition of the merits. It will also enable a wrongfully denied bidder to seek redress quickly and to possibly obtain the ultimate contract in a timely fashion. In cases of public importance, the Supreme Court has urged litigants to seek accelerated review, stating that litigation involving public questions should be expedited so that final dispositions may be had at the earliest possible date. The power to accelerate the time frames for appeals is not restricted to use by the Supreme Court and is equally available in the Appellate Division.

In conclusion, the public contract bidder must remember that time is of the essence when seeking to challenge an award. If the Division of Purchase and Property denies the bid protest, a request for stay should be sought immediately. If stay of contract award is denied, a stay application should be sought in the Appellate Division with attention brought to the irreparable harm that will result without issuance of a stay. This application is most effective when made in conjunction with a request for acceleration on the merits. Given the complexity of the process, retention of legal counsel at the outset may enable the bidder to avoid irreparable harm or a protracted litigation process.

Anthony L. Velasquez is an associate of Hill Wallack where he is a member of the Litigation Division and the Administrative Law/Government Procurement Practice Group.