Public Purchasing,New Jersey, &

Local Government

Guide to Public Procurement

Rules and Regulationsthat apply to procurement

Procurement:

The process of acquiring with money goods & services, including construction and property

Government Procurement:The process of acquiring thesegoods and services on behalfof a public authority generallyusing in part public funds

Government Procurement has Legal Rules and Regulations put in place:

To prevent fraud,waste or corruption

To ensure transparencywhen spendingpublic funds

Why is a job in Public Procurement and knowing

these Rules and RegulationsImportant?

Corruption Headlinesit happens……………..

“Jersey City Officials allege the Mayor’s aides tried to steer a contract to energy company……”

“3rd Contractor pleads guilty in Department of Corrections bid-rigging scandal…..”

“BOE Business Administrator Charged with Bribery in Bid-rigging Scandal…..”

“Burlington County Mayor is charged with obstructing justice in a school board bid rigging probe….”

Prior to the Middle Ages Goods and Services were transfers from one person to another in exchange for other goods or services or with what was used as currency. This usually would happen at a central location, known as a Market, where people could network and barter.

A long, long time ago…....

During the Middle Ages, a body of customary rules and principles relating to merchants and mercantile transactions was formed by traders for the purpose of regulating their dealings. This became known as:

Law Merchant

The Law Merchant became the backbone in the infancy of a new country taking shape.

By the end of the seventeenth century though, Law Merchant was replaced by the Common Law.

And by 1892, at the federal level the United States formed the Uniform Law Commission (ULC) to create “uniform” commercial laws.

A long time ago…..

The Uniform Law Commission officially took on the task of drafting a comprehensive code to provide guidelines for all commercial transactions in 1940.

In 1942, the ULC and the American Law Institute joined in a partnership that put all the component commercial laws together in a comprehensive Uniform Commercial Code that was offered to the states for their consideration in 1951.

Not that long ago…..

Uniform Commercial Code (UCC)“The Law of the Land when doing business”

The UCC is a model code that reflects the common law for commercial transactions.

The UCC is not a law by itself, rather, it must be enacted into law by each state in order to take effect in that state.

Uniform Commercial Code &

New Jersey

New Jersey has adopted many Articles of the of UCC.

Beyond Article 2 which outlines sale transactions of the UCC, the remaining UCC articles are largely inapplicable to most government contracts for commercial items.

Uniform Commercial Code (UCC)Article 2 (Sales)

Regulates the purchase of goods between parties and thus has the greatest applicability of all of the articles of the UCC to State and local procurement.

A public entity’s contractual terms and conditions may or may not mention the UCC specifically.

If they do not, the law will generally imply the provisions of the UCC into the contract.

The UCC and the State of New Jersey

2. Sales (N.J.S.A.12A:2-101 to 12A:2-725)

Formal Requirements - Statute of Frauds (N.J.S.A.12A:2-201)

-Contracts for goods valued at more than $500.00 must be in writing to be enforceable.

-A purchase order is an offer to purchase that becomes a contract when accepted by the seller.

The UCC and the State of New Jersey

2. Sales (N.J.S.A.12A:2-201)

Formal Requirements - Statute of Frauds (N.J.S.A.12A:2-201)

-According to the Statute of Frauds no “formal” written document is needed for a contract to be enforceable. The UCC merely requires some written evidence of the transaction, containing the basic terms and signed by the party to be bound by the contract. A purchase order is an example.

The UCC and the State of New Jersey

2. Sales (N.J.S.A.12A:2-207)

The “battle of the forms” generally refers to the situation where the buyer send out “purchase order” form and seller responds with a sales acknowledgement form, but while the basic terms of the document are the same on the front, the “fine print” terms and conditions on the back are fundamentally different.

The UCC and the State of New Jersey

2. Sales (N.J.S.A.12A:2-207)

-When there are conflicting terms “battle of the forms” the provisions of the UCC take over.

-Courts have previously ruled that as long at the two parties proceed to fulfill the contract, despite the fact that the contract consists of two pieces of paper that do not agree in every detail, there is no problem.

The UCC and the State of New Jersey

2. Sales (N.J.S.A.12A:2-312)

- “Good Title” - in a sales transaction, the seller implies that they are conveying a “good (or clear) title” to the goods.

- The seller warrants that they have the right to sell the product, and that there are no encumbrances to the title (monetary, patents, trademarks).

The UCC and the State of New Jersey

2. Sales -“Implied Warranty” (N.J.S.A.12A:2-315)

The UCC states that an implied warranty of fitness for a particular purpose intended exists when the seller is aware of the purpose for which the buyer needs the goods in question, and is aware that the buyer is relying upon the seller to select the proper goods. Thus, the courts have held that the seller is obligated to supply goods reasonably fit for the purpose intended.

The UCC and the State of New Jersey

2. Sales -“Implied Warranty” (N.J.S.A.12A:2-315)

There is a distinction between an implied “warranty of merchantability” and a “warranty of fitness for a particular purpose”.

A “warranty of merchantability” calls for the goods to be fit for ordinary purposes intended. (You purchase a car….they are expected to run).

A “warranty of fitness” for a particular purpose calls for the good to be fit for a specific purpose (You purchase a race car to race in the Daytona 500….)

The UCC and the State of New Jersey

2. Sales -“Passing of Title” (N.J.S.A.12A:2-401)

Free on Board (F.O.B. Destination)

If the contract requires or authorizes the seller to send the goods to the buyer but does not require the seller to deliver them to a specific destination, the title passes to the buyer at the time a place of shipment; but

If the contract requires delivery at a destination, the title passes there;

The UCC and the State of New Jersey

2. Sales -“Passing of Title” (N.J.S.A.12A:2-401)

Free on Board (F.O.B. Destination)

If the seller is to deliver a document of title, the titles passes at the time “when” and the place “where” the seller delivers such a title or document; or

If the goods are at the time of contracting already identified and no documents are to be delivered, the title passes at the time and place of contracting.

The UCC and the State of New Jersey 2. Sales -“Buyer’s Right to Inspection of Goods” (N.J.S.A.12A:2-513)

Unless otherwise agreed, where goods are delivered or identified in the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner.

When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.

Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected.

A little more history about New Jersey to paint a picture regarding the relationship between State and Local Government that has an impact on Public Purchasing by local government today...

Concepts of American State-Local

RelationshipsDillion’s Rule vs. Cooley Doctrine

PP1 - Page 22

The following opinions have formed the basis for a continuing debate over the last hundred years regarding the relative powers of the states and their local governments.

“Dillon’s Rule” - State SupremacyJudge Dillon stated in an Iowa case in 1868, and in later books, that Municipal corporations possess those powers granted by state legislatures in express terms, together with those necessarily implied by the powers granted, and those indispensable powers essential to The objectives of the municipal corporation.

“municipal corporations owe their origin to and derive their powers andrights wholly from, the legislature. It breathes into them the breath of life, Without which they cannot exist. As it creates, so may it destroy. If it may destroy, it may abridge and Control.”

...has since been expanded, arguing that the necessary subordinate role of municipal corporations to the state could not be altered by the courts; that a municipal charter is not a contract and, thus, may be modified or transferred by the state; and that any home rule powers which do exist at the local level must inevitably wither as the state expands the scope of its own activities.

“Cooley Doctrine” - Home RuleLocal Government existed before State Government

Judge Cooley, in an 1871 Michigan case described what could be considered a basic tenet of American political philosophy, namely, that there (1) exists an inherent right of local government. The “Cooley Doctrine” was based on Judge Cooley’s reading of the common law and American historical tradition. He considered (2) the right to local self government to be an absolute right which could not be abridged. (3) Many local governments existed before the state governments he argued, and therefore, were parallel to the states and should continue for “all time.” Local governments come out of the (4) fabric of American life and were the “cradle” and guardian of American liberty and democracy.

Judge Cooley conceded that the state could confer necessary powers upon local government and could “mold local institutions according to its view of policy and expediency.”However, the local community is entitled to local government, while the state’s power is discretionary and ought to be used with extreme caution. Although no local community could claim the right to a particular charter or form of local government, the forms prescribed by the state could not be fixed so rigidly as to prevent differences in approach.

Justice Thomas J. Cooley

Constitutional BlendingStates can generally be classified as either Dillon Rule states or Home Rule states. In the absence of state constitutional guidelines, most legislatures and courts in the nineteenth century opted for “Dillon’s Rule”, rather than the “Cooley Doctrine.” Nevertheless, the idea of inherent local government rights has remained an attractive concept for the general public, for local government officials and, increasingly in the earlier years of the twentieth century, for writers on local government. Thus, attempts were initiated to write specific language into state constitutions that would turn the legislatures and the courts away from the full force of state supremacy, as stated by Judge Dillon, and would begin to provide for some blending of the views of the two judges. In general, these efforts have been characterized as “Home Rule” movements.

New Jersey Surprisingly, home rule is not actually written into our constitution…….but home rule survives in the psyche of many New Jersey residents (where it has become “fossilized,” according to one book on the state’s municipalities). Politicians are leery of attacking this sacred cow, so Trenton has put forth few, if any, proposals on how the state and municipalities can better collaborate to provide essential services.

People relocating to the New Jersey wonder why there are so many costly small municipalities (184 have fewer than 5,000 residents) and school districts (154 have fewer than 450 students, including 22 with none). The answer they’re given? That’s the way we’ve always done it, and change is fine—for other towns.

New Jersey State Mandate, State Pay!

The NJ Council on Local Mandates, which is independent of the Executive, Legislative and Judicial branches of State government, was created pursuant to the "State Mandate, State Pay" amendment to the New Jersey Constitution, approved by voters in November 1995, and an enabling statute, the Council Statute, that became effective in May 1996.

The Council has the exclusive constitutional authority to rule that a State law, rule, or regulation imposes an unconstitutional "unfunded mandate" on boards of education, counties, or municipalities. Under the Constitution, if the Council so rules, the "unfunded mandate" in the law, rule or regulation ceases to be mandatory in effect and "expires."

12 NJ Municipal Forms of Government Five Types

TownTownshipBoroughCityVillage

1911 Walsh ActCommission

1923 Municipal Manager

1950 & 1981Faulkner Act (OMCL)

Mayor-CouncilCouncil-ManagerMayor-Council-AdministratorSmall Municipality

Town of Westfield (Special Charter)Washington Township (Township)Garwood Borough (Borough)Linden City (City)Ridgewood Village (Council-Manager)

Special Charter

Examples: Name / Organized As

565 Municipalities

21 Counties

Changing Form

Local Finance Notices

DLGS - Is responsible for several Information Resources

Under DLGS Information Resources are Local Finance Notices (LFN)

Local Finance Notices are issued by the DLGS to provide guidance and information to local municipalities, agencies and officials concerning legal and regulatory aspects of various functional areas and programs. Not all are related to purchasing matters but there is a searchable Excel sheet on the website.

Department of Community AffairsState Division of Local Government Services

New Jersey Public Contract Law N.J.S.A 40A:11-1 et seq.

Local Public Contracts Law Regulations N.J.A.C. 5:34-1 et seq.

(To ensure Transparency, Fairness and promote Competition in the procurement process)

New Jersey Elections Law 19:44A-1 et seq. (Pay-to-Play)

(To ensure that no prohibited contributions were made)

New Jersey Prevailing Wage Act N.J.S.A 34:11-56.25 et seq.(Protects construction workers and ensure they received the appropriate craft wage rate as determined by the State Commissioner)

Procurement Process-Public Contract Law:Quotes:Quotation below $2,625 / $6,000 Issue Contract (Purchase Order)Formal Bid Process: Estimated Contract Threshold $17,500 / $40,000 Preparation of Bid Documents Public Notification and Advertise Invitation for Bids Disclosure of Bid Documents along with Checklist detailing required documents from potential bidders Reception Date and Time / Publicly Opened and Announced Review Process / Awarded by the Contracting Unit (Governing Body) …..to the lowest responsive and responsible bidder

Lowest Responsive and Responsible Bidder

Lowest:

Responsive:Bid submission includes all required documents

Terms and Amounts: Under New Jersey Public Contract Law -

A contract may be awarded by:

Quote if the amount is <15% of Bid Threshold $2,625/$6,000

Formal Bid if the amount exceeds the Threshold $17,500/$40,000

Exceptions - There are exceptions

Terms and Amounts:

Pay-to-Play Law (P2P)

Vendor Threshold $17,500/Year

“Window” Contracts (part of Pay-to-Play)

Contracts between $17,500 and Bid Threshold

New Jersey Prevailing Wage Act

Construction – Municipality over $15,444

Construction – All other Public entities including Schools and Municipal Utility over $2,000

Quote / Informal Procurement

Bid / Formal Procurement

The “objective” of Public Purchasing are also the basic fundamentals of the Purchasing Cycle

which emcompasses the following:

1. Suitability of Goods and Services2. Availability of Goods and Services3. Proper timing of purchases4. Securing proper quantities5. Paying the correct price

The Purchasing Cycle has also been recognized as the 6R’s - because goods and services

must be obtained:

IN THE - Right Quality and Right QuantityAT THE - Right Time and Right PriceFROM THE - Right SourceAND IN THE - Right manner