AMERICAN ASPHALT COMPANY, INC v. COUNTY OF GLOUCESTER

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4360-09T3

AMERICAN ASPHALT COMPANY, INC.,

Plaintiff-Respondent,

v.

COUNTY OF GLOUCESTER,

Defendant-Appellant.

____________________________________

March 29, 2011

 

Argued November 29, 2010 - Decided

 

Before Judges Reisner and Sabatino.

 

On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, Docket No. L-1412-08.

 

Dana B. Ostrovsky argued the cause for appellant (Parker McCay, P.A., attorneys; Ms. Ostrovsky, of counsel and on the brief).

 

George E. Pallas argued the cause for respondent (Cohen Seglias Pallas Greenhall & Furman, P.C., attorneys; Mr. Palas, Janesa Urbano, and Daniella Gordon, on the brief).

PER CURIAM

This appeal arises out of a vendor's claim for price escalation under a government contract. The trial court interpreted the contract as authorizing the requested price increase, and granted summary judgment to the vendor. We reverse.

I.

In March 2008, defendant, the County of Gloucester ("the County"), solicited bids for vendors to supply the County with hot mix asphalt ("HMA") materials1 for use in repairing and repaving its roads. The County's bid proposal, PD 08-021,2 contemplated the award of an extendable one-year, fixed-price contract. The bid proposal included detailed specifications concerning the materials to be supplied. In particular, the proposal stated that "[a]ll materials herein specified shall comply with the 2001 New Jersey State Highway Department standard specifications for road and bridge construction, and the additions to and modifications of the standard specifications to county and municipal construction."

With respect to price, the critical subject of this appeal, the County's bid proposal instructed that "[p]rices shall include all charges that may be imposed in fulfilling the terms of the [awarded] contract." (Emphasis added). It further instructed that "[t]he bid prices shall remain in effect for the entire contract period." (Emphasis added). Additionally, the proposal alerted bidders that "[s]hould any difference arise between the contracting parties as to the meaning or intent of these instructions or specifications, the county purchasing agent's decision shall be final and conclusive." (Emphasis added).

Plaintiff, American Asphalt Company, Inc., timely submitted a responsive bid to the County. In its bid, plaintiff agreed to supply the County during the one-year contract period with HMA "I-2" mix at $31.90 per ton, "I-4" mix at $35.90 per ton, and "I-5" mix at $36.90 per ton.

Plaintiff was the lowest bidder, and the County awarded it the contract. Plaintiff and the County memorialized their agreement in a written contract dated April 2, 2008. The one-year contract commenced immediately, and was to conclude on April 1, 2009. Article two3 of the contract limited the maximum amount to be paid to plaintiff at $1,200,000. This maximum sum was repeated in an award letter from the County to plaintiff dated April 14, 2008.

Article three of the contract incorporated by reference certain specifications contained in "Attachment A" appended to the agreement:

The specific duties of the Contractor shall be as set forth in "Program Specifications" which are incorporated and made part of this contract as Attachment A, or as more particularly set forth in PD# 08-021, together with any other specifications issued by the County in connection with this contract. Expenditures shall conform to the Budget Justification described in Attachment A or such budget revisions submitted by the Contractor to and authorized in writing by the Department.

 

[Emphasis added.]

 

Attachment A specified the agreed-upon contract prices for each of the HMA mixes:

A. The Contractor agrees to the supplying of Hot Mix Asphalt Material (HMA) to be used on County Roadways by county employees in accordance with PD# 08- 021.

 

B. I-2 Mix shall be paid at a rate of $31.90 per ton.

 

C. I-5 Mix shall be paid at a rate of $36.90 per ton.

 

D. I-4 Mix shall be paid at a rate of $35.90 per ton.

 

[Emphasis added.]

 

After plaintiff began supplying the County with HMA, the market costs of oil and other petroleum products temporarily spiked. This led plaintiff's president and sole owner, Robert M. Brown, to write a letter to the County on July 9, 2008. Brown's letter, which was in the nature of a change order request, sought an escalation in the HMA prices payable to his company under the contract:

Due to the increased costs of fuel energy and petroleum it has become necessary for us to request a change order based on article #16 of our contract. We will invoice you an asphalt and fuel price adjustment with each invoice based on the NJDOT Asphalt Price Adjustment #160.03.02 in the NJ Department of Transportation Standard Specifications for Road and Bridge Construction 2007.

 

We hope you can understand these costs are out of our control and are extraordinary. We will continue to supply Hot Mix Asphalt to the County.

 

Plaintiff contended that the contract authorized a price adjustment, by virtue of Attachment A's reference to the bid proposal (PD 08-021), which, in turn, referred to the "New Jersey State Highway [Transportation] Department's standard specifications" ["the DOT Specifications"]. As part of those State specifications, the DOT publishes a price index for asphalt and other materials, known as the "Asphalt Cement and Fuel Price Index" ["the Index"].

According to the Index, when plaintiff's bid was submitted to the County in March 2008, the average cost of asphalt4 in the southern region of New Jersey was $362.50 per ton. That average cost rose to $517.50 by June 2008, the month before Brown's request for a price escalation. By comparison, in the twelve months preceding plaintiff's March 2008 contract bid, the average cost of asphalt on the Index for South Jersey had only increased from $306.67 to $362.50 per ton, a substantial but much less steep increase. At its peak during the contract period, the average price of asphalt rose on the Index to $815.00 per ton in August 2008. Thereafter, as the market costs of petroleum again receded, the average per ton price of asphalt declined on the Index to $372.50 in April 2009, the last month of the contract.

The County declined to adjust the prices that it was paying to plaintiff. The County responded to Brown that it had no legal obligation to do so under the contract, and that his firm bore the risks of such general cost fluctuations.

Consequently, plaintiff filed a complaint against the County in the Law Division in August 2008, seeking a declaratory judgment that it was entitled to a price adjustment, plus other relief. Plaintiff moved for summary judgment, which the County opposed with its own cross-motion for summary judgment.

After considering the parties' submissions, the trial court granted plaintiff's motion and denied the County's cross-motion. In her written decision, the motion judge adopted plaintiff's argument that it was entitled to a price increase by virtue of the bid proposal's references to the DOT Specifications.5 The judge found the contract to be ambiguous, and she construed that perceived ambiguity against the County, which had drafted the contract and bid documents. The judge further noted that the sharp, albeit temporary, spike in the market price for asphalt was "a unique, unforeseeable situation for both parties from which neither should obtain an unfair advantage."

Thereafter, the motion judge conducted a proof hearing, at which she applied the higher price levels advocated by plaintiff to the quantities supplied. Pursuant to testimony presented at the proof hearing, the trial court performed the relevant calculations and entered a final judgment awarding plaintiff $216,219 in damages, with post-judgment interest.

The County now appeals the trial court's determination. Fundamentally, it argues that the motion judge misconstrued the parties' contract. The County maintains that the judge erred, as a matter of law, in finding that the bid proposal's references to the DOT Specifications obligated the County to increase the prices for HMA payable to plaintiff when the general price Index for HMA rose. The County further argues that the motion judge erred in injecting considerations of fairness into the fixed price terms that the parties had agreed upon in the contract.

The County additionally contends that the judicial grant of price relief to plaintiff disrupts the County's budgeting and appropriations process, thereby harming the public by imposing unanticipated costs beyond those which had been contemplated in the fixed-price contract. The County also maintains that the motion judge's ruling is contrary to the policies underlying the Local Public Contracts Law, N.J.S.A. 40A:11-1 to -51.

II.

In considering the issues raised by the County on appeal, we note that the construction of contract terms generally presents a question of law for the court. Bosshard v. Hackensack Univ. Med. Ctr., 345 N.J. Super. 78, 92 (App. Div. 2001). The scope of that legal review includes deciding whether a contract provision is clear and unambiguous. Grow Co. v. Chokshi, 403 N.J. Super. 443, 476 (App. Div. 2008); Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997). Because such decisions entail questions of law, we apply a de novo standard of appellate review to the construction of a contract. We do not accord any special deference to the trial court's interpretation of the contract terms. See Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998); Bradford v. Kupper Assocs., 283 N.J. Super. 556, 583 (App. Div. 1995), certif. denied, 144 N.J. 586 (1996).

The motion judge found that the contract was ambiguous with respect to what extent the DOT's Standard Specifications were incorporated and, in particular, whether the DOT's price escalation provisions controlled. The judge noted that paragraph three of the contract incorporated the bid proposal form, i.e., PD 08-021, which, in turn, stated in paragraph five that:

5. DETAILED SPECIFICATIONS:

 

A. The materials to be supplied within the terms of the contract are as follows:

 

(1) Hot Mix Asphalt (HMA) course

(mix-I-2)

(2) Hot Mix Asphalt (HMA) course

(mix-I-4)

(3) Hot Mix Asphalt (HMA) course

(mix-I-5)

 

B. All materials herein specified shall comply with the 2001 New Jersey State Highway Department standard specifications for road and bridge construction, and the additions to and modifications of the standard specifications to county and municipal construction.

 

C. At no time will county trucks be kept waiting while private contractor's trucks are being loaded.

 

[Emphasis added.]

 

Notably, the reference to the DOT Specifications does not appear in paragraph three of PD 08-021, which is entitled "Prices and Price Adjustments." That paragraph reads as follows:

3. PRICES AND PRICE ADJUSTMENTS:

 

A. Prices shall include all charges that may be imposed in fulfilling the terms of the contract. The bid prices shall remain in effect for the entire contract period.

 

B. It is estimated that the county will incur a cost of $.50 per mile to pick-up materials at the contractor's plant. Therefore, the distance between a bidder's plant and the county's stocking location will be used as an evaluation factor to determine the low bidder. Bidders must indicate the distance in miles for each location as part of their proposal.

 

[Emphasis omitted.]

 

In addition, PD 08-021 contains no language, either in paragraphs three or five, or elsewhere directly addressing price adjustments or price escalations.

Plaintiff argues that, through the generic cross-reference to the DOT Specifications in PD 08-021, its contract with the County necessarily subsumed all of the relevant provisions in those DOT standards, including the DOT provisions relating to price. In this regard, plaintiff points to Section 404 of the DOT Specifications, as promulgated in 2001.

Section 404 contains twenty-six subsections. Those subsections address such diverse topics as materials (subsection 404.02); equipment (404.03); HMA plants (404.04); vehicles for transporting HMA mixtures (404.06); weather limitations (404.13); spreading and finishing methods (404.17); and procedures for opening roads to traffic (404.24).

Plaintiff places particular emphasis upon Subsection 404.25 of the DOT Specifications, entitled "Method of Measurement." At the time the instant contract was awarded in 2008,6 Subsection 404.25 set forth how HMA materials delivered to the DOT would be measured, using scales or other weighing devices to determine the actual quantity being supplied in each truckload. Subsection 404.25 also contained several paragraphs obligating the DOT to allow monthly price adjustments during the contract period for various asphalt materials, including asphalt binder, tack coat, and prime coat. These price adjustments under Subsection 404.25 were based upon a specified formula, one tied to the DOT's Index for average monthly asphalt prices. The formula compared the average monthly price in the Index at the time of billing to the monthly asphalt price that had existed in the months before the DOT's receipt of bids. No price adjustments under Subsection 404.25 were to be made by the DOT unless the Index differed more than five percent from the prevailing level at the time of bidding.

Plaintiff maintains that in this case the price adjustments prescribed by the State under Subsection 404.25 of the DOT Specifications must govern its contract with the County. It emphasizes that the DOT's Specifications were cited in the bid proposal, PD 08-021, which, in turn, is referred to in Attachment A to the contract. Plaintiff asserts that if the County did not intend to be similarly bound to the price escalation terms of Subsection 404.25, as the DOT is to its own vendors, then the County should have included language saying so in the contract.

Plaintiff emphasizes that during the course of performance of the contract, the County had plaintiff's trucks weighed and ticketed in a manner consistent with the measuring procedures set forth in Subsection 404.25. Plaintiff argues that by doing so, the County tacitly exhibited its acquiescence to the entire panoply of terms within Subsection 404.25. According to plaintiff, if such weighing and ticketing procedures had not been required, it could have instead delivered asphalt mix to the County in four-ton batches, as is allegedly the custom in the industry, and then simply approximated the tonnage of asphalt in each truck.

We are not persuaded by these arguments. In interpreting a requirements contract of this nature, we must remain mindful that such an agreement is entered into for the benefit of the public, the costs of which are borne by County taxpayers. In that context, we should remember the overall structure and objectives of the Local Public Contracts Law, which recites strict requirements for the advertising, competitive bidding, and the performance of public contracts to provide local governmental units with goods, materials, and services. See N.J.S.A. 40A:11-1 to 11-51. "Public bidding statutes exist for the benefit of taxpayers, not bidders, and should be construed with sole reference to the public good." Nat'l Waste Recycling, Inc. v. MCIA, 150 N.J. 209, 220 (1997). Although we are also mindful that bidders should be treated fairly in the implementation of a government contract, see W.V. Pangborne & Co. v. N.J. Dep't of Transp., 116 N.J. 543, 561-62 (1989), the public's ultimate interest in the contract and the related financial burdens on taxpayers cannot be overlooked.

We disagree with the motion judge's assessment that the parties' contract was ambiguous with respect to price. As we have already noted, the bid proposal unambiguously stated that "[t]he bid prices shall remain in effect for the entire contract period." Attachment A to the contract spelled out a fixed price for each of the three respective kinds of mixes (I-2, I-4, and I-5) to be furnished by plaintiff. There is no qualifying phrase appearing after each price figure, such as "subject to escalation if the market price of asphalt products sharply rises," or "subject to escalation pursuant to Subsection 404.25 of the DOT Specifications."

The connection that plaintiff makes from this County contract to Subsection 404.25 of the DOT Specifications is oblique and attenuated. The reference to the DOT Specifications in PD 08-021 is conspicuously absent from its third (and most relevant) paragraph, which is headed "Prices and Price Adjustments." Instead, the DOT Specifications are alluded to in paragraph five, which is not a pricing provision. Although a descriptive heading does not control a provision's meaning, a heading nevertheless can aid in interpreting what the provision was intended to convey. See In re Attorney General's "Directive on Exit Polling: Media and Non-partisan Public Interest Groups", 402 N.J. Super. 118, 126-27 (App. Div. 2008), aff'd in part and modified in part by 200 N.J. 283 (2009); State v. Greene, 33 N.J. Super. 497, 500 (App. Div. 1955).

Subparagraph (A) of paragraph five of PD 08-021 identifies the three "materials to be supplied" by the vendor, specifically HMA mixes I-2, I-4, and I-5. Subparagraph (B) of paragraph five then recites that: "All materials herein specified shall comply with the 2001 New Jersey State Highway Department standard specifications for road and bridge construction, and the additions to and modifications of the standard specifications to county and municipal construction." (Emphasis added). Subsection 404.25 is not mentioned in that provision. In sum, the path to Subsection 404.25 from the contract itself is circuitous, and it strays considerably from the contract's specific price provisions.

The fact that the County chose, in practice, to weigh and ticket the HMA materials that were delivered in plaintiff's trucks in a manner that happened to be consistent with the DOT's methodology does not compel a conclusion that the County thereby adopted the DOT's price adjustment provisions that are separately recited in Subsection 404.25. Such weighing and ticketing is a sensible way to assure that the quantities being provided to the County were accurately measured. That accuracy can be advantageous to both parties, so that the County is not overbilled for material that was not supplied and plaintiff is not underpaid for material that was actually provided.

Plaintiff presented to the trial court no document or other communication from the County stating that it was invoking or enforcing the terms of DOT Specification 404.25. The weighing/ticketing procedure of Subsection 404.25, moreover, is a matter of quantity, not price. The parties' contract is silent as to the mechanisms for quantity measurement. By contrast, the contract clearly expresses in Attachment A fixed prices for the three respective kinds of asphalt mixes. The parties agreed that those prices, which plaintiff itself had proposed in its bid, were to "remain in effect for the entire contract period."

As attested to in a certification from the County's purchasing agent, Peter Mercanti, the County had "its own General Conditions and other non-technical [c]ontract requirements that were set forth in the [contract's] Specifications and [in] the [c]ontract." Those County-issued Specifications, which are presented in forty-six detailed paragraphs, addressed numerous matters such as bid awards, proposal and performance bonds, modifications, transportation charges, voucher submission, and adherence to County regulations. The County specifications even contain some incidental provisions relating to price,7 which are not specifically on point here. None of those County-issued Specifications mentions price adjustments or escalations. If the County had agreed, despite the fixed prices set forth in the contract, to be subject to some form of price escalation, one would reasonably expect such a term to appear in the County's own specifications. The absence of such a price escalation provision from that obvious and natural context is conspicuous.

Even if we were to adopt the motion judge's perception that the contract was ambiguous as to price, the parol evidence submitted to the court by plaintiff in an effort to shed light on that alleged ambiguity is unpersuasive. Generally, the interpretation of contract terms "are decided by the court as a matter of law unless the meaning is both unclear and dependent on conflicting testimony." Bosshard, supra, 345 N.J. Super. at 92. Here, there is no such "conflicting testimony" presented in the record to substantiate the interpretation of the contract that plaintiff has adopted in this litigation.

Plaintiff submitted to the trial court only one substantive affidavit8 in support of its motion for summary judgment, from its President, Brown. In his affidavit, Brown discusses various terms of the contract and, in particular, the weighing and billing procedures that were utilized when the contract was performed. Brown does not, however, state that he expected, at the time his company submitted its bid and he signed the contract, that the company would be eligible for a price increase if asphalt costs significantly rose thereafter. Nor does Brown state that he or his company relied upon such an expectation. At most, Brown asserts in his affidavit that his company "had no basis to believe that random, unspecified portions of [Subsection] 404.25 were omitted from the Project Specifications, which made general reference to the full 2001 NJDOT Specifications." He adds that plaintiff "was not required to anticipate unprecedented price fluctuations in its bid." Such assertions are a far cry from assertions of actual intent or reliance.

The record does not reflect that the parties had a contemporaneous meeting of the minds whereby plaintiff would be entitled to future price escalations if asphalt prices in the marketplace rapidly inflated. There is no proof that such escalations were mutually contemplated by the parties. Nor is there proof that plaintiff had, and relied upon, an understanding that it would be entitled to such an adjustment if the petroleum market spiked. Under these particular circumstances, there is no reason to retrospectively construe the contract as having an ambiguity as to price. Nor is it appropriate to resolve that alleged ambiguity by giving plaintiff a contractual benefit that it apparently did not expect, nor count upon.

In her letter opinion, the motion judge identified what she perceived to be a second ambiguity in the contract. She noted that the contract itself spells out no termination procedures but, instead, in Article 6A, recites that the contract incorporates by reference "the termination provisions set forth in the Bid Specifications or in the Request for Proposal, if any, as the case may be[.]" The judge found this reference concerning termination to be indicative of either an ambiguity in the contract (since there arguably are no termination provisions in the two referenced documents) or, alternatively, "an implied intent on the part of the County to incorporate the original general Specifications of the Bid and the Request for Proposal document, in addition to [Article] 3 [respecting price]."

We do not think the contract language cited by the motion judge from Article 6A relating to termination affects the legal analysis concerning contract price. Termination and price are two entirely distinct subjects. Although the contract refers to and incorporates the bid proposal, PD 08-021, the bid proposal's generic allusion to DOT Specifications did not, for the reasons we have already explained, impose a linguistic "back door" duty upon the County to allow price escalation.

For these various reasons, we differ with the trial court's reading of the contract documents and, in particular, with the court's imputation of a price escalation clause. Although we appreciate the financial burden that was likely imposed on plaintiff because of the temporary spike in worldwide petroleum costs, that was not a risk that the County agreed to bear in this case. The final judgment is consequently reversed, and the award of damages to plaintiff is vacated.9

Reversed.

1 As it is described by the Industrial Resources Council, "[a]sphalt concrete pavements, or hot mix asphalt (HMA) pavement as it is more commonly called, refers to the bound layers of a flexible pavement structure. For most applications, asphalt concrete is placed as HMA, which is a mixture of coarse and five aggregate, and asphalt binder. . . . The asphalt binder is typically 5-6% of the mixture, and serves to bind the aggregates together. Asphalt binder is a petroleum derivative, though additional materials are often added to modify the properties of the binder." Industrial Resources Council, http://www.industrialresourcescouncil.org/Applications/HotMixAsphaltPavement/tabid/378/Default.aspx (last visited March 17, 2011).

2 PD 08-021, which we discuss in our legal analysis, infra, is entitled "Specifications and Proposal Form for the Supplying of Hot Mix Asphalt (HMS) Materials."

3 The briefs and the trial court's decision refer to the contract's numbered provisions alternatively as "articles" and also as "paragraphs." We use the former designation.

4 Apparently, the costs of the various asphalt mixes (I-2, I-4 and I-5) supplied under the contract are substantially less than that of pure asphalt. Nevertheless, the parties do not appear to dispute that a significant change in the market costs of asphalt will produce a corresponding significant change in the costs of HMA mix.

5 The motion judge declined, however, to rely upon plaintiff's invocation of the doctrine of "force majeure," since plaintiff managed to fully perform its supply obligations under the contract, despite the overall rise in petroleum prices. See Facto v. Pantagis, 390 N.J. Super. 227, 232-34 (App. Div. 2007) (noting that the doctrine of force majeure can excuse a contracting party's performance when an unforeseen event makes that party's performance impossible or impracticable).

6 It appears that Subsection 404.25 has been revised by the DOT since the time of the parties' contract. See http://www.state.nj.us/transportation/eng/specs/english/English StandardSpecifications.htm (last visited Mar. 17, 2011). We use the version of Subsection 404.25 appearing in the County's appendix.

7 The County Specifications refer to net pricing in paragraph 17, and to unit and extended prices in paragraph 19.

8 The other affidavit submitted was by plaintiff's attorney, who simply attached certain pleadings, correspondence, and government documents.

9 We note that in 2010 the Legislature adopted a new statute requiring price adjustments in every asphalt supply contract entered into pursuant to the Local Public Contracts Law, including contracts with County governments. See N.J.S.A. 40A:11-16. Although plaintiff cited this new legislation in its brief on appeal, plaintiff acknowledged at oral argument that the terms of the statute do not apply retroactively to the present case. We see no reason to apply the statute retroactively and, moreover, no reason to impose on the County public policies that were subsequently enacted long after this contract was created and performed.