Title: M.J. Paquet, Inc. v. New Jersey Department of Transportation

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). ZAZZALI, J., writing for a unanimous Court. The Court addresses whether an equitable adjustment should be awarded to a successful bidder of a public contract whose performance is rendered impracticable during the course of the contract. In 1992, the Department of Transportation (DOT) solicited bids for a contract to rehabilitate several highways and bridges in New Jersey. As part of its bid submission, M.J. Paquet, Inc. (Paquet) used an estimate submitted by a potential subcontractor for the bridge painting work on the contract. Paquet's total bid for the bridge painting work was $826,473.50, which included its thirty-percent mark-up for costs, overhead, and profit. Shortly before the bid submission deadline, Paquet received a significantly lower estimate of $450,414 for the bridge painting work from O.J. Painting. Rather than redoing its bid submission, Paquet did not amend the original figure for the bridge painting work; instead, it lowered the price of several of the other common items in the contract to offset the inflated price of the bridge painting work. This unbalanced bid was submitted by Paquet to DOT. As the lowest bidder, Paquet was awarded the contract. After the DOT awarded the contract to Paquet, the Occupational Safety and Health Administration (OSHA) issued revised regulations in respect of the cleaning and painting of existing bridges containing lead-based paint. Those regulations directly affected the bridge painting work in the Paquet-DOT contract. As a result, Paquet informed DOT that compliance with the new regulations would cause Paquet to incur substantial and unanticipated costs. Paquet requested additional compensation. Rather than agreeing to pay Paquet the requested additional compensation for the work, DOT decided to excise the bridge painting from the contract. DOT notified Paquet that it was deleting the bridge painting work from the contract in the amount of $826,473.50. Paquet filed a Contractual Notice Form objecting to DOT's removal of the bridge painting work. The parties could not settle their dispute through the alternative dispute resolution procedure set out in the contract . Thereafter, Paquet filed suit against DOT, claiming that DOT was not authorized to delete the painting work from the contract and, in the alternative, DOT could not delete the entire amount of $826,473.50 listed in the contract for bridge painting work. The trial court found that DOT properly deleted the bridge painting work. The court held that the new OSHA regulations had significantly changed the circumstances surrounding the contract; therefore, the contract was impossible to perform. The court also held that the entire amount of $826,473.50 should not have been deleted because Paquet was entitled to an equitable adjustment. The court awarded Paquet $375,000. On appeal, the Appellate Division affirmed the trial court's decision that DOT properly deleted the bridge painting work from the contract, but reversed the equitable adjustment award, finding that such an adjustment was not warranted because DOT specifications prohibited unbalanced bids and purportedly barred recovery. The Supreme Court granted Paquet's petition for certification. HELD: The Department of Transportation properly deleted the bridge painting work from the contract pursuant to the principle of impracticality. However, under the unique circumstances of this case, Paquet is entitled to an equitable adjustment. 1. The requirements imposed by the revised OSHA regulations for the bridge painting work did not materially change the character of the work, thereby requiring completion by the contractor pursuant to Specification 104.07. The essence of the bridge painting work remained the same. Rather, the revised OSHA regulations created new and unforseen work that was essential to the satisfactory completion of the project. Moreover, this new work was not covered under any of the various pay items for which there was a bid price. Therefore, the revisions constitute Extra Work as defined in the contract specifications, specifically Specification 104.08. As extra work, several options were available to DOT, including its choice of electing not to have Paquet perform the extra work. That decision was within DOT's discretion pursuant to Specification 104.08 of the contract. (Pp. 8-13) 2. DOT correctly deleted the bridge painting work from the contract pursuant to the principle of impracticality. The revised OSHA regulations triggered the impracticality as Paquet could not complete the work without additional adequate compensation and DOT did not consent to pay the excessive amount that it claimed Paquet sought for the additional work. Thus, both parties' performance under the contract became impracticable. (Pp. 13- 17) 3. The 1989 DOT Specifications incorporated into the Paquet-DOT contract do not provide for an equitable adjustment. Moreover, New Jersey has not adopted the concept as a form of equitable relief in public contracts. However, federal law provides guidance. Typically, public contracts involving the federal government contain equitable adjustment clauses safeguarding the contractor in circumstances where the government modifies the contract, thereby increasing or decreasing the cost to the contractor for the work to be performed. Some federal courts have applied the principle generally, without reference to a particular clause in the contract. Several states also provide for equitable adjustments in public contracts. (Pp. 17-20) 4. Paquet submitted a bid that contained an inflated amount for the pay items relating to the bridge painting work and an understated amount for other pay items in the contract; therefore, the bid was unbalanced within the meaning of Specification 102.08. The Court disagrees with the Appellate Division's holding that Specification 102.08 prohibits granting an equitable adjustment in this appeal for two reasons: 1) Specification 102.08 is ambiguous and should therefore be construed against the drafter - DOT; and 2) even assuming Specification 1023.08 was not ambiguous and that it denies Paquet relief by its plain language, the Court would nonetheless find in favor of Paquet given the unique circumstances presented here. (Pp. 20-23) 5. Because the phrase claim for additional compensation may be subject to varying interpretations, Specification 102.08 is ambiguous. Both Paquet's and the DOT's interpretations of its meaning are plausible; therefore, the ambiguous phrase must be construed against DOT. Thus, Specification 102.08 does not bar Paquet from seeking an equitable adjustment from DOT. (Pp. 23-28) 6. Even if there were no ambiguity, independent equitable grounds exist necessitating an equitable adjustment. The policy reasons behind the prohibition against unbalanced bids -- to guard against fraud, collusion, front-end loaded bids and the deterioration of fair competition -- are not implicated here. Because Paquet did not submit its unbalanced bid with any illicit motive, there is no justification for penalizing it for doing so. Further, given the unique facts presented here, it is not anticipated that this holding will diminish Specification 102.08's deterrent effect on contractors who do submit unbalanced bids intending to manipulate the system to their advantage. Finally, the DOT would be unjustly enriched if it were permitted to delete the entire original bid cost of the bridge painting work nor will DOT be required to pay more under the contract than it would have paid in the absence of the revised OSHA regulations. (Pp. 28-31) 7. This holding is limited to the unique facts and circumstances presented here. (P. 31) Judgment of the Appellate Division is AFFIRMED IN PART and REVERSED IN PART and the matter is REMANDED to the trial court for a determination of the amount of equitable adjustment. CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, LONG, VERNIERO, and LaVECCHIA join in JUSTICE ZAZZALI's opinion. SUPREME COURT OF NEW JERSEY A-84- 00 September Term 2000 M.J. PAQUET, INC., Plaintiff-Appellant, v. NEW JERSEY DEPARTMENT OF TRANSPORTATION, Defendant-Respondent. Argued October 9, 2001 _ Decided April 4, 2002 On certification to the Superior Court, Appellate Division, whose opinion is reported at 335 N.J. Super. 130 (2000). Paul Z. Lewis argued the cause for appellant (Lewis & McKenna, attorneys; Mr. Lewis, Vittorio S. LaPira and Michael C. Delaney, on the briefs). Thomas H. Shar, Deputy Attorney General, argued the cause for respondent (John J. Farmer, Jr., Attorney General of New Jersey, attorney; Nancy Kaplen, Assistant Attorney General, of counsel). John F. Neary submitted a brief on behalf of amicus curiae, Construction Industry Advancement Program of New Jersey (Connell Foley, attorneys). The opinion of the Court was delivered by ZAZZALI, J. This appeal requires the Court to determine whether an equitable adjustment should be awarded to a successful bidder of a public contract whose performance is rendered impracticable during the course of the contract. M.J. Paquet, Inc. (Paquet) submitted an unbalanced bid for a contract with the New Jersey Department of Transportation (DOT) to rehabilitate several highways and bridges in New Jersey. The DOT awarded Paquet the contract. Nearly one year later, the Occupational Safety and Health Administration (OSHA) issued revised regulations substantially affecting Paquet's performance of the bridge painting work. After the parties could not agree on an increased amount for the bridge painting work, the DOT deleted that work from the contract. Thereafter, Paquet commenced this action seeking legal and equitable relief. The trial court found that the DOT properly had deleted the bridge-painting work from the contract, but nonetheless awarded Paquet an equitable adjustment for the other tasks that the contractor had completed. The Appellate Division upheld the DOT's right to delete the bridge-painting work, but denied Paquet any equitable adjustment. M.J. Paquet v. New Jersey Dep't of Transp., 335 N.J. Super. 130, 144 (App. Div. 2000). The panel reasoned that such an adjustment was not warranted because DOT specifications prohibited unbalanced bids and purportedly barred recovery in this setting. Ibid. Thus, the court concluded that under the express terms of the contract Paquet was not entitled to any portion of the $826,473.50 deleted from the contract. We granted Paquet's petition for certification. 167 N.J. 635 (2001). pertinent part, that [t]he Department reserves the right to require Extra Work as needed for the satisfactory completion of the Project. Such work will be designated as Extra Work when it is determined by the Engineer that such work is not covered by any of the various items for which there is a bid price or by combinations of such items. . . . The Contractor shall do such Extra Work . . . upon receipt of a Change Order, Field Order, or Supplementary Agreement and in the absence of such he shall not perform, nor be entitled to payment for, such Extra Work. Payment for Extra Work required pursuant to the provisions in this Subsection, will be made as provided in Subsection 109.03 [on a [f]orce [a]ccount basis], or as agreed to in a Supplementary Agreement. If the Contractor and the Engineer cannot agree on a Supplementary Agreement for Extra Work and the Engineer, in his sole discretion, deems it inadvisable to have such work completed on a Force Account basis . . ., the Commissioner may elect to have such work completed by others, and the Contractor shall not interfere therewith nor have any claim for additional compensation as the result of such election. [(Emphasis added).] The Appellate Division upheld the trial court's determination that Specification 104.08 was applicable. We agree. The requirements imposed by the revised OSHA regulations for the bridge painting work did not materially change[] the character of the bridge painting work. The essence of the bridge painting work - cleaning and painting the affected bridges - remained the same. Rather than changing the character of the work, the revised OSHA regulations created new and unforeseen work that was essential to the satisfactory completion of the project. Moreover, this new and unforseen work was not covered by any of the various Pay Items for which there is a bid price, and therefore constitutes Extra Work as defined in Specification 101.03. The requirements imposed by the revised OSHA regulations were new because those requirements had not been imposed previously for the bridge painting work. The revised OSHA regulations mandated that extra tasks be performed to assure the safety and health of the workers. Paquet, supra, 335 N.J. Super. at 137 (emphasis added). Likewise, the requirements were unforeseen because the parties could not have anticipated their promulgation. Similarly, the work dictated by the new regulations was not covered by any of the various pay items for the bridge painting work. Finally, the new regulations were compulsory and, therefore, were essential to the satisfactory completion of the project. Because the requirements imposed by the revised OSHA regulations for the bridge painting work were more properly characterized as Extra Work as set forth in Specifications 101.03 and 104.08 respectively, several options were available to the DOT. The DOT could have negotiated a Supplementary Agreement with Paquet to perform the extra work at a negotiated price; it could have issued a Change or Field Order obliging Paquet to perform the work on a force account basis; or it could have elected not to have Paquet perform the extra work. It chose the last option. That decision was within its discretion pursuant to Specification 104.08. omitted). We agree. In reaching its decision, the Appellate Division cited Directions, Inc. v. New Prince Concrete Construction Co., 200 N.J. Super. 639 (App. Div. 1985), in which the grant of summary judgment in favor of the plaintiff subcontractor was reversed because a DOT directive rendered the defendant contractor's performance under the contract impracticable. Id. at 644. The New Prince panel relied on Sections 261 and 264 of the Restatement (Second) of Contracts (1979), which discuss the principle of impracticability. New Prince, supra, 200 N.J. Super. at 644. Section 261, Discharge by Supervening Impracticability, states: Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non- occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. Section 264, Prevention by Governmental Regulation or Order, provides that [i]f the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made. According to section 264, if a governmental regulation renders a party's performance under a contract impracticable, it is unnecessary to prove under section 261 that the parties had a basic assumption that the event which made the party's performance impracticable would not occur. The promulgation of the revised OSHA regulations rendered the parties' respective performances under the contract impracticable because the parties could not agree on a price for the bridge painting work as modified. Thus, pursuant to section 264, the DOT is not required to prove that the parties had a basic assumption when they entered into the contract that the cost of the bridge painting work would not increase substantially due to revised governmental agency regulations. Here, the DOT correctly deleted the bridge painting work from the contract pursuant to the principle of impracticability. The essence of the principle is that a party's performance under a contract is rendered impracticable by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made. Restatement (Second) of Contracts, supra, 261. In this case, OSHA's revised regulations governing lead paint removal and the painting of existing structural steel surfaces triggered the impracticability. Paquet would have had to expend substantial, unanticipated costs to complete its performance of the bridge painting work. Paquet claimed it could not perform the additional work, work that was inextricably intertwined with the original painting work, unless it received adequate compensation. The DOT did not consent to pay the excessive amount of compensation that it claimed Paquet sought for the additional painting work. Thus, both parties' respective performances under the contract became impracticable. We therefore hold that the DOT properly deleted the bridge painting work from the contract pursuant to the principle of impracticability. NO. A-84 M.J. PAQUET, INC., Plaintiff-Appellant, v. NEW JERSEY DEPARTMENT OF TRANSPORTATION, Defendant-Respondent. DECIDED April 4, 2002 Chief Justice Poritz