Tormee Construction, Inc. v. Mercer County Improvement Authority

669 A.2d 1369, 143 N.J. 143

• Court: Supreme Court of New Jersey
• Decided: February 6, 1996
• Status: Published

Opinions

The opinion of the Court was delivered by

POLLOCK, J.

In George Harms Construction Co. v. New Jersey Turnpike Authority, 137 N.J. 8, 644 A.2d 76 (1994) (Harms), we declared invalid, as inconsistent with public-bidding statutes, the designation of a particular labor organization as the sole source of labor for a public-construction project. On the facts of the present case, we likewise find invalid a specification requiring contractors to enter into a “project labor agreement” (PLA) with “appropriate labor organizations.”

-I-

On March 16, 1995, the Mercer County Improvement Authority (MCIA) solicited bids for a construction project captioned “Mercer County Library Phase One” (Phase One). Phase One involved a series of contracts for additions and alterations to the Ewing Township, Hopewell Township, and Lawrence Township branches of the Mercer County Library System. Subsequently, the MCIA advertised for bids for “Phase Two,” which involved similar renovations to other branches in the system.

Included in the Phase One bid package, along with general project documents and specifications, was a copy of Executive Order 94-2, signed by the county executive. The executive order directed “that for appropriate construction projects, there be included in the bid specifications that each contractor, and subcontractor must sign a project agreement which will be negotiated by the construction manager, or the architect of the project, and the appropriate Building and Construction Trade Unions.” This “Project Agreement” was to “establish the hours of work, wage rates, fringe benefits, dispute and grievance procedure, and any other terms that may be necessary to ensure a harmonious relationship between the parties.” The order justified the “Project Agreement” provision as necessary to avoid “labor strife” and to ensure the timely and orderly completion of the project.

The deadline for the receipt of the bids was April 13,1995. In a letter of April 6, 1995, addressed to MCIA’s attorney, the Associated Builders & Contractors, Inc. (ABC) (a construction industry trade organization with a constituency of approximately 200 nonunion firms), the Utility & Transportation Contractors Association of New Jersey (UTCA) (a construction-industry trade organization whose members include prospective subcontractors), and Tormee Construction, Inc. (Tormee) (an “open shop” contractor unaffiliated with any union) questioned the legality of the MCIA’s Project Agreement. Consequently, in a second addendum, the MCIA extended the date for the receipt of bids.

On April 20, 1995, the MCIA sent prospective bidders Addendum No. 3, which made numerous changes to the bidding documents. The first change replaced Executive Order 94-2 with Executive Order 95-1. This new order required that

for appropriate construction projects, there be included in the bid specification that each contractor, and subcontractor must sign a project agreement which will be negotiated by the construction manager, or the architect of the project, and an appropriate labor organization in the building and construction industry.

The second change included a definition of “Appropriate Labor Organization.” Addendum No. 3 defined an “appropriate labor organization” as

an organization representing journeymen in one or more crafts or trades listed in N.J.A.C. 12:60-3.2, for purposes of collective bargaining and which has (1) entered into a labor agreement with an employer in the building and construction industry, (2) has represented journeymen, mechanics and apprentices employed in projects similar to the contracted work, and (3) has the present ability to refer, provide or represent sufficient numbers of qualified journeymen in the crafts or trades required by the contract to perform the contracted work.

Allegedly motivated by concerns for labor peace, quality of work, and efficient construction schedules, the MCIA adopted Resolution 95-62 on April 24,1995. That resolution declared that the library projects were appropriate for PLAs. Neither in that resolution nor elsewhere did MCIA express the reasons justifying the PLA. Under MCIA policy, however, a successful bidder, to receive the award of the contract, must enter into a PLA with “appropriate labor organizations.”

The PLA was to include a procedure for the resolution of grievances and jurisdictional disputes and for the elimination of the possibility of strikes, work stoppages, and lockouts. Addendum No. 4 set April 27, 1995, as the date for the receipt of bids. The total contract price was approximately $6.03 million, and the project was scheduled to last a maximum of 420 calendar days.

Tormee, ABC, UTCA, Thomas Emick (a non-union worker), and Joseph Landolfi (a resident and taxpayer of Mercer County) (collectively “plaintiffs”) filed an action in lieu of prerogative writ to restrain the MCIA from receiving bids and to declare the PLA invalid. On April 27, 1995, the Law Division found the PLA valid and dismissed the complaint. The Appellate Division denied plaintiffs request for a stay. Although we denied a stay, we granted direct certification. 141 N.J. 90 (1995).

On May 22,1995, the MCIA, through Resolution 95-105, awarded the contracts for the library projects. We heard oral argument on September 11, 1995. On September 20, 1995, we issued an order declaring invalid the PLA specification in Phase Two and directing the removal of that specification from the bid documents.

-II-

In Harms, we analyzed the substantive law relating to the validity of PLAs. No useful purpose would be served by repeating that analysis here. Suffice it to state, the validity of a PLA is primarily a matter of state law. Harms, supra, 137 N.J. at 24-27, 43, 644 A.2d 76. The most recent decision of the United States Supreme Court, Building and Construction Trades Council v. Associated Builders & Contractors, Inc., 507 U.S. 218, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993) (Boston Harbor), did not preempt state courts from considering the validity of a PLA. Harms, supra, 137 N.J. at 26-27, 644 A.2d 76.

The basic policy underlying the Local Public Contracts Law, N.J.S.A 40A:11-1 to -49, is to promote competition and combat corruption in public bidding. Cubic W. Data, Inc. v. New Jersey Turnpike Auth., 468 F.Supp. 59, 63 n. 4 (D.N.J.1978). Harms involved a PLA that specified the use of a solitary labor organization. Here, in contrast, the MCIA’s PLA requires dealing with “appropriate labor organizations.” Although less restrictive than the PLA in Harms, the subject PLA still contravenes the underlying purposes of public-bidding laws. Under the specifications and definitions of the MCIA PLA only two kinds of labor organization could qualify: an organization like the Building Trades Council, “comprised of several different unions representing various crafts,” Harms, supra, 137 N.J. at 24, or a multi-craft union, the members of which perform a variety of construction tasks. That restriction, like the one limiting the choice to a single labor organization, binds too tightly to satisfy the statutory requirements for bidding on local public contracts.

By any test, contracts for public improvements are among the most important contracts that public entities enter. 34 Michael A. Pane, New Jersey Practice, Local Government Law § 204 at 343 (2d ed. 1993). Taxpayers have an interest in assuring that public entities are cost-effective in spending public funds. Accordingly, the State’s competitive-bidding statutes direct that all contracts requiring public advertisement for bids “shall be awarded to the lowest responsible bidder.” N.J.S.A. 40A:11-6.1. That direction guards “against favoritism, improvidence, extravagance and corruption” in the -awarding of state and municipal contracts. Terminal Constr. Corp. v. Atlantic County Sewerage Auth, 67 N.J. 403, 410, 341 A.2d 327 (1975). As we stated in Harms, “[a]voidance of any potential for contract manipulation is a central theme of all public-bidding doctrine.” 137 N.J. at 38, 644 A.2d 76.

Competitive public bidding obviously fosters competition among bidders. The more companies that can bid on a project, the greater the likelihood that the public entity will receive the lowest possible contract price from responsible bidders. Skakel v. Township of North Bergen, 37 N.J. 369, 378, 181 A.2d 473 (1962).

PLAs can contravene the goals of competitive bidding. By mandating that workers belong to certain limited labor organizations, PLAs restrict bidders to contractors with relationships with those labor organizations. The obvious effect of such a restriction is to lessen competition. Additionally, PLAs can increase labor costs by excluding or reducing the number of employable nonunion workers.

In some situations, however, PLAs can serve useful purposes. By preventing the expiration of collective bargaining agreements of various unions during the term of a construction contract, a PLA can provide substantial public benefits and resolve disputes among the trades working on the project.

Recently, the Appellate Division of the New York State Supreme Court sustained a PLA. New York State Chapter, Inc. v. New York Thruway Auth., 620 N.Y.S.2d 855, 207 A.D.2d 26 (1994), leave to appeal granted, 86 N.Y.2d 703, 631 N.Y.S.2d 607, 655 N.E.2d 704 (1995) (New York Thruway). In New York Thruway,' the Appellate Division held that the Thruway’s use of a PLA was a valid bid specification that did not violate the competitive-bidding requirements of New York law. Id. at 856, 207 A.D.2d 26. That case, which involved the refurbishment of the Tappan Zee Bridge, exemplifies the exceptional circumstances that could justify recourse to a PLA.

“[According to the Thruway Authority, [it] is the largest such construction project in size, complexity and cost since the bridge was constructed.” Ibid. The project “would subject the work to the jurisdiction of some 19 local unions with separate labor contracts having different starting times, scheduling restrictions, holidays, grievance resolution procedures, and other terms and conditions of employment.” Ibid. The Thruway Authority directed its own consultant to negotiate with the various trade unions having jurisdiction over the work to be performed. It also directed the consultant

to seek concessions from all the unions concerning work rules and other terms and conditions. The result of the consultant’s efforts was the PLA which, inter alia, creates uniform procedures for dealing with all disputes, contains a comprehensive no-strike clause, establishes a standardized work week, permits flexibility in scheduling, and contains other provisions which, according to the Thruway Authority, standardize the terms and conditions of employment and will reduce the cost of the project.

[Id. at 856-57, 207 A.D.2d 26.]

Significantly, the PLA allowed contractors and subcontractors to retain up to twelve percent of them current work force. The PLA specifically recognized that the successful bidder need not be a union contractor and that the unions must comply with the terms of the PLA whether the successful bidder was a union or nonunion contractor. Furthermore, the PLA expressly prohibited discrimination against prospective employees on the basis of union membership. Workers were not required to join the union. The PLA also recognized the right of the contractors to determine the competency of workers, to select workers to be laid off, and to use any other source of workers if a union hall did not refer workers within forty-eight hours. On those facts, the court held that the PLA did not conflict with public-bidding laws.

In contrast, the improvements to the MCIA library system lack the scope and complexity of the New York Thruway project. Furthermore, the MCLA’s PLA did not permit contractors to hire a stated percentage of their non-union employees. The MCIA merely attached to the bid specifications for Phase Two a model form that neither bound the “appropriate labor organizations” nor assured coordination among them. In essence, the MCIA’s PLA, contrary to public-bidding laws, impermissibly restricts contractors to a union-only work force. Harms, supra, 137 N.J. at 39, 644 A.2d 76.

The PLA, moreover, conflicts with the policy underlying Executive Order No. 11 signed by Governor Christine Todd Whitman on March 21, 1994. That order contemplates that state agencies might include a PLA in a public works project on a “project by project basis where it has been determined that such project agreement will promote labor stability and advance the state’s interest in cost, efficiency, quality, safety and/or timeliness.” Although not binding on local public contractors, the executive order represents state policy. As we read it, the executive order does not contemplate the use of PL As on routine construction projects. The MCIA project is, in our judgment, such a project. Whether measured by dollars, estimated time for construction, or complexity of the project, the MCIA project does not justify a PLA limited to two unions. Although the total cost of the project might seem large by some standards, the sum is not substantial when compared to the $425 million cost of the tunnel in Boston Harbor or the $1 billion cost for the work on the Tappan Zee Bridge in New York Thruway.

In reaching that result, we recognize that the Legislature is better suited than the judiciary to determine “the size, complexity and cost” of projects that justify recourse to a PLA. New York Thruway, supra, 620 N.Y.S.2d at 856, 207 A.D.2d 26. We also believe that the Legislature is better suited to accommodate the several interests of labor, management, and the public. Harms, supra, 137 N.J. at 45, 644 A.2d 76. Until such time as the Legislature acts, however, we are obligated to adjudicate such bid specifications ease-by-case.

Our dissenting colleagues repeat the same arguments that they originally advanced and that we rejected in Harms. To support their position, they rely on a string citation of eases from other jurisdictions. Post at 157-159, 669 A.2d at 1376-1377. Because we rely on the New Jersey competitive-bidding statutes, cases based on statutes from other jurisdictions are of little help. The cases cited by the dissent, moreover, are readily distinguishable. General Building Contractors of New York State, Inc. v. Dormitory Authority of the State of New York, 620 N.Y.S.2d 859, 210 A.D.2d 788 (1994), leave to appeal granted, 86 N.Y.2d 703, 631 N.Y.S.2d 607, 655 N.E.2d 704 (1995), decided on the same day as New York Thruway, involved a project of indeterminate cost, size, and duration. Phoenix Engineering, Inc. v. MK-Ferguson of Oak Ridge Co., 966 F.2d 1513 (6th Cir.1992), cert. denied, 507 U.S. 984, 113 S.Ct. 1577, 123 L.Ed.2d 146 (1993), and Associated Builders & Contractors, Inc. v. City of Seward, 966 F.2d 492 (9th Cir.1992), cert. denied, 507 U.S. 984, 113 S.Ct. 1577, 123 L.Ed.2d 146 (1993), involved claims based on federal, not state, law. The PLA in Minnesota Chapter of Associated Builders & Contractors, Inc. v. County of St. Louis, 825 F.Supp. 238 (D.Minn.1993), required the successful bidder to recognize a specific union as the bargaining agent for all employees, contrary to Harms. In Glenwood Bridge, Inc. v. City of Minneapolis, 940 F.2d 367 (8th Cir.1991), the Eighth Circuit Court of Appeals directed the entry of a preliminary injunction for a contractor who was the low bidder on a bridge construction contract. After opening of the bids, the City of Minneapolis tried to condition the award, among other things, by requiring the contractor to agree to a PLA The Eighth Circuit directed the United States District Court to enter a preliminary injunction ordering the city to award the contract without the PLA, provided the successful bidder posted a bond. The opinion hardly constitutes an endorsement of the PLA in the present case.

The judgment of the Law Division is reversed, and the matter is remanded to it for entry of a judgment consistent with this opinion.