By: Allen Zeyher
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?
About The Author: Allen Zeyher is Associate Editor of Roads & Bridges.
