Recent Amendments to Bidding Laws

Between the second half of 2009 and mid-January of 2010, the New Jersey legislature enacted new laws regarding public procurement some of which may have a direct affect on contractors’ bids.  Some of the laws affect contractors’ bids under the Local Public Contracts Law (N.J.S.A. 40A:11) and Public School Contracts Law (N.J.S.A. 18A:18A). 

Procedure of Alternates selection must be specified by governing body

P.L. 2009, c. 292 (A-3698/S-2782): Requires the public body to specify a procedure for selecting base and alternate bids for public works contracts over $500,000.  Effective May 1, 2010.

This law amends the Local Public Contracts Law (and has implications for boards of education, discussed below) by specifying the procedure for contracting units to select the lowest responsible bidder in instances where alternates or base bids with options are used for public works projects.  It requires the bid specification to set out clear criteria or a procedure the governing body will use to select the lowest responsible bidder, given the amount of funds available for the project.    The law applies only to projects with a value of more than $500,000.

The law appears to combat the practice of governing bodies using the process of selecting alternates or options so that the lowest responsible bidder is a contractor “preferred” by the contracting unit.  The law specifically finds that the use of that practice can result in the rejection of all bids, a rebidding, and the governing body paying the legal fees of a bidder who succeeds in making such a claim.

The law takes effect on May 1, 2010.  While the law does not amend the Public School Contracts Law, we may expect these requirements to be adopted under Public Schools Contracts Law in the future.

Business Registration Certificate no longer statutorily required with bid 

P.L. 2009, c.315 (A-557/S2366): Relaxes the requirements for Business Registration Certificate submission with bids; permits submission prior to award of contracts if not submitted with bid.  Effective for bids received and contracts awarded after January 18, 2010.

This law removed the requirement of the Local Public Contracts Law (N.J.S.A. 40A:11-23.2) that required a bid to be rejected if the bidder failed to include a business registration certificate (“BRC”) with the bid, even though it may have been the otherwise lowest responsible bid.  The law now allows the BRC to be filed anytime prior to award of the contract and the bidder had to have obtained the BRC prior to receipt of bids.  This permits the BRC to be required with a bid, or submitted subsequently.  If a BRC is required in a bid, but not submitted with the bid, it will most likely be considered an immaterial defect; curable by being filed prior to award of the contract as long as the bidder had a BRC at the time of the bid.

 Price adjustment permitted on contracts for asphalt, cement and fuel

P.L. 2009, c.187 (A-436/S-2833): Permits price adjustments in local public contracts for asphalt cement and fuel.  Effective with contracts executed after May 1, 2010.

In today’s economy, the price of petroleum-based products can have a significant impact on construction contracts that involve large amounts of asphalt and those that use large amounts of gas or diesel fuel.  Uncertainty in petroleum price fluctuations adds price risk to construction bid calculations.  That uncertainty imposes additional risk on bidders.  This new law follows procedures historically used by the State Department of Transportation (“DoT”) to allow for increases and decreases in asphalt and fuel prices over the course of large construction contracts.  See 2007 NJDOT Specifications – Division 150 Contract Requirements, Section 160.01 through 160.03.

The law requires that paving contracts involving more than 1,000 tons of hot mix asphalt include a contract provision that allows for price adjustments in the cost of asphalt.  Fuel price adjustments are based on DoT standards for the type of construction equipment and the work done by different equipment.  For fuel price adjustments, at least 500 gallons of fuel based on the DoT equipment standards are required for a price adjustment, and then, only in those months when the price fluctuated more than five percent.

DoT maintains a web site of index rates for asphalt and fuel that are adjusted monthly.  The law provides that when the quantity or equipment use thresholds are reached, fuel price adjustments are made, using the change in index rate from the time of bidding to when the work was performed.  The change is treated as a “pay item” in construction contracts.

This practice is not new to most engineers that prepare bid specifications.  The law provides price risk protection to bidders, allowing better bids using “sharper pencils,” reduces the risk of change orders that may be intended to cover price increases, and allows the contracting unit to take advantage of reductions in pricing over the life of a contract.

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