ALAN O'SHEA v. NEW JERSEY SCHOOLS DEVELOPMENT AUTHORITY

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3943-08T13943-08T1

ALAN O'SHEA and the MECHANICAL

CONTRACTORS ASSOCIATION OF

NEW JERSEY, INC.,

Appellants,

v.

NEW JERSEY SCHOOLS DEVELOPMENT

AUTHORITY and the STATE OF

NEW JERSEY,

Respondents.

_______________________________________

 

Argued October 21, 2009 - Decided

Before Judges Axelrad, Fisher and

Sapp-Peterson.

On appeal from the Adoption of N.J.A.C. 19:36-1.1 to -8.3 by the New Jersey Schools Development Authority.

Edward J. Frisch argued the cause for appellants (Lindabury, McCormick, Estabrook & Cooper, P.C., attorneys; Mr. Frisch and Bruce P. Ogden, of counsel and on the brief).

Elaine C. Schwartz, Deputy Attorney General, argued the cause for respondents (Anne Milgram, Attorney General, attorney; Lewis Scheindlin, Assistant Attorney General, of counsel; Ms. Schwartz, on the brief).

PER CURIAM

In this appeal, appellants Alan O'Shea and Mechanical Contractors Association of New Jersey challenge regulations promulgated by the New Jersey Schools Development Authority (Authority), N.J.A.C. 19:36-1.1 to -8.3, Procedures For Procurement of Design Build Contracts For School Facilities Projects For the Schools Construction Program, pursuant to its enabling legislation. N.J.S.A. 52:18A-235 to -259 (Act). We hold that with the exception of the regulations related to short-listing, which we find are invalid because they are arbitrary and not authorized by statute, the regulations represent a valid exercise of the Authority's powers.

The Authority is the successor agency to the School Construction Corporation (SCC), created in 2002 as a subsidiary of the New Jersey Economic Development Authority. See N.J.S.A. 52:18A-235. The SCC was abolished in 2007 when the Educational Facilities Construction and Financing Act (EFCFA), N.J.S.A. 18A:7G-1 to -48, was amended. The duties previously performed by the SCC were transferred to the Authority. See N.J.S.A. 52:18A-247. The Authority's primary function is to undertake school facilities projects in the Abbott districts, where the Legislature has declared that the school facilities projects should be designed to "incorporate maximum operating efficiencies and new technologies to advance the energy efficiency of school facilities and the efficiency of other school building systems, [and] construction should be achieved in as efficient a manner as possible." N.J.S.A. 18A:7G-2(d). In both EFCFA and the Act, "school facilities project" bears the exact same definition:

the planning . . . [and] construction[] of all or any part of a school facility or of any other personal property necessary for, or ancillary to, any school facility, and shall include fixtures, furnishings, and equipment, and shall also include, but is not limited to, . . . site development, the services of design professionals, such as engineers and architects, construction management, legal services, financing costs and administrative costs and expenses incurred in connection with the project.

[N.J.S.A. 18A:7G-3 and N.J.S.A. 52:18A-236 (emphasis added).]

The Authority is permitted "[t]o do any and all things necessary or convenient to carry out its purposes and exercise the powers given and granted" to it under EFCFA and the Act, including the adoption of regulations to "carry out the provisions of [EFCFA and the Act]." N.J.S.A. 52:18A-238(k).

While EFCFA has conferred upon the Authority broad powers to undertake its duties, those powers are not without limitation. Thus, for example, EFCFA separately requires the Authority to establish "a process for the pre-qualification of contractors that desire to bid on school facilities projects." N.J.S.A. 18A:7G-33. The pre-qualification process applies to general contractors, construction managers and contractors, including mechanical contractors such as plaintiffs. Ibid. Additionally, rules and regulations adopted by the Authority are subject to the Administrative Procedure Act, except those rules and regulations that are intended to be effective for a period not to exceed twelve months. N.J.S.A. 18A:7G-26(b).

On February 4, 2009, the Authority adopted N.J.A.C. 19:36-1.1 to -8.3, establishing requirements for a one-year "pilot program" for procuring "design-build contracts" for up to six school facilities projects. See 41 N.J.R. 1513-18. The regulations became effective without public notice when they were filed on February 27, 2009. See N.J.S.A. 18A:7G-26.

Design-build contracts have existed in the private sector for many years but have received more attention from public entities in recent years. See, e.g., Mahony-Troast Constr. Co. v. Supermarkets Gen. Corp., 189 N.J. Super. 325, 329 (App. Div. 1983); see also 41 N.J. Practice, Constr. Law, 1.3, at 4. Both the Hudson-Bergen Light Rail and the Riverline between Trenton and Camden were design-build projects. Id. at 2.

Proponents of design-build projects believe that such projects "expedite the entire construction process and . . . minimize extras and change orders resulting from disagreements between the contractors and the architects as to what has been 'bought' by the [contracting public entity]." 41 N.J. Practice, Constr. Law, supra, 1.3, at 4. In implementing the design-build pilot program, the Authority explained that "[d]esign-build project delivery offers the potential for such benefits as a shorter overall design and construction process, greater cost reliability and reduced risk through enhanced project coordination." N.J.A.C. 19:36-1.1(e).

Under its design-build pilot project, the Authority is authorized to

(a) enter into contracts for the "planning, design, construction, reconstruction, improvement, equipping, furnishing, operation and maintenance" of a school facilities project. This statutory authority includes the procurement of design, construction and other project-related services in one contract when the Authority determines that a single point of responsibility for a combination of these services is in the best interests of a school facilities project. The Development Authority shall audit the design-build projects under the pilot program on a semi-annual basis.

(b) These rules provide for the Authority to retain a design professional, as a "bridging architect," pursuant to N.J.A.C. 19:38C, for the duration of the school facilities project, to prepare a design-build information package, which outlines the conceptual program, schematic design and performance specifications to be followed by the design-builder, and review the work of the design-builder to ensure that the design meets the requirements of the Authority and the SDA school district. The rules further provide for the engagement of a construction manager (CM) by the Authority to serve as the Authority's representative during the school facilities project and provide such services as project oversight and reporting, value engineering services and cost estimating.

[N.J.A.C. 19:36-1.1(a) and (b).]

The award of a design-build contract under the pilot program involves a two-step selection process, N.J.A.C. 19:36-4.1 to -4.7, the purpose of which is to find a design-builder whose proposal offers the "'best value' . . . based upon a combination of cost and qualitative factors, with consideration given to price at least equal to the consideration given to all other factors combined." N.J.A.C. 19:36-1.1(c).

In the first phase of the selection process, the Authority: (1) publicly advertises a request for qualifications (RFQ); (2) ranks bidding design-builders, who are pre-qualified according to the Authority's procedures at N.J.A.C. 19:38A, based on their submissions to the RFQ; and (3) selects "a short list" of those ranked bidders to continue to the next phase. N.J.A.C. 19:36-4.1 to -4.4.

The RFQ "shall contain":

1. A general description of the school facilities project;

2. The scope of work;

3. The minimum qualification requirements for [bidders], including, but not limited to, the appropriate classifications and aggregate rating limits assigned by the New Jersey Department of Treasury, Division of Property Management and Construction;

4. A request for the submission of a statement of qualifications which will describe the qualifications of prospective [bidders];

5. The phase one evaluation factors upon which the most qualified [bidders] will be determined;

6. The anticipated technical evaluation factors to be utilized in the second phase of the selection process;

7. A statement of the maximum number of [bidders] anticipated to be selected to submit phase two proposals; and

8. Any other requirements, as determined in the sole discretion of the Authority.

[N.J.A.C. 19:36-4.3(a).]

A bidder must submit documents, including its organizational chart, describing its "qualifications and capabilities" and those of "its key team members to perform the scope of services to be included in the design-build contract." N.J.A.C. 19:36-1.2 and -4.3(b). Once the RFQ has been submitted, a "technical evaluation committee" (TEC) consisting of representatives from the Authority and the particular Authority school district, N.J.A.C. 19:36-1.2, will evaluate each RFQ submission to determine the bidder's "relative ability . . . to perform the work under the design-build contract." N.J.A.C. 19:36-4.4(a). The TEC's

evaluation of the qualifications of each [bidder] may include, but need not be limited to, consideration of the following factors:

1. Experience of the prospective [bidder] on projects of similar size, scope and complexity;

2. Experience of key team members on projects of similar size, scope and complexity;

3. Experience of the prospective [bidder] on design-build projects of similar size, scope and complexity;

4. Experience of the key team members on design-build projects of similar size, scope and complexity;

5. Experience of the prospective [bidder] or its key team members on projects in New Jersey of similar size, scope and complexity; and

6. Any other pertinent information necessary to establish the qualifications of the prospective [bidder] to undertake the design-build contract.

[N.J.A.C. 19:36-4.4(a) (emphasis added).]

After its review, the TEC will "develop a short list of the most highly qualified [bidders] who shall be invited to participate in the second phase of the process." N.J.A.C. 19:36-4.4(b). Accord N.J.A.C. 19:36-4.5(a) and -4.6(a).

In the second phase of the Authority's selection process, those bidders who have been "short-listed" are invited to submit a proposal in response to a request for a proposal (RFP). N.J.A.C. 19:36-4.5(a). The RFP must include a design-build information package, N.J.A.C. 19:36-4.5, which is prepared by the Authority, "using a design professional either on staff of the Authority and/or the bridging architect." N.J.A.C. 19:36-3.3(a). The information package "may include, but need not be limited to":

1. A description of the school facilities project, including:

i. Building type and size;

ii. Site development requirements, such as, parking and site requirements and playground equipment;

iii. Description of physical relation-ships between building spaces and between buildings and other site elements; and

iv. Specific architectural style or concept;

2. Educational specifications and schematic design documents for the school facilities project;

3. Performance specifications and prescriptive specifications regarding materials, systems, performance criteria, energy efficiency, life cycle costs and environmental issues;

4. Assignment of responsibility for obtaining required approvals and permits;

5. Engineering, architectural and/or environmental reports (for example, geotechnical evaluations, building evaluations and/or environmental preliminary assessment); and

6. The terms and conditions for the payment of a stipend.

[N.J.A.C. 19:36-3.3(c).]

N.J.A.C. 19:36-3.3(b), however, makes clear that "[a]s a prerequisite to the completion of the design-build information package, the schematic design for the school facilities project must have been approved by the Authority school district, the Authority and the [Department of Education (DOE)]," and DOE must have issued a "preliminary project report approving the school facilities project, pursuant to N.J.S.A. 18A:7G-5(h)(2)."

In addition to the design-build information package, a proposal submitted in response to the RFP must also include

1. The design-build information package;

2. Technical and price proposal forms;

3. The design-build contract;

4. Instructions to offerors;

5. The criteria for evaluation of proposals and their relative weight;

6. A description of the drawings, specifications, or other submittals to be submitted with the technical proposal, with guidance as to the form and level of completeness of the drawings, specifications or submittals that will be acceptable;

7. Budget limits for the work;

8. Requirements for proposal bonds, performance bonds, payment bonds and insurance;

9. Schedule requirements, as set forth in the RFQ;

10. Amount of the stipend, if any;

11. The documents required to be submitted upon the notice of award . . . ; and

12. Any other information that [the Authority] in its discretion chooses to supply.

[N.J.A.C. 19:36-4.5(b).]

N.J.A.C. 19:36-4.6(c) requires that the bidders who make the short list submit their proposal in two parts, which will be evaluated separately: (1) a technical proposal that includes "preliminary design drawings, outline specifications, technical reports, calculations, permit requirements, a management plan, schedule and other information and/or data requested in the RFP," N.J.A.C. 19:36-4.5(d); and (2) a price proposal "in a separate sealed envelope" that includes "a guaranteed maximum price [(GMP)] for all design and construction of the school facilities project," N.J.A.C. 19:36-4.6(e).

After the Authority examines each short-listed bidder's technical proposal for "completeness and conformity" with the RFP and rejects any that are non-responsive, N.J.A.C. 19:36-4.6(e)(2), the TEC evaluates and ranks the responsive technical proposals in accordance with the criteria set forth in the RFP, and then submits those scores to the Authority's Senior Director of Procurement Services (Senior Director). N.J.A.C. 19:36-4.6(f).

After opening the sealed price proposals, the Senior Director "assign[s] the maximum price points to the lowest total dollar proposal. Each higher price proposal will have a point deduction equal to the amount which is the percentage difference by which the price exceeds the low price proposed, multiplied by the weight assigned for price in the RFP." N.J.A.C. 19:36-4.6(g).

Next, the Senior Director determines the combined weighted scores for each bidder "based on their technical and price proposals, with consideration of price at least equal to the consideration given to all other factors." N.J.A.C. 19:34-4.6(h). The bidder with "the highest overall score" is recommended to the Board of the Authority, and if the recommendation is approved, the Authority notifies the successful bidder. N.J.A.C. 19:36-4.6(h).

The design-builder awarded the contract is "responsible for the technical integrity of final project design, constructability, extensions of the design, and operability and maintainability, pursuant to the design-build information package and/or in the design-build contract," and must submit "the completed plans and specifications to DOE for its approval." N.J.A.C. 19:36-8.1(a) and (d). The design-builder is also "responsible for cost overruns in excess of the GMP," but if its "cost of work and fee are less than the GMP as properly adjusted, the cost savings shall be shared by the design-builder and the Authority in accordance with the terms of the design-build contract." N.J.A.C. 19:38-8.2. Finally, N.J.A.C. 19:36-1.1(e) permits the Authority to "adjust the design-build process, for example, to vary the level of design in the initial design-build information package and/or select and weight the qualitative factors to be addressed in a technical proposal according to the specific needs and complexities of the school facilities project."

In January, 2009, the Authority advertised an RFQ for a design-build-team to "provide design consultant, construction administration and general contracting services" for the New Elliott Street School Project located in Newark. Although the design-build regulations had not been formally adopted at that time, the Authority received thirteen responses from bidders it deemed pre-qualified. From these thirteen pre-qualified bidders, the Authority's TEC developed a short list of four firms who would be invited to respond to the Authority's RFP.

On April 2, the Authority issued an RFP to the four short-listed firms. The RFP included an explanation of the final selection process, including that the TEC would utilize a point system to evaluate the proposals, with the total points awarded on the proposals not to exceed 100 points, weighted as follows: (1) approach (ten points); (2) project features (ten points); (3) schedule (five points); (4) life cycle cost (five points); (5) design features (five points); (6) small business enterprise participation (ten points); and (7) guaranteed maximum price (fifty-five points). The RFP explained further that the firm with "the lowest total dollar bid" would receive the maximum points and would be recommended as the firm to receive the contract, while the remaining three firms would be "scaled inversely proportional to the lowest total dollar bid" and "receive a stipend up to $25,000[.]"

On April 17, 2009, appellants filed a notice of appeal challenging: (1) the validity of N.J.A.C. 19:36-1.1 to -8.3; (2) the Authority's RFQ and RFP for the New Elliott Street School Project; and (3) the Authority's plan to award design-build contracts to four other projects. We subsequently granted appellants' motion to stay the award and execution of the New Elliott Street School Project, but denied their motion to supplement the record and issued a scheduling order accelerating the pending appeal.

I.

Among the challenges to the design-build regulations advanced by appellants are that the Authority's design-build contracting regulations and the specific design-build contract proposed for the New Elliott Street School Project are invalid, ultra vires, and unreasonable, because they violate the language of the Authority's enabling statute, EFCFA's legislative history, and the purposes of public bidding statutes.

We begin our analysis by iterating the well-settled principle that "great deference" is accorded to regulations promulgated by administrative agencies that implement their enabling statutes. N.J. Soc'y for the Prevention of Cruelty to Animals v. N.J. Dep't of Agric., 196 N.J. 366, 385 (2008). They are presumed valid and we will not invalidate a regulation as long as it is "within the fair contemplation of the delegation of the enabling statute." N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 561-62 (1978). Addressing administrative agency pilot programs in particular, the Court has made clear that while administrative agencies may, by legislative mandate, be authorized to establish pilot programs, any such program may not be established in a manner that is contrary to the particular program's enabling legislation. Commc'ns Workers of Am. v. N.J. Dep't of Personnel, 154 N.J. 121, 127 (1998); see also In re N.J. Individual Health Coverage Program's Readoption of N.J.A.C. 11:20-1, 179 N.J. 570, 579 (2004) (finding "[t]he presumption of validity does not attach if the regulation on its face reveals that the agency exceeded the power delegated to it by the Legislature"). The party challenging the validity of administrative agency regulations "bears the burden of proving that the regulations are arbitrary, capricious or unreasonable." N.J. State League of Municipalities v. Dep't of Comty. Affairs, 158 N.J. 211, 222 (1999).

Applying these principles to the Authority's adoption of the design-build regulations, we find nothing in the Act which precludes the Authority from procuring or awarding design-build contracts. N.J.S.A. 52:18A-238(e) allows the Authority to enter into any contract for "the planning, design, [and] construction . . . of a school facilities project." N.J.S.A. 52:18A-238(k) permits the Authority to adopt regulations to carry out that purpose. In fact, N.J.S.A. 52:18A-238(r) provides that the Authority is permitted "[t]o do any and all things necessary or convenient" to exercise its powers and N.J.S.A. 52:18A-238(s) authorizes the Authority to "award and enter into construction contracts . . . and other contracts" upon such terms as it determines to be reasonable. Further, under N.J.S.A. 52:18A-238(t), the Authority may undertake school facilities projects, enter into contracts, and "do and perform all acts or things necessary, convenient or desirable . . . to carry out any power expressly provided" by EFCFA and the Act.

Nor are we persuaded, as appellants argue, that the Act's general provisions, as referenced above, are trumped by the controlling and express legislative mandates contained in N.J.S.A. 18A:7G-5, which addresses DOE's approval process for financing and construction of school facilities projects, or N.J.S.A. 52:18A-243, which outlines the Authority's procurement process. We separately discuss each of these statutory provisions.

A.

First addressing appellants' contention that the Act's requirement that the Authority prepare, or cause to be prepared, separate plans and specifications, renders design-build contracts incompatible with the Authority's procurement process, this argument ignores the permissive nature of N.J.S.A. 52:18A-243(a) which states that the Authority "may" prepare, or cause to be prepared, separate plans and specifications in those areas specifically identified as well as for "all general construction which shall include all other work and materials required to complete the building." Moreover, the scope of the Authority's powers permits it to advertise and receive "bids for all the work and materials required to complete the school facilities project to be included in a single overall contract[.]" N.J.S.A. 52:18A-243(b).

Likewise, as referenced earlier, the statutory definition of a "school facilities project" includes not only the planning and construction of a school facility but the services of design professionals and construction management. Ibid. Therefore, the broad general contracting powers the Act confers upon the Authority, together with the Legislature's express declaration that EFCFA must "be construed liberally" to effectuate its purposes, provides substantial support to the Authority's conclusion that its contracting authority may include the award of design-build contracts. Further, because the scope of the Authority's power under the Act and the liberal construction that the Legislature intended be accorded EFCFA, appellants' reliance upon the historical differences between the meaning of "works" and "services" in public contracts law to urge that design-build contracts are not included in the "single overall contract" referenced in N.J.S.A. 52:18A-243(b)(2), is of no consequence.

Nor does the fact that the Legislature did not expressly adopt the Governor's Interagency Working Group on School Construction's recommendation that EFCFA be amended to authorize a design-build procurement option, warrant a different outcome. We are satisfied that the Legislature's declaration that EFCFA must "be construed liberally to effectuate the legislative intent and purposes of this [A]ct as [a] complete and independent authority for the performance of each act and thing herein authorized and all powers herein granted shall be broadly interpreted to effectuate the intent and purposes and not as a limitation of powers," N.J.S.A. 18A:7G-29, encompasses the Authority's adoption of regulations establishing a design-build procurement option.

B.

Turning to N.J.S.A. 18A:7G-5, EFCFA requires that all districts seeking to undertake school facilities projects submit an application to DOE for approval. The application may include a "schematic drawing of the project" or preliminary plans and specification. N.J.S.A. 18A:7G-5(d)(1). As part of an Authority school district's application process, DOE may also authorize the Authority to engage in preconstruction activities that may include "design work." N.J.S.A. 18A:7G-5(d)(2).

Once an Authority school district submits a school facilities project application that satisfies DOE's initial requirements, DOE will review the application and issue a preliminary project report to the Authority. What then follows is a comprehensive review of the report by the Authority to determine whether the proposed project can be completed within the preliminary eligible costs as fixed by DOE, and if not, what, if any, changes must occur in order to bring the project costs within the preliminary eligible costs as calculated by DOE. During this review process, there may be further cost calculations performed by DOE, including those calculations done because changes have been made to bring the project within the preliminary eligible costs or calculation of final costs.

Given DOE's comprehensive statutory approval process, appellants maintain that the nature of the design-build project will not complement the timing and requirements of DOE's approval process because design-build procurement would have to precede submissions of the approval application to DOE. Such a process, they urge, would result in preliminary and then final eligibility costs being lower than the actual costs of the school facilities project, leaving the Authority school district or the Authority responsible for the difference under N.J.S.A. 18A:7G-5(i)(2)(c) or (d). This argument, however, ignores the express statutory language in N.J.S.A. 18A:17G-5(d)(2) authorizing the Authority to engage in preconstruction activities that may include design work. As the Authority urges, N.J.S.A. 18A:7G-5(j) only precludes the Authority from commencing construction of a school facilities project prior to DOE approval.

Additionally, contrary to appellants' contention that design-build projects require deferral of cost estimations until after construction commences, there is nothing in the Authority's design-build regulations that prevents a design-builder from estimating costs after design completion and endorsement and before construction. The language contained in N.J.S.A. 18A:7G-5(i)(2)(c) clearly contemplates that there may be changes to the amount of DOE's "preliminary eligible costs" prior to issuing its final project report. Moreover, even assuming there may be excess costs occasioned by underestimated labor and materials costs that arise after DOE issues its final project report, the Authority is not prohibited from contracting away that responsibility. N.J.S.A. 52:18A-238(s) permits the Authority to enter into "other contracts . . . including, but not limited to, reimbursement for the planning, designing, construction . . . of any such property." Consequently, we reject appellants' argument that design-build projects are inconsistent with N.J.S.A. 18A:7G-5.

II.

While we are satisfied that design-build contracts are not contrary to the Authority's enabling legislation and that the challenged design-build regulations implement the Authority's statutory mandate, we agree with appellants' argument that short-listing may foreclose otherwise qualified bidders from bidding on a design-build contract.

At the outset, there is an inconsistency within the regulations as to what constitutes short-listing. Under N.J.A.C. 19:35-1.1, short-listing is defined as "narrowing of the field of [bidders] through the selection of the most qualified" bidders. (emphasis added). Under N.J.A.C. 19:36-4.4(b), only those bidders designated as "most highly qualified" will be invited to participate in the second RFP stage of the pilot program. (emphasis added). N.J.S.A. 52:18A-243(c) provides that the Authority will award contracts to responsible bidders "whose bid conforming to the invitation for bids, will be most advantageous to the [Authority], price and other factors considered." (emphasis added). The Legislature has made clear what it means by "most advantageous," namely, "price and other factors considered." Ibid. "Other factors" as outlined in N.J.S.A. 52:18A-243(d) do not include such terms as "most highly qualified" or "most qualified." We view "most advantageous" and "most qualified" or "most highly qualified" as neither synonymous nor mutually exclusive terms. Ultimately, the successful bidder, whose proposal is "most advantageous" to the Authority, may be the "most qualified" or "most highly qualified," but utilizing these characterizations as the litmus test to receive an invitation to submit an RFP is arbitrary.

A further illustration of the TEC's unfettered discretion in its evaluation process is the absence of any delineation as to how the Authority will decide the number of bidders who will proceed to the next tier of the bidding process. For example, will that decision be determined based upon a percentage of bidders responding to an RFQ or will it depend upon a particular project? In addition, although N.J.A.C. 19:36-4.3(a)(7) directs that the RFQ shall contain "[a] statement of the maximum number of [bidders] anticipated to be selected to submit phase two proposals[,]" the New Elliott Street School RFQ, for example, advised prospective bidders that "[a] minimum of three (3) Design-Build Teams will be short[-]listed and invited to submit proposals through an RFP process" rather than the "maximum" number of bidders who will be short-listed as provided under the regulation. (emphasis added).

Likewise, N.J.S.A. 52:18A-243(d) expressly includes "demonstrated experience in regard to affirmative action" as among the "other factors" the Authority considers in determining which contract proposal is "most advantageous" to it. Turning once again to the New Elliott Street School Project RFQ advertisement, it did not request that prospective bidders submit evidence of "demonstrated experience in regard to affirmative action." Because N.J.A.C. 19:36-4.3(a)(5) and (8) require that an RFQ advertisement include "[t]he phase one evaluation factors upon which the most qualified [bidders] will be determined" and "[a]ny other requirements, as determined in the sole discretion of the Authority," the omission of this factor from the New Elliott Street School Project RFQ advertisement is another example of arbitrary decision-making that contravenes the legislative mandate as set forth in the Act.

The Legislature has expressly mandated that the "price" and "other factors," which includes "demonstrated experience in regard to affirmative action," are to be considered and assigned weights "prior to the advertisement for bids." (emphasis added). In other words, "demonstrated experience in regard to affirmative action" is intended to be part of the qualifying process. That was not done in connection with the New Elliott Street School Project. Inexplicably, consideration of a prospective bidder's affirmative action history is not undertaken until the post-contract award phase of the process:

The Design-Build Contractor shall not discriminate in employment and shall abide by all anti-discrimination laws . . . . Accordingly, a firm shall submit to the public agency, prior to execution of a public agency contract, one of the following three documents: (i) appropriate evidence that the contractor is operating under an existing Federally approved or sanctioned affirmative action program; (ii) a certificate of employee information report approval issued in accordance with N.J.A.C. 17:27-4; or (iii) an initial employee information report (Form AA302) provided by the Affirmative Action Office and completed by the Design-Build Contractor in accordance with N.J.A.C. 17:27-4.

(emphasis added).

The decision to forego consideration of a prospective bidder's "demonstrated record in regard to affirmative action" until after the New Elliott Street School Project is awarded but before the contract is executed is not only arbitrary but contrary to the Act. N.J.S.A. 52:18A-243(d).

Finally, at oral argument, the Authority's counsel suggested that short-listing expedites the time frame involved in the overall selection process. The record, however, is devoid of evidence supporting this contention.

We therefore hold that the short-listing regulations, in their present form, are arbitrary and exceed the statutory mandate for the award of design-build contracts. We set aside N.J.A.C. 19:36-1.1(c)(2), -1.2, -4.3(a)(7), -4.4, -4.5(a), and -4.6(a) insofar as any of these regulations pertain to short-listing. Moreover, because the Authority engaged in short-listing for the New Elliott Street School Project, the short-listing selections are invalidated and all bidders deemed qualified by the Authority must be invited to submit a proposal in response to the RFP.

III.

Appellants' remaining challenges are that the design-build contract regulations and the New Elliott Street School Project violate the purposes underlying public bidding and the Authority's specific procurement process in N.J.S.A. 52:18A-243, and permits consideration of subjective factors contrary to the goals of public bidding. Appellants also claim design-build contracts are prohibited under Abbott V, which permits only design-bid-build contracting. Finally, appellants contend the use of GMP in design-build contracts deprives the public of savings from "an efficient and cautious contractor." We reject all of these contentions and conclude they are without sufficient merit to warrant extensive discussion in a written opinion. R. 2:11-3(e)(1)(E). We add the following brief comments.

In claiming the design-build regulations are incompatible with the goals of public bidding, appellants cite cases involving bidding schemes in which the local public contracting entity is statutorily required to award the contract to the lowest responsible bidder. In contrast, under EFCFA, the Authority must award a contract to "the responsible bidder for the single overall contract whose bid, conforming to the invitation for bids, will be the most advantageous to the Authority, price and other factors considered." N.J.S.A. 52:18A-243. Borough of Princeton v. Board of Chosen Freeholders of County of Mercer, 169 N.J. 135 (2001), cited by appellants, does not warrant a different result.

In Borough of Princeton, supra, the Court was asked to determine whether Mercer and Morris Counties were required to bid publicly on contracts they entered for the disposal of their solid waste. The Court found that the biddable parts of the waste disposal contracts at issue were substantial and that the non-biddable elements were not as important. Id. at 161. The Court looked at the true nature of the agreements and found that they involved "substantial service obligations," and the local bidding laws defined the term "work" expansively to include "services contracts." Id. at 158-59, 161. In design-build contracts, however, neither the design element nor the construction element is predominant. Of greater significance, unlike the bidding requirements in the Local Public Contracts Law, N.J.S.A. 40A:11-1 to -50, which exclude certain types of contracts from bidding requirements, there is no type of contract that is excluded from EFCFA.

Next, while we agree that the current short-listing regulations run afoul of the objectives of New Jersey's public procurement process "to promote the honesty and integrity of those bidding and the the system itself[,]" Keyes Martin & Co. v. Dir., Div. of Purchase & Prop., 99 N.J. 244, 256 (1985), we do not believe that including subjective elements in the evaluation process is contrary to the goals of public bidding. The Legislature has expressly provided that the Authority's award of contracts under the Act will involve consideration of factors other than who is the lowest responsible bidder. N.J.S.A. 52:18A-243. The Act focuses upon which bid will be the "most advantageous to the Authority, price and other factors considered," N.J.S.A. 52:18A-243, and expressly defines what is meant by "other factors":

d. For the purposes of this section, "other factors" means the evaluation by the development authority of the ability of the single contractor or the abilities of the multiple contractors to complete the contract in accordance with its requirements and includes requirements relating to the experience and qualifications of the contractor or contractors and their key personnel in projects of similar type and complexity; the performance of the contractor or contractors on prior contracts with the development authority, the State, or districts; the experience and capability of the contractor or contractors and their key personnel in respect to any special technologies, techniques or expertise that the project may require; the contractor's understanding of the means and methods needed to complete the project on time and within budget; the timetable to complete the project; the contractor's plan for quality assurance and control; the contractor's demonstrated experience in regard to affirmative action; and other similar types of factors. The "other factors" to be considered in evaluating bids and the weights assigned to price and these "other factors" shall be determined by the development authority prior to the advertisement for bids for school facilities projects. In its evaluation of bids, the consideration given to price by the development authority shall be at least equal to the consideration given to the combination of all "other factors."

The express definition of "other factors" provides an objective basis upon which to review the "other factors," thereby reducing the likelihood that award decisions will be based solely upon unidentifiable, subjective factors.

Likewise, appellants' reliance upon Abbott V to argue that only design-bid-build contracting is permitted in Abbott districts is misplaced. The Court in Abbott V, supra, 153 N.J. at 523-24, was not discussing EFCFA's procurement process, and the Court did not rule on whether EFCFA covered only design-bid-build projects. Read in its entirety, the Court was reviewing the State's proposal to use contract bonds to finance school construction and repairs in Abbott districts. Ibid. Indeed, there is nothing in the Court's depiction of the New Jersey Educational Facilities Authority Law, N.J.S.A. 18A:72A-1 to -58, (governing the financing of construction of dormitories and other educational facilities at public and private institutions of higher education) that would preclude the Authority, under EFCFA, from "prepar[ing] specifications for construction" by means of a public procurement, while also "solicit[ing] bids for all work and materials required." Ibid.

Finally, there is nothing in the regulations to suggest that inclusion of a GMP provision in design-build contracts will result in anything other than a fixed price as contemplated. As noted earlier, N.J.A.C. 19:36-8.2 declares that the winning design-builder is "responsible for cost overruns in excess of the GMP," but if the design-builder's "cost of work and fee are less than the GMP as properly adjusted, the cost savings shall be shared by the design-builder and the Authority in accordance with the design-build contract." N.J.A.C. 10:36-8.2.

To summarize, we hold that with the exception of those design-build regulations related to short-listing, which we find are arbitrary, invalid and contrary to the Act, the Authority's adoption of design-build regulations represents a proper exercise of powers expressly granted to the Authority under the Act and EFCFA. N.J. Guild of Hearing Aid Dispensers, supra, 75 N.J. at 562. Moreover, we conclude the regulations are neither arbitrary nor unreasonable, but, instead, are "within the fair contemplation of the delegation of [the Authority's] enabling statute." Id. at 561-62.

 
We accordingly affirm in part, reverse in part, and remand to the Authority for appropriate action related to its current short-listing regulations, to include completely eliminating short-listing or promulgating new short-listing regulations that include the necessary safeguards that prevent its arbitrary application and that are not contrary to the Act. We also remand to the Authority to invalidate the short-listing selections in connection with the Elliott Street School Project in Newark. We do not retain jurisdiction.

Abbott v. Burke, 100 N.J. 269 (1985) (Abbott I).

GMP "means the dollar amount, including, but not limited to, the design builder's fee, the costs of all work and any other prices, set forth in [a bidder's] price proposal, as adjusted in accordance with the design-build contract, which is the maximum price the Authority shall pay the design builder." N.J.A.C. 19:36-1.1.

The Authority argues that we should disregard the Working Group's reports because our May 27, 2009 order denied appellants' motion to supplement the record. Apart from the fact that it is unclear whether these reports were part of appellants' motion to supplement the record, we consider the legislative history for other reasons. "Sources of legislative intent are the language of a statute, the policy behind a statute, concepts of reasonableness and legislative history." Coletti v. Union County Bd. of Chosen Freeholders, 217 N.J. Super. 31, 35 (App. Div. 1987) (citing Shapiro v. Essex County Bd. of Chosen Freeholders, 177 N.J. Super. 87 (Law Div. 1980), aff'd, 183 N.J. Super. 24 (App. Div.), aff'd, 91 N.J. 430 (1982)).

Abbott by Abbott v. Burke, 153 N.J. 480 (1998).

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A-3943-08T1

April 7, 2010