In my April 2001 column, I wrote about a New Jersey unbalanced bid case, M.J. Paquet Inc. v. New Jersey Department of Transportation. The Supreme Court of New Jersey recently decided the appeal of that case, 794 A.2d 141 (2002).
M.J. Paquet Inc. submitted an unbalanced bid to the New Jersey Department of Transportation (NJDOT) for a contract to rehabilitate several highways, including the restoration of 12 bridge structures. NJDOT awarded Paquet the contract. Approximately 11 months later, the Occupational Safety and Health Administration (OSHA) issued revised regulations substantially affecting Paquet's performance of the bridge painting work. When Paquet and NJDOT were unable to reach an agreement on the price of the new work, NJDOT deleted the bridge painting work from its contract with Paquet and reduced the contract price by the unit price for each of the bid items.
The trial court ruled that NJDOT had properly deleted the bridge painting work from the contract, but also awarded Paquet an equitable adjustment for the other work that Paquet had completed. On appeal the Superior Court of New Jersey affirmed NJDOT's right to delete the bridge painting work, but denied Paquet any equitable adjustment because Paquet had submitted an unbalanced bid, which barred its recovery.
Owing equity
The question before the New Jersey Supreme Court was whether an equitable adjustment should be awarded to a successful bidder of a public contract whose performance is rendered impracticable during the course of the contract. The court first determined whether NJDOT breached the contract by deleting the bridge painting work. Recognizing that OSHA regulations for the bridge painting work created new and unforeseen work that was essential to the satisfactory completion of the project, the court concluded that NJDOT was within its discretion in electing not to have Paquet perform the extra work. The court also noted that because NJDOT and Paquet were unable to agree on a price for the bridge painting work as modified, the promulgation of the revised OSHA regulations rendered the parties' respective performances under the contract impracticable. Therefore, the court held that NJDOT properly deleted the bridge painting work from the contract.
The court next considered whether Paquet was entitled to an equitable adjustment. The Superior Court had determined that because Paquet had submitted an unbalanced bid, it could not make a claim for additional compensation under the contract pursuant to Specification 102.08, which provided, "The Department will not consider any claim for additional compensation arising from the bid on an item, or group of items, inaccurately reflecting the cost of such work or containing a disproportionate share of the bidder's anticipated profit, overhead and other costs."
The Supreme Court disagreed with the Superior Court's holding that Specification 102.08 prohibited granting Paquet an equitable adjustment, finding that Specification 102.08 is ambiguous and should therefore be construed against NJDOT. The court determined that the phrase "claim for additional compensation" may be subject to varying interpretations; therefore, Paquet is not barred from seeking an equitable adjustment. The court further determined that even if Specification 102.08 was not ambiguous, independent equitable grounds support Paquet's entitlement to an equitable adjustment. The court noted that the policy considerations underlying the prohibition of unbalanced bids--to guard against fraud, collusion, front-end loaded bids and the deterioration of fair competition--are not implicated in this case. Additionally, NJDOT would be unjustly enriched if it were permitted to delete the entire cost of the bridge painting work from the contract without compensating Paquet for its cost of completed work. Therefore, the court concluded that Paquet is entitled to an equitable adjustment.
In this case, the New Jersey Supreme Court looked beyond the fact that Paquet had submitted an unbalanced bid (which the Contract Specifications prohibited) to the underlying policy considerations for the prohibition against unbalanced bids. Upon determining that such policy considerations were not implicated, the court allowed the contractor an equitable adjustment for the work it had performed unrelated to the deleted bridge painting work. I wonder if the court would reach the same conclusion had work been added to the contract instead of deleted?
