Awarding Public Contracts Without Bidding: A Legal Guide for Public Entities
According to New Jersey's Local Public Contracts Law (LPCL), local public entities are typically required to publicly bid for proposals from vendors or service providers on any contract that exceeds $29,000. N.J.S.A.40A:11-4. While this public bidding requirement was adopted to protect against corruption by government officials and protect against wasting taxpayer money, the LPCL contains numerous exceptions. This article specifically addresses one of these exceptions and describes the procedural steps a public entity seeking exemption from the law's bidding requirement must follow.
As one of many exemptions from the requirement to publicly bid for contracts exceeding the bid threshold, N.J.S.A. 40A:11-5(1)(a)(ii) allows governmental entities to award contracts for “extraordinary unspecifiable services" without inviting bids. As such, there are two key issues for a local public entity hoping to avail itself of this exemption from the competitive bidding requirement. First, what constitutes extraordinary unspecifiable services (EUS)? Second, what is the procedure a public entity must follow to legally avail itself of the EUS exemption?
To qualify for an exemption from public bidding as EUS, services must be “specialized and qualitative in nature requiring expertise, extensive training and proven reputation in the field of endeavor." N.J.S.A. 40A:11-2(7); N.J.A.C. 5:34-1.2. Any local public entity seeking to award a contract without public bidding under the EUS exception must satisfy two procedural requirements. First, it must file a formal certificate that specifically describes how the services subject to the contract satisfy the EUS criteria. Second, it must publish notice of the contract award in an official newspaper.
Substantive Criteria of “EUS"
As defined by N.J.S.A. 40A:11-2(7) and N.J.A.C. 5:34-1.2, EUS means “services which are specialized and qualitative in nature requiring expertise, extensive training and proven reputation in the field of endeavor." According to N.J.S.A. 40A:11-5(1)(a)(ii), the EUS exception “shall be construed narrowly in favor of open competitive bidding, whenever possible…".
There are few published cases interpreting the EUS exception to public bidding. In Local 1081 of Communications Workers of America, AFL-CIO v. Essex County, 255 N.J. Super. 671, 680 (App. Div. 1992), the Appellate Court held that purchase of insurance coverage and consultant services fell within the LPCL exception for “extraordinary, unspecifiable services." Despite minimal case law on the EUS exception, N.J.A.C. 5:34-2.2 and guidance in N.J. Practice Series § 15:31 by the New Jersey Division of Local Government Services (“Division") help describe the nature of “specialized" and “qualitative" services.
Under N.J.A.C. 5:34-2.2 and Division guidelines, services that are “specialized" in nature require - and not merely benefit from - expertise, extensive training, and proven reputation. In fact, N.J.A.C. 5:34-2.2(a) and (b) states that the fact that the service “can only be provided by a single contractor (‘sole source’)" or the fact that the service “is in the nature of a personal, human, social or training services contract, or includes within its description such terms as ‘technical,’ ‘management,’ ‘consultant,’ or similar descriptions suggesting some special nature" is not sufficient to deem it a “specialized" service. As such, N.J.A.C. 5:34-2.2(b) specifically states that “the need for expertise, extensive training and proven reputation in the field of endeavor must be critical and essential to the project, and not merely a desire to have a reliable job performed." Also, N.J.A.C. 5:34-2.2(c) and the Division state that services “qualitative" in nature cannot be reasonably described by written specifications.
In N.J. Practice Series § 15:31, subsection 5:34-2.4, the Division lists examples of services that both satisfy and fail to satisfy the criteria for EUS. The Division believes the kinds of services that satisfy EUS criteria includes specification drafting , management consultant studies, labor management consultants, certified landscape architects, EDP preliminary feasibility surveys, design of systems and preparation of specifications, expert financial advisors, and public relations. Conversely, the kinds of services that do not meet EUS criteria include facilities management contracts, construction management contracts, equipment maintenance, tradesmen, and heating specialists.
Procedural Requirements of “EUS"
Any local public entity that awards a contract under the EUS provisions must satisfy two procedural requirements. First, a formal certificate that specifically describes how the services subject to the contract satisfy the EUS criteria must be filed with the governing body and kept with the resolution authorizing the contract. Although N.J.S.A. 40A:11-5(1)(a)(ii) requires only that the governing body “state supporting reasons for its action in the resolution awarding the contract", N.J.A.C. imposes stricter requirements. Under N.J.A.C. 5:34-2.3(b), “a designated administrative official of the contracting unit must file a certificate with the governing body clearly describing the nature of the work to be done, stating that it is not reasonably possible to draft specifications, describing the informal solicitation of quotations, and describing in detail why the contract meets the provisions of the statute and these rules." To satisfy this requirement, the Division requires that its standard certification format (available from the Division website) must be utilized. That certification must be kept with the resolution awarding the contract.
Second, pursuant to N.J.S.A. 40A:11-5(1)(a)(ii) and N.J.A.C. 5:34-2.3(c), the governing body must place a notice of the action in a newspaper. According to N.J.S.A. 40A:11-5(1)(a)(ii), that notice must “state the nature, duration, service and amount of the contract, and that the resolution and contract are on file and available for public inspection in the office of the clerk of the county or municipality." On its website, the Division provides a model “Notice of Contract Award".