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UPCOMING SEMINARS
For beneficial insight into the construction industry, attend one of Tesser & Cohen's Attorneys frequent seminars on construction related topics
The Fundamentals of Construction Contracts: Understanding the Issues
By Lee Tesser, Esq. & Stephen Winkles, Esq.
November 14, 2008
New Jersey Construction Lien Law
By Steven Cohen, Esq. & Stephen Winkles, Esq.
January 23, 2009
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Tesser & Cohen
· Robert Bennett, Esq. successfully obtained a $1.7 million judgment in a condo building construction litigation.
· Stephen Winkles, Esq. named partner at Tesser & Cohen. Congratulations to Stephen.
· Jonathan Bernstein, Esq. joined the firm as an associate. Jonathan Bernstein is a graduate from Rutgers Law School.
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DID YOU KNOW?
· The New Jersey Legislature is currently implementing major revisions to the Construction Lien Law, Tesser & Cohen has been asked to participate and comment on the revisions
· Bid protests on public projects must be initiated immediately or you can lose your rights
· American Arbitration Association rules allow claims of less then $75k to be handled to completion in less then 60 days. Do you have an Arbitration clause on your contract?
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PAY FOR PLAY STATUTE CONSTITUTIONAL
New Jersey prohibits any state agency from awarding a contract with a value over $17,500 to a contractor who has contributed more than $300 to any State or County political party committee. The constitutionality of this "pay for play" statute was challenged in the Appellate Division recently when Earle Asphalt Company was disqualified from bidding on an Interstate 195 contract.
Earle had previously made a $1,500 donation to the Republican Committee. When it learned of the prohibition, it requested a refund, which was issued 41 days after the contribution was made. According to the statute, a disqualified bidder is eligible to bid if it receives a refund within 30 days of the date it was
made.
Earle argued that the statute violates its First Amendment right to freedom of association and that it substantially complied with the refund provision by asking for the refund within 30 days.
The Appellate Division held that the Pay for Play statute is constitutional. It found that the State has an interest in insulating the award of State contracts from political contributions that pose the risk of improper influence or the appearance thereof. It found that this statute is a means of protecting that interest. The court noted that, although bids are awarded to the "lowest responsible bidder," state officials still exercise substantial discretion with regard to determinations of who is "responsible", whether bids conform to specifications, whether to reject all bids, whether to execute change orders and in resolution of disputes. In familiar language, the court stated that the interest in safeguarding against the appearance of impropriety requires that the opportunity for abuse inherent in the process of raising large monetary contributions be eliminated.
The court also rejected Earle's argument that it substantially complied with the statute. The elements of substantial compliance are:
1- the lack of prejudice to the defending party
2- a series of steps taken to comply with the statute
involved;
3- a general compliance with the purpose of the statute;
4- a reasonable notice of petitioner's claim, and
5- a reasonable explanation why there was not strict compliance with the statute
The court held that the request for the refund, without actual receipt of the refund, did not constitute "general compliance with the purpose of the statute" and that the only way to assure a refund is made is by the actual receipt of it.
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Tesser & Cohen
946 Main Street
Hackensack, NJ 07601
Phone: 201.343.1100
Fax: 201.343.0885
591 Broadway, 6th Floor
New York, NY 10012
Phone: 212.226.1900
For inquires about this newsletter or Tesser & Cohen, email us at newsletters@tessercohen
com
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OPPORTUNITY TO CURE
Construction projects of all size occasionally go bad. An unhappy owner, whether it's a residence or a commercial building, often reaches a point where it no longer wants the contractor on the project because of defective or incomplete work. One of the questions that frequently presents itself is whether the non-performing contractor has a right to fix its work rather than being terminated. While the termination clause of most commercial contracts govern the procedure and propriety of termination, there is a common law "opportunity to cure," which is recognized by New Jersey's appellate courts.
In Kousmine v. Bostic, plaintiff purchased a residential property at a sheriff's sale and hired Bostic's company to perform various repair and renovations tasks. Displeased with the work product, Kousmine banned Bostic from the job site and completed the work. She then sued him for the costs of completing the project.
The Appellate Division affirmed the lower court's decision that the owner is not entitled to damages from the banned contractor. "One who prevents a thing from being done may not avail himself of the non-performance which he himself has occasioned." Moreover, the owner's prevention of continued performance by the contractor is a breach of the contract, which allows the contractor to request damages resulting from the owner's breach. Citing Sons of Thunder, the court noted that The covenant of good faith and fair dealing mandates that one party shall not act to destroy or injure the right of the other party to receive the fruits of the contract.
In sum, contractors have a common law opportunity to cure their work and owners must beware of depriving them of that right.
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BIDDING-STANDING AND CHALLENGE TO SPECIFICATIONS
Publicly bid contracts are the lifeblood of many product suppliers throughout the country. In many instances, the primary product to be supplied represents a more substantial portion of the project than the money to be paid to the contractor who will install that product. Nonetheless, product suppliers, who are not direct bidders, have no legal ability to challenge the very specifications that preclude them from offering their product.
In a case challenging the propriety of an alleged "sole source" specification, the Appellate Division recently upheld the application of two long-standing principles. First, that only taxpayers, bidders, and prospective bidders may challenge the award of a contract to the successful bidder. Second, that any challenge to the propriety of a bid specification must be filed in writing no less than three business days prior to the opening of the bids.
In Jen Electric, Inc. v. County of Essex, the plaintiff was a vendor, which distributed the PEEK Traffic Control System line of products. The County publicly advertised for the submission of bids, which required the successful bidder to provide a traffic control system, video car detection devices and related electronic equipment. Prior to the bid, plaintiff objected to the County that the specifications improperly made it impossible for products to be considered the equal of those specified in the bidding documents. It argued that it could provide an equal traffic control system that was $650,000 less expensive than the one required by the specifications. The lower court dismissed Plaintiff's Complaint, holding that it did not have standing to challenge bidding specifications and denied its motion to amend the complaint to include one of the bidders because that bidder had not challenged the specifications in a timely manner. The Appellate Division addressed the issues on an expedited basis after the Supreme Court granted plaintiff's motion for a stay pending appeal.
Plaintiff argued that, although it was not a direct bidder, it should be considered a "prospective bidder" within the meaning of N.J.S.A. 40A:11-13(e) in order to foster the goals of the public bidding laws. It argued that its product is a substantial part of the overall bid and it is in the taxpayers' interest to have the most competitive bid. The Appellate Division rejected the argument, holding that a supplier is not a bidder or prospective bidder within the meaning of the statute and therefore had no standing to bring the action.
In denying Plaintiff's motion to amend the complaint to add a bidder, the lower court found that adding the bidder would be futile because it had not challenged the bid specifications prior to bid and was now beyond the time in which it could present a challenge. The Appellate Division agreed and affirmed the lower court's decision.
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NEW JERSEY FALSE CLAIMS ACT
The federal civil False Claims Act ("FCA") has been the federal government's favored weapon of enforcement in its antifraud initiatives, particularly in the construction industry. Through the FCA, the U.S. government recoups billions of dollars a year, while deterring fraud and recovering funds lost to fraud. New Jersey has now joined 20 other states and the District of Columbia in enacting its own version of the federal law to target alleged fraud by companies that do business with the State. On January 13, 2008, Governor Jon S. Corzine signed the New Jersey False Claims Act ("NJFCA"), which took effect 60 days later, on March 13, 2008. New Jersey's new statute mirrors the federal version, and invites suits by those that do business with the State or "any contractor, grantee, or other recipient of State funds." Federal officials have utilized the FCA to cover a broad range of alleged fraud against the government. The legislative history of the NJFCA suggests that New Jersey will do the same.
What Conduct Does The NJFCA Cover?
The following acts are prohibited by the NJFCA:
· Knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to an employee, officer or agent of the State, or to any contractor, grantee, or other recipient of State funds;
· Knowingly making, using, or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the State;
· Conspiring to defraud the State by getting a false or fraudulent claim allowed or paid by the State;
· Knowingly making, using, or causing to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the State;
· Having possession, custody, or control of public property or money used or to be used by the State and knowingly delivering or causing to be delivered less property than the amount for which the person receives a certificate or receipt;
· Being authorized to make or deliver a document certifying receipt of property used or to be used by the State and, intending to defraud the entity, making or delivering a receipt without completely knowing that the information on the receipt is true; or
· Knowingly buying, or receiving as a pledge of an obligation or debt, public property from any person who lawfully may not sell or pledge the property.
What is a False Claim?
Liability stems from submitting a claim to the government that is false. Claims are not limited to requests for compensation above and beyond the contract. Rather, they include requests for progress payments that are based on a representation of the percentage of work that has been completed.
What is "false" is a question that can only be answered by the Court's analysis of the NJFCA. In some circumstances, falsity is obvious, as in the situation where a contractor seeks payment for a product it never delivered or work it never performed. Not all situations are as easily defined. A request for payment could arguably be deemed false if the work for which the contractor seeks payment does not comply with contract specifications, even if the noncompliance results in a product with the same basic performance characteristics as those specified in the contract.
Questions of scientific or engineering judgment may result in claims that are difficult to characterize as true or false. The same is true of questions of interpretation of specifications, drawings, or other technical contract requirements. Another source of liability stems from a variety of laws and regulations that can apply to a contractor's contract performance in the fields of environmental law and wage and hour regulations. Under the NJFCA, a contractor could be liable for submitting a false claim if it violated applicable laws or regulations, but only if the government's payment of the claim was based upon the contractor's compliance with the law or regulation at issue.
Conclusion
The landscape on which claims are made and request for payment submitted has been dramatically altered in the state of New Jersey with the NJFCA. It is now critical that construction entities have an understanding of the ramifications of the conduct that violates the NJFCA and the consequences of the failure to comply. While the noble intent of the law is to put an end to the filing of false claims, the language of the NJFCA can create liability for contractors who do not examine their claims and their request for progress payment, through the lens of this new statute. |
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