Alternative Bidding and Manipulation in Waste Contracts

Public contracts, private contracts. A long-standing and widely used device in both realms is alternative bidding. By listing tasks or other work elements in various combinations and by seeing the related bids, a contract administrator can fashion a favorable scope of work. At the same time, alternative bidding is readily susceptible to manipulation—the owner effectively steers the work to a preferred bidder. When, in particular, a public procurement is challenged in court, judges can be both vigilant and tolerant.

Located about 15 miles north of Newark, N.J., the borough of Lodi is a small, tight-knit community dating back to 1894 and named for an Italian city. In accord with a bid notice and accompanying specifications, the borough awarded a one-year solid waste collection contract with the option to extend it for a second or third year to the lowest responsible bidder, Joseph Smentkowski, Inc. (JSI). Previously, Sterling Carting, Inc., the only other bidder, had been the contract hauler. 

Sterling, together with an ostensibly objective taxpayer, Barbara Ann Miller, filed suit in Bergen County Superior Court. (The plaintiffs did not disclose that Miller is married to a Sterling employee, but that failure and her relationship did not affect the case.) The complaint challenged the award of the contract based on the theory that Sterling was the actual lowest responsible bidder for the one-year contract the borough awarded. The plaintiffs also argued the borough misinterpreted an addendum requiring bidders to bid a separate amount for additional waste collection at eight schools by adding the amounts it bid to its bid price instead of treating them as an "apportionment." Miller also challenged the specifications themselves, claiming the ambiguities and inconsistencies Sterling identified required that both bids be rejected and the contract re-bid.

The trial judge temporarily halted the contract award to provide an opportunity to fully review the bid challenge. After both sides submitted legal arguments, the court denied plaintiffs' request for a permanent injunction and dismissed the complaint in its entirety. Plaintiffs' applications for special consideration were successively denied all the way to the state Supreme Court. Thereafter, a three-judge appellate panel agreed to hear the case on an expedited basis.    

The bid specifications were clear and unambiguous. The bidders had to bid on nine different service options, divided into categories, for one-year service periods over three years and for all service periods in all categories.

For its part, the borough could award the contract based upon the lowest responsible bid for whatever option it selected: (a) where the aggregate bid price for a one-year contract is the lowest responsible bid; (b) where the aggregate bid price for a two-year contract in the categories selected by the borough for such service period is the lowest responsible bid; or (c) where the aggregate bid price for a three-year contract in the categories selected by the borough for such service periods is the lowest responsible bid.

Although Sterling's bid for the first-year service period for the service options the borough chose was lower than JSI’s, its second- and third-year prices were higher, and its overall total bid price exceeded JSI’s.* As Sterling saw it, the award of a one-year contract (with only options to award the second- and third-year periods) should have been based strictly on the first-year dollar amounts. Thus, the borough should have awarded the contract to Sterling because its first-year bid price was lower. The appeals court was unpersuaded.

“Besides being a thinly-veiled challenge to the specifications [which court decisions prohibit] Sterling's theory ignores that [JSI] is firmly bound to hold its second and third year bid prices in accordance with the specifications,” said the appellate panel. “That the Borough left itself free not to exercise those options does not change that Sterling and [JSI] submitted bids for a three-year contract as required by the specifications, and the Borough chose to award the contract to the bidder whose aggregate bid price for a three-year contract constituted the lowest responsible bid, [JSI].”

After acknowledging that the borough could indeed sway the procurement by awarding the contract based on the three-year aggregate price and then not exercise the second- or third-year options, the panel added: “A contracting entity could likewise manipulate the process by awarding a three-year contract and cancelling for convenience after the first year.  * * * No one contests that a contracting entity can favor a bidder through its choice of bid alternatives . . . however, whatever manipulation may be possible is inherent in the nature of specifying alternates in the first place, a practice which is nevertheless accepted as a customary aspect of bidding. *  *  *  [T]he . . .  type of potential manipulation Sterling envisions by the inclusion of bid alternatives [does not] outweigh what we perceive to be the other objectives of public bidding."

Finally, the panel deemed frivolous Sterling's other argument—that the borough should have understood that its separate bid for the additional work described in Attachment 5, which the borough required by bid modification notice, was actually part of its Option Three Total.

* The parties' relevant bids on the options selected by the borough were as follows:

Sterling Carting, Inc., et al. v. Borough of Lodi and Joseph Smentkowski, Inc., No. A-4306-17T4, N.J. Super., App. Div., July 31, 2019

Barry Shanoff is a Bethesda, Md., attorney and general counsel of the Solid Waste Association of North America.