January 1, 1900

by Megan M. Schwartz

In certain instances, the Local Public Contracts Law grants municipalities the ability to award contracts for goods and services without adhering to all the requirements of public bidding. One specific example includes the negotiation process found in N.J.S.A. 40A:11-5(3). Particular elements of the public bidding process are still required in connection with the negotiation process, including public advertising and award by the governing body. As explained below, the negotiation process is an important and flexible tool for municipalities and other contracting units in procuring needed goods and services without having to adhere to all the requirements of public bidding.

Criteria for Negotiation

Any contract, the amount of which exceeds the bid threshold (currently $21,000), may be negotiated and awarded by the governing body if the following criteria are met: requests for bids have been advertised on two occasions and

(a) No bids have been received on both occasions in response to the advertisement; or

(b) The governing body has rejected such bids on two occasions because it has deter- mined that [the bids] are not reasonable as to price, on the basis of cost estimates prepared for or by the [contracting unit’s] contracting agent prior to the advertising therefore, or [the bids] have not been indepen- dently arrived at in open competition; or

(c) On one occasion no bids were received pursuant to (a) and on one occasion all bids were rejected pursuant to (b), in whatever sequence.

After a municipality or other contracting unit has twice advertised for and rejected bids in accordance with the above, the contracting unit will be able to negotiate a contract and may award such contract for goods and/or services upon a two-thirds affirmative vote of the authorized membership of the governing body. However, such award may only be made if the following three conditions are met.

Award Without Public Bidding

First, the governing body may award the contract provided that the contracting unit’s contracting agent has first made a reasonable effort to determine that the same or equivalent goods or services, at a cost which is lower than the negotiated price, are not available from an agency or authority of the United States, the State of New Jersey, the county wherein the contracting unit is located or some other municipality in close proximity. The contracting agent should docu- ment such efforts described above in the form of a memo to the file and to the governing body making the award.

Second, an award may only be made if the terms, conditions, restric- tions and specifications set forth in the negotiated contract are not substantially different from those which were the subject of the initial advertisements for competitive bidding.

Finally, any minor amendment or modification of any of the terms, conditions, restrictions and specifica- tions, which were the subject of competitive bidding, must be stated in the resolution of award. However, if after the second advertisement, the bids received are rejected as unreason- able in price, the contracting agent shall notify each responsible bidder submitting bids on the second occasion of the contracting unit’s intention to negotiate. In other words, after the contracting unit’s second unsuccessful attempt to procure the needed goods and/or services, each bidder must receive notice of its intention to negotiate.

Thereafter, each bidder must be afforded a reasonable opportunity to negotiate. The governing body shall not award such contract unless the negotiated price is lower than the lowest rejected bid price submitted on the second occasion by a responsible bidder, is the lowest negotiated price offered by any responsible bidder, and is a reasonable price for such goods or services. Accordingly, the contracting unit should follow this process and document the notice submitted to each bidder on the second occasion of its intention to negotiate.

New Jersey courts have noted the utility of the negotiation process to achieve the lowest responsible price for a municipality and/or other local contracting unit. The Appellate Division has noted that where negotiation is permissible under the above-described statute, the contracting unit has great flexibility and may use any conceivable business method to accomplish the goal of obtaining the lowest available price. Specifically, in a case entitled Interstate Waste Removal Co., Inc. v. Board of Com’rs, the court found:

There is no magic or uniform procedure which must be utilized. So long as it is structured to accomplish the purpose of the legislation, namely, to achieve the lowest available price from a responsible bidder, and the former bidders are given an opportunity to participate, the municipal officials have fully complied with their statutory duty.

Again, as described above, under no circumstances can award be made to a vendor at a price that is higher than the lowest rejected bid submitted on the second occasion. Accordingly, municipalities and local contracting units should negotiate the award of contracts for goods and/or services in the manner described above.

Municipalities and other contracting units armed with the above knowledge can ensure they are administering the negotiation process in accordance with statutory requirements. The attorneys in Hill Wallack LLP’s Administrative Law/Government Procurement and Municipal Law Practice Groups are experienced and knowledgeable in representing municipalities and other contracting units concerning compliance issues.

Megan M. Schwartz is an associate in the Administrative Law/Government Procurement Practice Group of Hill Wallack LLP. She concentrates her practice in Administrative Law including Public Procurement with a particular emphasis on administrative, environmental and regulatory compliance.