Bidding Process in New Jersey Borough Leads to Legal Battle for Recycle Track Systems (RTS)

Hawthorne, New Jersey – situated about 20 miles north of Newark – is part of a vast area in the Northeast once inhabited by the indigenous Lenape also known as the Delaware. These people were displaced in the 1700s by Dutch immigrants who became farmers.  The municipality was formally established in 1898 when it was a thriving agricultural and residential community.  According to the local historical society, the borough has had only 16 mayors in 120+ years.

In December 2020, the borough invited bids for solid waste, yard waste and recycling collection services for a five-year period commencing April 1, 2021.  The specifications allowed bids with an aggregate price for all of the services or with prices for individual categories of materials.  

The announcement got only two responses.  Gaeta Recycling bid on the solid waste and recycling components with prices that were higher than those of Recycle Track Systems (RTS). RTS is a solid waste transportation broker, but it also has a waste hauling license and a certificate of public convenience and necessity (CPCN) to engage in solid waste hauling.

(Under New Jersey law, no entity may engage in the business of solid waste collection or disposal without satisfying the state Department of Environmental Protection (DEP) that it (a) is qualified by experience, training or education to engage in such business, (b) has furnished proof of financial responsibility, and (c) holds a DEP-issued CPCN.)

When RTS submitted its bid, it had itself never provided solid waste hauling services. It did not own or lease any garbage trucks or containers and had never disposed of solid waste at a licensed facility.  With hubs along the East Coast from Boston to Washington, D.C. and in Chicago and Dallas, RTS partners with local, independent haulers, “equipping them with proprietary routing technology and service team - to carry out all trash and recycling removal services for [its] clients,” according to the company’s website.

RTS was up-front with its plan. The company stated in its bid that, if awarded the contract, it would subcontract the work to B and B Disposals (B&B), a solid waste and recycling hauler, and that B&B would perform the contract using its equipment identified in an attached list. The list, however, was not made part of the bid, but RTS subsequently submitted the list.  At the time, B&B was under contract with the borough to provide solid waste and recycling hauling, an engagement it had held since 2016.  

          In an addendum to its bid, RTS stated:

               Our local subcontractor [for] the Borough of Hawthorne will be [B&B]. B&B is

               based in Hillside, New Jersey and has over fifteen years of experience serving

               municipal and commercial clients in North Jersey. Based on our prior work with

               them, we are confident in their ability to provide outstanding service to your

               community.  And, at the end of the day, we at RTS of course own all our contracts

               and take full responsibility for their successful completion .... We also own the

               performance bond, all customer service functions, and are your primary point of

               contact.

Because the borough’s bid specifications did not address participation by a subcontractor, RTS's bid did not include a copy of its agreement with B&B or any financial information about B&B.  Neither did the bid contain surety bond information or an insurance certification for B&B.

Gaeta submitted objections to the borough, noting what it perceived as deficiencies in the RTS bid. The borough's governing body – the mayor and the seven-member borough council – subsequently adopted resolutions rejecting Gaeta's protest and awarding the solid waste and recycling hauling contract to RTS.  RTS was found to have submitted a conforming bid and to be the lowest responsible bidder for the requested services.  

In making their decision, the elected officials relied on an opinion of the borough’s counsel that state law did not preclude RTS from bidding on the contract because of its status as a solid waste transportation broker nor from subcontracting the services to B&B.  In addition, the governing body concluded that the omitted list of B&B's equipment was not a material defect in the RTS bid because the company promptly provided it.  Moreover, the borough knew that B&B, as the current service provider, had sufficient equipment to perform the contract.

Gaeta filed a complaint in the Passaic County Superior Court challenging the award of the contract to RTS.  Gaeta alleged RTS was not a responsible bidder because it had no experience performing solid waste hauling services and did not own the equipment necessary to perform the contract.  Gaeta further alleged that, even if RTS were a responsible bidder, B&B (a stand-in for RTS) should be disqualified from consideration in the bidding process and, as a result, RTS could not lawfully subcontract with B&B.  

According to Gaeta, B&B could not be, on its own, a responsible bidder due to its sorry financial condition: unpaid tipping fees, insurance policy premiums, and workers' compensation premiums. Gaeta also claimed that the RTS bid was materially defective for (i) improperly delegating responsibility for the services by subcontracting to B&B, (ii) failing to provide insurance or ownership information for B&B, and (iii) submitting a list of B&B's equipment without proof that such equipment was available.

Gaeta asked the court to invalidate the award of the contract to RTS and either to award the contract to Gaeta or order the borough to rebid the contract.  Naturally, the defendants – the borough, RTS and B&B – opposed Gaeta's request for relief.  In March 2021, the trial court rejected Gaeta’s arguments and dismissed its complaint, thus upholding the contract awarded to RTS. 

Gaeta appealed, making the same arguments it had made to the trial judge and hoping this time to succeed.  To no avail.  A three-judge appellate panel found “no basis on which to reverse the trial court’s decision.”

Similar to legislation elsewhere, New Jersey law on public contracts requires that they be awarded "not simply to the lowest bidder, but rather to the lowest bidder that complies with the substantive and procedural requirements in the bid advertisements and specifications." Public entities, however, may waive certain non-material defects or allow them to be cured.  The legal test is two-fold: (1) whether a waiver would diminish the likelihood that the awarded contract would be performed in accord with all specifications; and (2) whether a waiver would benefit one bidder over other bidders or otherwise undercut the objectives of competitive bidding.    

“Any specifications adopted by the governing body for the collection or disposal of solid waste shall conform to the uniform bid specifications (UBS) for municipal solid waste collection contracts established pursuant to [state statute],” the appeals court said.  “The UBS establish[es] uniform bidding practices for municipal solid waste collection contracts in order to promote competition among solid waste collectors, protect the interests of consumers and to enhance the [DEP's] ability to adequately supervise the existence of effective competition. * * *  No regulation in the UBS prohibits a solid waste transportation broker from bidding on a public contract for solid waste hauling that will be carried out by a subcontractor who is a licensed solid waste hauler.  Nor is there a statutory bar to a solid waste transportation broker bidding on such a contract.” 

  “[T]he parties agree that RTS bid on the contracts in its role as a licensed solid waste transportation broker who openly stated that it intended to fulfill the contract through an identified subcontractor,” the panel continued.  “RTS's bid provides the municipality with an enhanced assurance that the contract will be performed. RTS acknowledged in its bid that if B&B failed to perform, RTS would be responsible for ensuring that the services are provided to the municipality.”

The appeals court further found that governing body acted appropriately when, shortly after the bids were opened, it allowed RTS to submit a list of equipment owned by B&B that would be used to perform the contract.  “The borough was familiar with that equipment, which had been used by B&B to successfully perform the current contract over almost five years,” the court wrote.  “The fact that RTS was permitted to correct its oversight of failing to attach the list identified in its bid did not give it an undue competitive advantage over Gaeta.”

Lastly, the panel believed that the trial court record supported the borough's conclusion that RTS had the experience necessary to perform the contract. “RTS has successfully acted as a broker of solid waste hauling contracts performed by subcontractors for other public entities,” the court noted.  “Importantly, RTS, which is also a licensed solid waste transporter, has a CPCN issued by DEP after a finding that RTS is ‘qualified by experience, training, or education to engage in such a business.’"      

Gaeta Recycling Co., Inc. v. Borough of Hawthorne, et al., No. A-2010-20, N.J. Super. Ct., App. Div., March 10, 2023.