IN THE MATTER OF MOTOR VEHICLE COMMISSION SURCHARGE SYSTEM ACCOUNTING AND BILLING SERVICES
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3136-16T2
IN THE MATTER OF MOTOR VEHICLE
COMMISSION SURCHARGE SYSTEM
ACCOUNTING AND BILLING SERVICES.
__________________________________
Argued January 22, 2018 – Decided February 8, 2018
Before Judges Sabatino, Ostrer and Rose.
On appeal from the New Jersey Department of
the Treasury, Division of Purchase and
Property, RFP No. 16-X-23676.
Paul P. Josephson argued the cause for
appellant Xerox State & Local Solutions, Inc.
(Duane Morris LLP, attorneys; Paul P.
Josephson and Trevor Taniguchi, on the
briefs).
Daniel J. Kelly, Assistant Attorney General,
argued the cause for respondent State of New
Jersey, Department of Treasury (Gurbir S.
Grewal, Attorney General, attorney; Beth Leigh
Mitchell, Assistant Attorney General, of
counsel; Diana Reynolds, Deputy Attorney
General, on the brief).
Walter F. Kawalec, III, argued the cause for
respondent Gila, LLC, d/b/a Municipal Services
Bureau (Marshall Dennehey Warner Coleman &
Goggin, attorneys; Howard B. Mankoff and
Walter F. Kawalec, III, on the brief).
PER CURIAM
In this public bidding case, Xerox State & Local Solutions,
Inc. ("Xerox"), the former incumbent provider of services to the
New Jersey Motor Vehicle Commission ("MVC"), appeals an award of
a successor contract by the Division of Purchase and Property
("the Division"). The Division awarded the new contract to the
only other bidder, Gila, LLC, doing business as Municipal Services
Bureau ("MSB"). Xerox appeals from both the contract award to MSB
and the Division's February 17, 2017 final agency decision denying
its bid protest.
For the compelling reasons that follow, we conclude that
MSB's bid, which included a lengthy footnote on its pricing sheet
seeking "necessary" additional compensation, was materially non-
conforming. The Division strayed from well-established legal
principles in unfairly allowing MSB to modify its quote and
withdraw that pricing caveat after the bids were opened.
Consequently, we reverse the Division's ruling, and remand with
instructions for the agency to re-bid this contract on an expedited
basis.
I.
The RFP
In June 2015, the Division issued a Request for Proposals
("RFP") on behalf of the MVC and the Division of Revenue and
Enterprise Services ("DORES") within the Department of the
2 A-3136-16T2
Treasury. The RFP solicited bids from contractors to develop and
implement a new billing and collection system for obtaining and
processing MVC surcharge payments owed by motorists under the
motor vehicle laws. Among other things, the scope of the contract
included surcharge billings, collections, disbursement and
reconciliation of payments, handling correspondence, and fielding
telephone inquiries.
At the time the RFP was issued, Xerox was the vendor providing
collection services to the MVC under the then-existing system.1
Xerox provides similar services to other governmental agencies
outside of New Jersey. The impetus of the RFP was to phase out
the then-existing system and replace it with an improved one. MSB
likewise has provided collection services to other jurisdictions,
including the State of Texas.
Under the applicable procurement statute,
N.J.S.A. 52:34-
12(a)(g), and an associated regulation, N.J.A.C. 17:12-2.2, the
Division was obligated to award the new contract to "that
responsible bidder whose bid, conforming to the invitation for
bids, will be most advantageous to the State, price and other
factors considered." The RFP incorporated this standard.
1
Xerox's contract, which had been extended, expired in October
2017.
3 A-3136-16T2
The RFP contemplated that the successful bidder would not be
paid a monetary contract price by the State. Rather, it
contemplated that the vendor would be compensated mainly or
entirely by receiving an agreed-upon percentage commission out of
the surcharge receipts collected from motorists.
Bidders were presented with an opportunity to submit
questions about the RFP. After that period ended, the bidder
proposals were initially due on August 13, 2015. The Bureau
ultimately postponed that deadline to October 15, 2015.
The Parties' Bids and Pricing Sheets
On October 15, 2015, two proposals were received by the 2:00
p.m. submission deadline: one from Xerox and one from MSB. They
were opened that day and were forwarded to the Division's
Procurement Bureau. Both proposals were sent to an Evaluation
Committee for review.
The Evaluation Committee was comprised of six voting members,
including representatives from the New Jersey Office of
Information Technology ("OIT"), MVC, the Division, and DORES.
Twelve subject matter experts served as technical advisors to the
Committee. They included representatives from DORES, MVC, the
Division, and OIT. In addition, four external consultants served
as advisors to the Committee. The Committee performed a technical
review of the two submitted proposals, examining criteria relating
4 A-3136-16T2
to such subjects as personnel, firm experience, and the vendor's
ability to complete the work under the new contract.
Sections 4.4.1.8 and 4.4.5 of the RFP required bidders to
submit their price quotes using the format of a "State-supplied
price sheet/schedule(s)" accompanying the RFP. RFP § 4.4.5
specifically instructed bidders that a "[f]ailure to submit all
information required will result in the proposal being considered
non-responsive." The required format consisted of a multi-column
"All-inclusive Pricing Sheet."
The pricing sheet's first column, which was pre-printed,
designated nine separate cost categories: "Transition, Non-
recurring/One-time Costs;" "Customer Service, Support and Primary
Collections;" "Printing and Mailing Notices and Correspondence;"
"Returned Mail Processing;" "Accepting and Processing Payments;"
"Document & Image Management;" "Collections-Litigation Services;"
"Systems and Technology;" and "Option-Maintenance and Support of
STARS."2
The second column, which was also pre-printed in the RFP,
described the "Unit of Measure," such as the "Contingency Fee as
2
STARS referred to the existing collections system, which the MVC
was seeking to replace through this procurement. It was
contemplated that the selected bidder would operate STARS for a
temporary start-up period, but then discontinue doing so within a
specified timeframe.
5 A-3136-16T2
a Percentage of Revenue Collected," the Cost-Per-Piece for
printing, mailing or document imaging, and the Cost-Per-
Transaction-Type for various kinds of mailed, manual, and
electronic payment processing.
The pricing sheet's third column – which is the one most
significant to the present appeal – required each bidder to specify
the contingency fee percentage or cost-per-unit that it proposed
to be paid over the seven-year contract period. With respect to
printing and mailing costs, RFP § 3.3.4 instructed that bidders
"shall include all costs associated with printing and mailing
notices . . . ."
The pricing sheet Xerox submitted with its bid proposal
included a contingency fee for customer service, support and
primary collections of 3.79%, and a separate contingency fee of
14.90% for collections relating to litigation services. Xerox
further proposed per-unit costs of $0.79 for printing and mailing
notices and correspondence; $0.60 for processing non-electronic
payments; and $2.50 for processing electronic payments. Xerox
also quoted transition costs of $699,426. For the seven-year
duration of the contract, the collection of nearly $789 million
in total surcharge revenue was projected, and nearly $47 million
in revenue from collections litigation.
6 A-3136-16T2
Xerox's pricing sheet contained no footnotes, disclaimers,
or conditional language. Xerox did omit cost entries for returned
mail processing and document and image management, filling in
those two boxes on the spreadsheet with dashes ("—"). Xerox
provided no optional monthly contract cost for operating STARS,
consistent with its role as the incumbent vendor already using
STARS.
MSB's pricing sheet included quotes for only three items in
the spreadsheet's third column. Specifically, MSB proposed a
4.35% contingency fee percentage for customer service, support and
primary collections (as compared with Xerox's lower quote of
3.79%), a 10.00% contingency fee percentage for litigation
collections (as compared with Xerox's higher quote of 14.90%), and
a monthly contract cost of $28,500 for maintaining and supporting
STARS (as compared with Xerox's omission of that optional charge).
MSB's Pricing Footnote
Critically relevant to the present appeal, MSB's pricing
sheet contained the following caveat in a footnote preceded by
double3 asterisks ("**"):
Price does not include a surcharge partial
payment processing fee per payment processed
and electronic payment (ACH and credit card)
3
There was no single-asterisked footnote (*), nor any other
footnotes.
7 A-3136-16T2
convenience fee which is paid by constituent
at time payment is tendered.
Both the installment payment fee and
convenience fee can be negotiated with the
State and are necessary components to maintain
the pricing shown in cell C7[.]
[(Emphasis added).]
The footnote appears in space on the right side of the pricing
spreadsheet. There is no corresponding double asterisk (**) within
the spreadsheet itself.
Events After the Bids Were Opened
After the bids of Xerox and MSB were opened, they were
referred to the Evaluation Committee for review. Meanwhile, the
Bureau identified several aspects of MSB's bid as to which it
requested "clarification."4 The Bureau detailed these items in a
November 16, 2015 letter to MSB's Chief Executive Officer. Of
special pertinence here are the items concerning (1) printing and
mailing costs and (2) transactional costs,5 the latter of which
4
We discuss the appropriate scope of a bidder's clarification,
infra.
5
MSB's footnote refers to two categories of fees: (1) "partial
payment processing fee[s]," also referred to by MSB as "installment
payment fee[s];" and (2) "electronic payment (ACH and credit card)
convenience fee[s]," also described by MSB as "convenience
fee[s.]" The second category appears to encompass fees charged
by credit card companies for transactions, as well as fees incurred
when payments are made using a bank account routing number. For
purposes of simplicity and brevity, we shall refer to the two
categories collectively as "transactional" costs.
8 A-3136-16T2
were the subject of the aforementioned footnote on MSB's pricing
sheet.
With respect to printing and mailing costs for notices, the
Bureau pointed out to MSB in the November 16 letter that its price
sheet had omitted pricing for those items, despite the instruction
in RFP § 3.3.4 to include such costs. The Bureau further pointed
out to MSB that its narrative proposal (termed the "Mobilization
and Implementation Plan") recited that "Unlike Texas's Surcharge
Program [operated by MSB], mailing costs are entirely pass-through
for the NJMVC Surcharge Program, for which the State compensates
MSB for printing and postage expenses." (Emphasis added). Given
this apparent ambiguity and lack of clarity, the Bureau requested
MSB to "confirm that [its] price sheet as submitted incorporates
all costs associated with printing and mailing."
Further, the Bureau's November 16 letter pointed out MSB had
stated in its narrative that "unlike Texas'[s] Surcharge Program,
all credit card fees are pass-through and likewise paid by the
State of New Jersey." (Emphasis added). In addition, the Bureau
quoted MSB's aforementioned footnote on its pricing sheet, which
had stated that the transactional costs (i.e., the "installment
payment fees" and the "convenience fees") "can be negotiated with
the State and are necessary components to maintain the pricing
shown in [spreadsheet] cell C7." (Emphasis added).
9 A-3136-16T2
The Bureau's letter treated MSB's assertions in this regard
relating to the transactional costs as inconsistent with Section
3.3.6 of the RFP, which called for the bidders to "accept and
process credit card payments" and "handle payment of all costs
associated with these services including discount fees . . . ."
Rather than asking MSB to "clarify" or "confirm" its position on
this discrete subject of transactional costs, the Bureau notably
advised MSB in the November 16 letter to "[p]lease withdraw these
statements above or withdraw your firm's proposal." (Emphasis
added).
Also of relevance here, the Bureau's November 16 letter
pointed out that MSB's pricing sheet had omitted pricing for
Accepting and Processing Payments, Transition, Non-recurring/One-
time Costs, and for Systems and Technology, as called for under
the RFP. As to these items, the Bureau requested MSB to "confirm"
that its price sheet, as submitted, incorporated these specific
costs.
MSB responded to the Bureau's November 16 letter on November
23, attempting to address the items of concern. The Bureau was
satisfied with respect to several of those responses. However,
the Bureau remained dissatisfied with MSB's responses concerning
(1) its pricing for printing and mailing costs, (2) credit card
payments, and (3) the costs of accepting and processing payments.
10 A-3136-16T2
The Bureau was particularly dissatisfied with MSB's insistence on
adhering to an undefined (or poorly-defined) "supporting fee
structure" for the contract, as well as MSB's position that if the
State did not maintain the so-called "supporting fee structure,"
MSB's pricing for the printing and mailing costs and transactional
costs would need to be modified.
The Bureau expressed its dissatisfaction in a November 24,
2015 letter to MSB, demanding that MSB either acknowledge it was
not seeking payment for these additional items or, alternatively,
withdraw its bid proposal. The Bureau's letter firmly stated in
this regard:
MSB's response to Clarification Request
#2 states that "The State has asked MSB to
withdraw its recommendation of this supporting
fee structure in the State's Clarification
Request #3a. Absent utilization of this
supporting fee structure, the price listed for
'Customer Service, Support and Primary
Collections' needs to be modified
accordingly."
Further, MSB's response to Clarification
Request #3b states that "The State has asked
MSB to withdraw its recommendation of this
supporting fee structure in the State's
Clarification Request #3a. Absent utilization
of this supporting fee structure, the price
listed for 'Customer Service, Support and
Primary Collections' needs to be modified
accordingly."
The RFP makes no mention of a "supporting
fee structure." In addition, RFP Section
4.4.5 requires the Bidder to "submit its
11 A-3136-16T2
pricing using the format set forth in the
State-supplied price sheet/schedule(s)
accompanying this RFP," and "Failure to submit
all information required will result in the
proposal being considered non-responsive."
The State requires that MSB confirm that
the pricing submitted is inclusive of all
costs and addresses all requirements of the
RFP or it must withdraw its proposal.
Your firm's response must be received no
later than 5:00 p.m. on Friday, November 27,
2015. Failure to respond may result in your
firm's proposal being considered non-
responsive.
[(Original emphasis in BOLD face; underlined
emphasis added).]
Having been pressed by the Bureau on these pricing issues a
second time, MSB relented. In a November 27, 2015 letter, MSB
confirmed to the Bureau that "the pricing submitted is inclusive
of all costs and addresses all requirements of the RFP." There
was no further discussion thereafter of MSB's pricing sheet
footnote.
The Bureau also exchanged correspondence with Xerox, seeking
and obtaining clarification as to various topics. None of those
clarifications, however, involved payment for printing or postage
costs, or for transactional costs.
In December 2015, the Bureau requested that MSB and Xerox
each submit a Best and Final Offer ("BAFO"). MSB declined to
reduce its pricing in a BAFO. Xerox, meanwhile, submitted a BAFO
12 A-3136-16T2
that slightly reduced its quoted contingency fee for non-
litigation collections from 3.79% to 3.74%, and its litigation
contingency fee rate from 14.90% to 14.69%. Xerox also slightly
adjusted downward several of its previously quoted per-unit costs.
The Award to MSB
On March 8, 2016, the Evaluation Committee submitted its
report to the Bureau after completing its review of the bids. The
Committee recommended that the agency award the contract to MSB.
The following comparative table shows the Committee's final
technical scores, pricing, and ranks for both MSB and Xerox:
Bidder Average Total Cost of Final Rank
Technical Proposal
Score
Gila LLC d/b/a 795 $38,164,000 1
Municipal
Services
Bureau (MSB)
Xerox State & 512 $62,129,022 2
Local
Solutions,
Inc. (Xerox)
13 A-3136-16T2
The Committee's report concluded that MSB "presented the most
advantageous proposal to the State, price and other factors
considered[,]" and respectively recommended "that MSB be awarded
the contract for the development of a new Surcharge Billing and
Collection System and provide surcharge services . . . ."
The Division followed the Evaluation Committee's
recommendation. On March 15, 2016, the Division accordingly issued
a notice advising both bidders that it was the State's intention
to award the contract to MSB.
Xerox's Bid Protest
Xerox protested the contract award. In March 2016, Xerox
sent the Division a request for extension of time and notice of
its intention to protest the award. In that initial protest
letter, Xerox focused upon MSB's alleged non-compliance with the
pricing requirements of the RFP. Xerox thereafter obtained
additional documents about this matter, pursuant to a request it
had made under the Open Public Records Act,
N.J.S.A. 47:1A-1 to -
13.
In May 2016, Xerox sent the Division a supplemental protest
letter. That letter encompassed the various arguments that Xerox
now raises on appeal, including contentions going beyond the
pricing concerns raised in Xerox's initial protest.
14 A-3136-16T2
The Division Director declined Xerox's request for an in-
person hearing. She confined her consideration of the bid protest
to the items within the written record, as permitted by N.J.A.C.
17:12-3.3(d)(1).
The Director's Decision
On February 17, 2017, the Director issued a written final
agency decision denying Xerox's bid protest and upholding the
award of the contract to MSB. The Director rejected each of the
arguments Xerox raised in challenging the award.
Most of the Director's analysis addressed issues unrelated
to the propriety of MSB's pricing. As to the pricing issue, the
Director concluded that MSB's price quote did not materially
deviate from the RFP. The Director acknowledged that, with respect
to printing and postage costs, a "discrepancy" had existed between
MSB's narrative proposal stating that the State would compensate
MSB for those costs, and MSB's price sheet, which had not listed
"any per unit or percentage costs associated with the printing and
mailing of notices . . . ." The Director found it permissible for
MSB to "clarify" its position concerning those printing and mailing
costs in its correspondence with the Bureau after the bids had
been opened. As a result of that clarification process, MSB stated
that the price as originally submitted on its price sheet was
15 A-3136-16T2
inclusive of those particular costs. Hence, the Director concluded
that MSB's pricing proposal had been responsive.
Notably, the Director's final agency decision did not
specifically analyze the separate transactional costs that were
also the subject of Xerox's bid protest. The decision mentioned,
but did not analyze, the footnote in MSB's pricing sheet. Nor did
the decision analyze the significance of MSB's assertion that the
transactional costs "can be negotiated with the State and are
necessary components to maintain the pricing shown in cell C7."
Nor did it explain why MSB's original position concerning the
transactional costs, as had been expressed in the footnote and in
MSB's narrative proposal, did not comprise a material deviation
from the RFP's criteria.
Xerox promptly requested that the Division reconsider the
denial of the bid protest. Xerox also sought an administrative
stay of the contract award. On March 28, 2017, the Acting Division
Director6 denied reconsideration and the request for a stay. He
found "no reason to disturb" his predecessor's decision, and,
moreover, that Xerox had not demonstrated the factors under Crowe
v. De Gioia,
90 N.J. 126, 132-34 (1982), for obtaining a stay or
injunctive relief.
6
By that point, the Director who had issued the final agency
decision the previous month was no longer in office.
16 A-3136-16T2
Xerox's Appeal and Requests for a Stay
Xerox appealed the contract award to this court. It moved,
initially on an emergent basis, for a stay of the contract award
to MSB pending appeal. Xerox raised, among other things, concerns
about the appeal becoming moot if a stay were denied.
In opposing the stay request, the Division and MSB asserted
that it was in the public interest for the contract award to MSB
to go forward because MSB was receiving a comparatively much-lower
payment for its services than the rates Xerox had quoted, and also
because the prompt implementation of a new surcharge payment
processing system would be beneficial.
In May 2017, a panel of this court denied Xerox's motion for
a stay pending appeal, but ordered that the appeal be accelerated.
Xerox then moved for relief before the Supreme Court, which the
Court denied in June 2017.
In September 2017, Xerox moved a second time for a stay
pending appeal. Xerox expressed concerns that its contract was
about to expire in October 2017, and that MSB apparently was poised
to begin the successor contract.7 Another panel of this court
7
Notably, MSB stated in its September 19, 2017 letter brief
opposing Xerox's second stay motion that, if a stay were denied,
the appeal would not be moot because the awarded contract has a
term of seven years. In particular, MSB asserted at that time
that "even if Xerox were somehow able to demonstrate error, the
17 A-3136-16T2
denied this second stay motion in October 2017. After the
accelerated briefing of this matter was completed in the fall of
2017, the appeal was placed on this court's oral argument calendar
on a preferential basis. Prior to oral argument, we requested
additional documents, including a full copy of the RFP, which
counsel kindly furnished.
II.
Xerox's main argument on appeal is that MSB's pricing bid
materially deviated from the RFP and that the Division erred in
awarding it the contract. Xerox submits that MSB's retrenchment
from the position it took in its pricing form, including the
footnote concerning transactional costs, cannot legitimately be
treated as a permissible "clarification."8 Xerox urges that the
award to MSB be reversed, and that it either be awarded the
contract immediately or, alternatively, that the contract be re-
bid on an expedited basis.
appeal would not be moot nor would the contract be substantially
complete." MSB noted in this regard the possibility that this
court might reverse the award and "somehow return[] Xerox as the
vend[o]r." That would potentially impose "start-up costs which
Xerox does not wish to pay," but such a concern, MSB asserted,
"does not mean that the appeal would be moot, nor does it justify
granting a stay."
8
Xerox advances several alternative arguments to set aside the
award, none of which are persuasive. We touch upon them briefly,
infra, in Part III of this opinion.
18 A-3136-16T2
The Division and MSB counter that MSB's bid was not materially
defective, that the clarification process used here was
appropriate, and that there is no basis to set aside the award.
They also continue to oppose any injunctive or other judicial
relief.
A.
In considering the merits of the appeal, we are acutely
mindful that generally the State Treasurer and the Division are
afforded "great flexibility in awarding a contract to the bidder
whose proposal will be most advantageous to the State, taking into
consideration all factors." In re Honeywell Information Sys.,
Inc.,
145 N.J. Super. 187, 200 (App. Div. 1976). When choosing
between or among responsive bids, the Treasurer or Director
"necessarily is required to exercise the sound business judgment
of an executive based on all available data, expertise and advice
which he may be able to garner from all available sources." Ibid.
(citations omitted). Hence, the scope of judicial review of the
agency's ultimate selection among responsive bidders normally is
very limited. Commercial Cleaning Corp. v. Sullivan,
47 N.J. 539,
549 (1966). Even so, it is also well established that such wide
deference to procurement officials does not extend to questions
of bid conformity, or the legal requirements of the bidding
process. As this court observed when invalidating a State
19 A-3136-16T2
Treasurer's award of a contract to a non-responsive bidder in In
re the Protest of Award of On-Line Games Prod. and Operation Servs.
Contract, Bid No. 95-X-20175 ("On-Line Games"),
279 N.J. Super.
566, 592-93 (App. Div. 1995), agency decisions "as to the
responsibility of the bidder and bid conformity are to be tested
by the ordinary standards governing administrative action[,]"
rather than the "gross abuse of discretion standard . . . ."
As (then-Judge) Long noted in On-Line Games, an increased
level of appellate oversight is justified in such a context because
"strict rules as to bid conformity are critically important . . .
because of the broad discretion available to the Treasurer in
actually awarding the contract." Id. at 593. Hence, the scope
of appellate review of bid conformity issues, such as the main
challenge that Xerox mounts here, focuses upon:
(1) whether the agency's decision offends the
State or Federal Constitution; (2) whether the
agency's action violates express or implied
legislative policies; (3) whether the record
contains substantial evidence to support the
findings . . . ; and (4) whether in applying
the legislative policies to the facts, the
agency clearly erred in reaching a conclusion
that could not reasonably have been made on a
showing of the relevant factors.
[Ibid. (quoting George Harms Constr. Co. v.
N.J. Turnpike Auth.,
137 N.J. 8, 27 (1994)
(internal citations omitted)). See also In
re Jasper Seating Co.,
406 N.J. Super. 213,
222-23 (App. Div. 2009) (applying that
standard of review); State v. Ernst & Young,
20 A-3136-16T2
L.L.P.,
386 N.J. Super. 600, 619 (App. Div.
2006) (reaffirming the less deferential
standard for the review of decisions on bid
conformity).]
The governing law is also well settled concerning the
materiality of bid provisions. "It is firmly established in New
Jersey that material conditions contained in bidding
specifications may not be waived." Terminal Constr. Corp. v.
Atlantic Cty. Sewerage Auth.,
67 N.J. 403, 411 (1975) (citing
Township of Hillside v. Sternin,
25 N.J. 317, 324 (1957)). "This
rule, however, does not apply to minor or inconsequential
conditions." Ibid.
As we explained in On-Line Games, the two-prong test for
materiality is as follows: (1) "whether the effect of a waiver
would be to deprive the [contracting agency] of its assurance that
the contract will be entered into, performed and guaranteed
according to its specified requirements;" and (2) "whether [a
deviation] is of such a nature that its waiver would adversely
affect competitive bidding by placing a bidder in a position of
advantage over other bidders or by otherwise undermining the
necessary common standard of competition." On-Line Games,
279 N.J. Super. at 594-95 (quoting Township of River Vale v. Longo
Constr. Co.,
127 N.J. Super. 207, 216 (Law Div. 1974)).
21 A-3136-16T2
Essentially, the materiality test "is nothing more than an
enunciation of what has always been the only relevant matter in a
bid conformity inquiry: whether waiver of the deviation would
thwart the aims of the public bidding laws." Id. at 596. Those
aims fundamentally are to "guard against favoritism, improvidence,
extravagance and corruption . . . ."9 Barrick v. State,
218 N.J.
247, 258 (2014) (quoting Keyes Martin & Co. v. Dir., Div. of
Purchase & Prop.,
99 N.J. 244, 256 (1985)). This is a largely
prophylactic approach. L. Pucillo & Sons, Inc. v. New Milford,
73 N.J. 349, 356 (1977). As Justice Francis observed in Hillside,
25 N.J. at 326, "In this field it is better to leave the door
tightly closed than to permit it to be ajar, thus necessitating
forevermore in such cases speculation as to whether or not it was
purposely left that way." Public bidding laws were adopted "to
secure for the taxpayers the benefits of competition and to promote
the honesty and integrity of the bidders and the system." On-Line
Games,
279 N.J. Super. at 589. These laws must be "construed as
9
We pause to note that we have been presented with no proof of
any "corruption" in this matter. Our ultimate determination to
set aside the contract award to MSB rests upon the importance of
maintaining fair competition in the procurement process, as well
as assuring that material deviations in critical pricing terms are
not tolerated to the disadvantage of other bidders and to the
potential detriment of the public.
22 A-3136-16T2
nearly as possible with sole reference to the public good." Ibid.
(quoting Keyes,
99 N.J. at 256).
The price-related facets that led to this court's
invalidation of the contract award in On-Line Games, the key case
relied upon by Xerox, are instructive for the present case. For
that reason, we describe those circumstances in detail for
comparative purposes.
On-Line Games involved the State Treasurer's award of a
contract for lottery services. Id. at 574. The award similarly
occurred after the Division of Purchase and Property's issuance
of an RFP. Ibid. The RFP included a provision stating that
"[f]ailure to furnish all required information or to follow the
proposal format specified in this RFP may disqualify a proposal."
Id. at 577. The RFP advised that the Director of the Division
"may waive any nonmaterial deviation in a proposal." Ibid.
Furthermore, the RFP stated that "[b]idders are given wide latitude
in the degree of detail they offer or the extent to which they
reveal plans, designs, systems, processes and procedures. At a
minimum, proposals must be fully responsive to the specific
requirements stated in this RFP." Ibid.
Following the Division's award of the contract in On-Line
Games, two unsuccessful bidders filed protests. Id. at 585. The
appointed hearing officer concluded from the record and testimony
23 A-3136-16T2
that the successful bidder had not clearly provided in its initial
bid for a visual display visible from fifteen feet, as was required
in the RFP. Id. at 586. Nevertheless, the hearing officer further
concluded that, because the successful bidder clarified after the
opening of the bids "that it would provide such a unit to fulfill
its commitment to meet all RFP requirements[,]" the contract award
could be made to that bidder. Ibid. The hearing examiner
concluded this was a permissible "clarification," rather than an
impermissible "supplement." Ibid.
Alternatively, the hearing examiner in On-Line Games reasoned
that, even if the failure to include mention of the display in the
selected bidder's original bid, followed by the bidder's later
promise or commitment to include such a display, comprised an
alteration, it was not a material one. Ibid. The hearing examiner
reached this conclusion, despite the fact that the RFP had
expressly stated that proposals "could not be supplemented,
changed or corrected, and that bidders had to comply with all of
the requirements." Id. at 587. The contract was thereafter
awarded to the same bidder. Ibid.
The Treasurer in On-Line Games agreed with the hearing officer
that the selected bidder's post-opening commitment in its
clarification letter to provide the required displays as part of
its base price did not represent an impermissible alteration. Id.
24 A-3136-16T2
at 588. The Treasurer further agreed with the hearing officer's
alternative finding that any deviation that may have occurred was
not material. Ibid.
After granting the unsuccessful bidders' request for a stay
of the award pending appeal and their request for acceleration,
this court in On-Line Games considered their plenary appeal and
reversed the award. We concluded that the selected bidder's post-
opening letter committing to meet all requirements of the RFP was
not a permissible clarification, but rather "an impermissible
modification of a materially deficient bid." Id. at 596. Although
the RFP had specifically allowed bidders to provide post-bid
clarifications, it prohibited modifications. Id. at 596-97. We
noted that "[i]n clarifying or elaborating on a proposal, a bidder
explains or amplifies what is already there." Ibid. (emphasis
added). By contrast, in "supplementing, changing or correcting a
proposal, the bidder alters what is there." Ibid. (emphasis
added).
We applied these same principles in In re Jasper Seating, 406
N.J. Super. at 225-26, in concluding that a bidder's price
quotation was materially defective and thus unresponsive. In that
case, we evaluated under the materiality test "a deviation in
[the] plaintiff's bids due to its inclusion of price escalation
stickers . . . ." Id. at 225. The plaintiff argued that the
25 A-3136-16T2
deviation allegedly caused by the price stickers displayed on its
catalog should have been waived. Ibid. The Acting Division
Director disagreed, and determined that the plaintiff's bids were
non-conforming. Id. at 220. We upheld that finding, concluding
that a waiver of such a deviation would fail the materiality test.
Id. at 225.
Addressing the first prong of the materiality test, we
observed in In re Jasper Seating that a "waiver would deprive the
State of its assurance that the contract will be entered into,
performed and guaranteed according to its specified requirements."
Id. at 225-26. Moreover, with respect to the second prong of the
materiality test, we concluded that "a waiver would adversely
affect competitive bidding by placing a bidder in a position of
advantage over other bidders or by otherwise undermining the
necessary common standard of competition." Id. at 226. We further
reasoned that if we were to allow a bidder "to choose one of the
two interpretations of its pricing, one with the price increase
and one without, after all of the bids are opened, would give it
an unfair advantage over the other bidders." Ibid.
We underscored in In re Jasper Seating that prior case law
had declared unlawful the waivers of material RFP deviations that
would, in effect, tolerate post-bid manipulation of the bidding
results. Ibid.; see Suburban Disposal, Inc. v. Twp. of Fairfield,
26 A-3136-16T2
383 N.J. Super. 484, 494 (App. Div. 2006). "Such post-bid
manipulations are repugnant to our public bidding laws." Ibid.
B.
Here, even affording all due deference to the expertise and
discretionary judgment of the Division and the Office of the State
Treasurer, we concur with Xerox that MSB's original pricing
submission materially deviated from the requirements of this RFP.
For one thing, MSB's pricing sheet failed to specify that printing
and postage costs were to be absorbed by MSB within its contingency
fee compensation, and that MSB was not expecting to be paid for
those extra costs, either by the motorists remitting the surcharges
or by the State.10
More critically, the lengthy footnote on MSB's pricing sheet
was clearly a material deviation from the RFP's requirement for
bids to set forth the full price to be charged by the contract
recipient. Undoubtedly, in declaring on the pricing sheet that
the transactional costs were subject to future "negotiations" with
the State and are "necessary" components to the pricing, MSB was
looking to be paid more for its services than only the respective
10
We offer no opinion, as a public policy or regulatory matter
under the motor vehicle surcharge laws, whether it is appropriate
to require payors to remit credit card or other transactional
fees, in addition to the surcharges due from them.
27 A-3136-16T2
4.35% and 10.0% contingent fee percentages reflected on the
spreadsheet.
Although the word "necessary" can be susceptible of various
meanings, see In re Taylor,
196 N.J. 162, 172-73 (2008), the term
has been defined in a prominent legal dictionary to connote "[t]hat
[which] is needed for some purpose or reason; essential" or as
"[t]hat [which] must exist or happen and cannot be avoided;
inevitable . . . ." Black's Law Dictionary 1192 (10th ed. 2014).
It is reasonable to construe the term "necessary" within MSB's
pricing footnote to signify that MSB reserved the right to withdraw
its bid if it were unable to persuade the State to allow it to
recover the identified transactional costs from either the
surcharge payors, or by reducing the State's yield from the
surcharge revenue collections, or both.11
In essence, MSB "hedged its bets" concerning this key pricing
element. The Division impermissibly allowed MSB to do so without
affording the same flexibility to the other bidder, Xerox,
concerning the recovery of the transactional costs. "The
conditions and specifications of . . . [a] bid must apply equally
11
We are unpersuaded by MSB's contention that the footnote
signified MSB's potential willingness to reduce its contingency
fee percentage. That interpretation is inconsistent with MSB's
assertion within the footnote of its objective to "maintain" the
pricing set forth on the spreadsheet.
28 A-3136-16T2
to all prospective bidders; the individual bidder cannot decide
to follow or to ignore these conditions . . . ." Hall Constr. Co.
v. N.J. Sports & Exposition Auth.,
295 N.J. Super. 629, 635 (App.
Div. 1996).
We reject the Division's treatment of the post-opening
discussions it had with MSB on this subject as mere
"clarification." The applicable regulation on the subject,
N.J.A.C. 17:12-2.11(d), allows a post-opening clarification from
a bidder to address a disparity between a unit price and an
extended price when the bidder's true intention is not readily
discernable from other parts of the proposal. Ibid. A
clarification also is permitted under N.J.A.C. 17:12-2.11(c) if
the bid contains an "obvious pricing error" that is noticed by the
Division's reviewers. Neither of those situations pertains here.
Unlike the "discrepancy" between MSB's narrative proposal and
its price sheet as to printing and postage costs noted in the
Director's final agency decision, the Director identified no such
discrepancy between MSB's narrative proposal and the pricing sheet
and footnote concerning transactional costs. Both MSB's narrative
and footnote consistently signify that MSB was expecting or hoping
to receive additional compensation for those costs, either from
surcharge payors or from State taxpayers through a reduction in
the net collections. At the very least, MSB's submissions on this
29 A-3136-16T2
component of the transaction were crafted to keep the door open
to receive such additional monies. But as Justice Francis noted
in Hillside, the proverbial door cannot be left "ajar."
25 N.J.
at 326.
Just as the bidder's purported post-bid "clarification" in
On-Line Games was disallowed by this court, so too must MSB's
"clarification" in this case relating to the transactional costs
pricing fail. As the RFP instructed in Section 6.6,
"[C]larifications cannot correct any deficiencies or material
omissions or revise or modify a proposal, except to the extent
that correction of apparent clerical mistakes results in a
modification." (Emphasis added). The lengthy footnote in MSB's
pricing sheet manifestly was not an "apparent clerical mistake."
It was not a typo of a pricing figure within the spreadsheet or
an arithmetic error. Instead, the footnote conveyed a purposeful
message that MSB regarded obtaining additional revenue for
transactional costs as "necessary" to the deal.
Although not mentioned in the Director's final agency
decision, the Attorney General alternatively argues in its
appellate brief12 that even if the post-opening withdrawal of MSB's
footnote had the effect of reducing MSB's overall price, the agency
12
MSB does not make this particular argument or rely on these
codified provisions in its own brief.
30 A-3136-16T2
had the authority to negotiate price reductions under
N.J.S.A.
52:34-12(a)(f) and N.J.A.C. 17:12-2.7(j). We do not believe those
provisions affect the circumstances here. For one thing, the
Division did not invoke this authority in its contract award or
in its bid protest ruling. Moreover, MSB never quantified a
"price" for the transactional costs in its pricing sheet, but
instead asserted that it would be "necessary" to be paid sums of
unspecified magnitude. In addition, Xerox was not afforded an
equivalent opportunity to submit such a "hedged" bid.
The Attorney General's argument also fails because the
Director's authority to negotiate price reductions under
N.J.S.A.
52:34-12(a)(f) "must be expressly set forth in the applicable
invitation to bid," i.e., the RFP. Here, the RFP in Sections 6.8
and 6.9 advised prospective bidders that the Director reserved the
right to negotiate price reductions "with the selected Bidder(s)."
(Emphasis added). The Division's post-opening communications with
MSB in November 2015 that resulted in MSB withdrawing its pricing
footnote and its expressed desire to receive extra compensation
for transactional costs occurred before, not after, MSB was
selected as the contract recipient in March 2016.13
13
Although we need not elaborate on the subject, we also reject
the Attorney General's reliance on N.J.A.C. 17:12-2.7(j). The
record does not establish, as that regulation requires, that all
31 A-3136-16T2
Further, we respectfully disagree with the Attorney General's
statement in its brief that "the Division did not allow MSB to
change or add anything to its bid . . . ." To the contrary, the
agency demanded such a change by insisting – twice – that MSB
withdraw its claim for additional compensation for handling credit
card payments and other transactional costs. MSB's original bid
was non-conforming, but the Division impermissibly allowed the bid
thereafter to be materially altered.
In reaching these legal conclusions, we ascribe no ill-
founded motives or any dereliction of duty on the part of the
agency's officials or employees. Indeed, MSB's ultimate
relinquishment of its position after the Division's prodding
appears to have resulted in an overall contract award that is far
less expensive than the one Xerox had quoted and which assigned
this important MVC project to a bidder that the Evaluation
Committee qualitatively ranked considerably higher. The "bottom
line" outcome seems to be in the public's financial interest.
Unfortunately, as On-Line Games and other case law teaches, we
cannot ignore the deficiencies in the bidding process that produced
bidders deemed to be in the "competitive range" were given notice
and an equal chance to take part in negotiations. See N.J.A.C.
17:12-2.7(j)(2) and (3). Xerox was only allowed to provide a Best
and Final Offer, a process distinct from direct negotiations. See
N.J.A.C. 17:12-2.7(j)(6) and (7).
32 A-3136-16T2
that outcome. "[T]he integrity of the bidding process is more
important than any isolated savings the State may obtain through
an irregular proceeding." On-Line Games,
279 N.J. Super. at 603.
III.
Unlike Xerox's pricing arguments, its other challenges to the
contract award to MSB are unpersuasive. Specifically, Xerox
maintains that: (1) the Division's extension of the bid deadline
was improper; (2) the Division improperly excluded from the
Evaluation Committee two State officials, whom Xerox had
identified as references, and gave insufficient weight to positive
comments they made about Xerox when they were interviewed; (3) the
Evaluation Committee failed to contact some of Xerox's other
customers as positive references; (4) the Evaluation Committee
scored MSB higher after initially favoring Xerox; (5) the
evaluations disproportionately criticized Xerox's staffing; and
(6) the Division failed to conduct an adequate financial analysis.
We reject all of these claims, substantially for the reasons
expressed in the Director's final agency decision.
Our sole comment concerns Xerox's argument respecting the
exclusion of two State officials, whom Xerox had named as
references, from the Evaluation Committee. Although their removal
may not have been required by laws or ethical mandates, we endorse
the Division's decision to recuse those officials from the
33 A-3136-16T2
Evaluation Committee, so as to assure that the Committee could
more freely undertake its internal discussions. N.J.A.C. 17:12-
2.7(a)(1) confers upon the Director the discretion to reject
proposed members or remove sitting members from an Evaluation
Committee in order to promote objectivity and guard against a
potential appearance of impropriety. That discretion was not
abused here. In any event, factual information from the two
officials about Xerox's performance under the prior contract was
conveyed to the Committee through interviews.
IV.
We conclude by addressing the thorny question of remedy. We
reject Xerox's request that the contract be awarded to it outright
rather than re-bid. We are unpersuaded that such a remedy would
be in the public interest, especially given the apparent multi-
million dollar pricing gap currently between the proposals of
Xerox and MSB, and the higher technical scores accorded to MSB by
the Evaluation Committee.
We instead conclude that the appropriate remedy here is to
re-bid the contract, in an expedited manner and with particular
(if not exclusive) focus on the pricing aspect of the project. We
presume MSB and Xerox will accordingly submit new bids, along with
any third parties who may choose to bid. We instruct the Division
to conduct such re-bidding on an expeditious basis and, if
34 A-3136-16T2
feasible, to consider utilizing a hearing officer to preside over
any fact-finding disputes.
An obvious practical concern stems from the fact that this
contract – in the absence of a stay – has been implemented by MSB
since October 2017 and continues to be carried out on an ongoing
basis. We were advised at the recent oral argument on the appeal
that the implementation of the new billing and collection system
is already substantially complete. Even if that is true, as MSB
correctly pointed out in opposing a stay in the fall of 2017,
there are over six more years of operation and revenue collection
to occur under the contract. The appeal has not become moot in
the interim.14
14
Following oral argument on the appeal, MSB, with the support of
the Attorney General, moved to supplement the record to address
remedial issues. Over the objection of Xerox, we granted that
motion, but limited our review to the motion submissions and did
not invite further certifications offered by counsel. MSB and the
State represent that the replacement of the STARS system is
substantially complete and that MSB's new billing system has been
deployed, although other steps under the contract have yet to be
completed. Even if, for the sake of argument, we accept at face
value these disputed representations about the extent to which the
contract has been implemented since last October, we are not
persuaded by MSB's argument that (1) Xerox's appeal is now moot;
and (2) it would disserve the public interest to re-bid because
MSB would be entitled to quantum meruit payments. First, unlike
a bidding appeal involving a completed highway construction
project, see Statewide Hi-Wat Safety, Inc. v. N.J. Dep't of
Transp.,
283 N.J. Super. 223, 225-26 (App. Div. 1995), this case
involves a service contract that has over six years remaining,
notwithstanding the systems development element which MSB claims
35 A-3136-16T2
We reject Xerox's suggestion that it immediately resume its
former incumbent role and step in in lieu of MSB in operating the
system during the interim while the contract is being re-bid. We
discern no reason to order such a disruptive (and, depending on
the outcome of the rebidding, potentially short-term) changeover.
Instead, MSB shall continue to carry out its duties as vendor
while the rebidding process is underway.15 Again, we stress that
the rebidding shall be performed expeditiously. More
specifically, we order that the rebidding and any new award be
completed no later than June 15, 2018, unless extraordinary
circumstances are demonstrated on motion to justify extending that
deadline.
Finally, we are cognizant that one or both respondents may
wish to pursue emergent review of our decision by the Supreme
to have largely completed. Thus, rebidding would not merely be a
hypothetical exercise. Cf. Redd v. Bowman,
223 N.J. 87, 104 (2015)
(stating that an issue is moot when the court's decision will have
no practical effect on the controversy). Secondly, without
deciding whether MSB would be entitled to any quantum meruit
payments if it is ultimately dislodged upon rebidding, we are
confident that the public interest in vindicating the competitive
bidding process justifies rebidding here.
15
We decline to resolve the parties' disagreement in their post-
argument motion submissions as to whether any factual disputes
should be referred to the Law Division pursuant to Rule 2:5-5(b),
or whether MSB would have a viable claim for quantum meruit
compensation in the hypothetical event that MSB failed to be
selected again as vendor after rebidding.
36 A-3136-16T2
Court before undertaking the rebidding process. Accordingly, we
stay our decision, sua sponte, for seven days to enable the filing
of such an emergent application with the Court. If such an
application is filed, the interim stay shall remain in effect (but
shall not affect the June 15 deadline) unless and until the Court
otherwise directs.
Affirmed in part, reversed in part, and remanded for
rebidding. We do not retain jurisdiction.
37 A-3136-16T2
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