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Editor’s note: This is an article written by Adrienne L. Isacoff that appeared in the Winter 2023 edition of the Construction Law Section Newsletter. Go here to read the full article and the full edition (login required).

The Prevailing Wage Act (PWA) is applicable to all public work projects, defined as “construction, reconstruction, demolition, alteration, custom fabrication, or repair work, or maintenance work, including painting and decorating, done under contract and paid for in whole or in part out of the funds of a public body ... .” The “prevailing wage” means the wage rate paid by virtue of collective bargaining agreements by employers employing a majority of workers of that craft or trade subject to said collective bargaining agreements, in the locality in which the public work is done.

Contractors who bid on public works projects are well aware that every contract in excess of the prevailing wage contract threshold (which effectively applies to all contracts other than some maintenance work) must contain a provision stating the workers on the job must be paid at least the prevailing wage rate. Typically the prevailing wage rates applicable to the particular county in which the job is located will be included in the bid specifications for the job prepared by the public owner.

What is less clear is whether the bid itself – as opposed to the contract payments – must include prevailing wage rates. For example, when a bidder is submitting pricing for a particular line item, such as welding, the bidder will submit a bid price for that item of work. Presumably, the line item will include labor costs, as well as any other costs such as material and equipment to perform that particular part of the job. Nothing in the PWA compels bids to include pricing based on prevailing wage rates, even though, if awarded the bid, the contractor would have to pay the prevailing wage rate for welding and any other trade.

Failure to include prevailing wage rates in bid prices may not be a material bid defect
Under general principles of bidding law, if a bid is materially deficient, the contracting unit must reject the bid. Statutory requirements are considered material bid conditions. In addition, a contracting unit may mandate that a bidder supply certain information or otherwise prepare its bid in conformance with the bid specifications. If a bidder fails to submit a bid in conformance with a bid element that is not statutorily required, but is included by the contracting unit in the bid specifications, the public owner must conduct an analysis to determine whether the bid defect is material (requiring rejection of the bid) or minor (which may be waived or cured post-bid).

Since the PWA does not compel that a bid price be based on prevailing wage rates, both bidders and public owners face uncertainty when a bid does not reflect the applicable rates. Our courts have upheld the right of a public owner to include such a requirement in its bid specifications.

The uncertainty about the applicability of the PWA in the bid review process occurs when the specifications include a reference about paying prevailing wages during performance of the contract, but are silent with respect to how the bid must be priced. Bidders are generally free to prepare their estimates using their business judgment in an effort to underbid their competitors, while accounting for the labor and materials costs if they are successful. Our courts generally use the term “unbalanced bid” when discussing the discretion allowed to bidder to prepare their bids using their business judgment to win the bid. An “unbalanced bid” is one “based on nominal prices for some work and enhanced prices for other work.” A long line of cases has held that a “reasonable unbalancing is perfectly proper.” Concomitantly, there is no clear line of law about the exercise of the public owner’s discretion in rejecting a bid because the bidder decided that it would have the best chance of being the low bidder if it did not include the prevailing wage rate in its unit pricing, even though it presumably understood that it will have to pay those rates if awarded the contract.

New legislation addresses this issue
In order to rectify this recurring problem, the Legislature adopted P.L. 2021, c. 301, which requires that when a public body engages in competitive bidding for public work subject to the provisions of the PWA, the person who makes the lowest bid for the contract by at least 10% under the amount of the next lowest bid shall, prior to award of the contract, certify to the public body on a form prescribed by the Commissioner of the New Jersey Department of Labor and Workforce Development that the prevailing wage rates required by the PWA shall be paid in performing the work under the contract. P.L. 2021, c. 301, also states that if the bidder does not provide the certification on the form prescribed by the commissioner prior to the award of the contract, the public body shall award the contract to the next lowest responsible and responsive bidder.

In addition, P.L. 2021, c. 301, requires that each public works contract must contain a stipulation in a form prescribed by the commissioner that those performing work under the contract shall be paid not less than the prevailing wage rate, and that where a contractor or subcontractor fails to pay the prevailing wage rate, the public body, the lessee to whom the public body is leasing a property or premises or the lessor from whom the public body is leasing or will be leasing a property or premises, may terminate the contractor's or subcontractor's right to proceed with the work, or such part of the work as to which there has been a failure to pay the required prevailing wage rate.

The new law also states that the contractor and its sureties shall be liable to the public body, any lessee to whom the public body is leasing a property or premises or to any lessor from whom the public body is leasing or will be leasing a property or premises, for any excess costs occasioned by the termination of the contractor's or subcontractor's right to proceed with the work, or such part of the work as to which there has been a failure to pay required wages.

The department has proposed new rules at N.J.A.C. 12:60-9.1 and 9.2 and N.J.A.C. 12:60-9 Appendix, in order to implement P.L. 2021, c. 301. Specifically, the proposed regulations include a form of certification that must be submitted pre-award by the person whose bid is at least 10% lower than the next lowest bid. The certification includes the following significant provisions:

(1) I am the owner and/or highest-ranking official or officer of a company or firm named ______________________________________, which holds a currently valid public works contractor registration pursuant to the New Jersey Public Works Contractor Registration Act, N.J.S.A. 34:11-56.48 et seq., certificate number ____________________.

(2) I submitted a bid for a contract award in the above identified project and the public body has informed me that I am the lowest bidder by 10 percent or more as compared to the next lowest bid submitted.

(3) The amount of my bid does include paying the prevailing wage rate to all workers who perform work on the project at rates of pay, including both base wage and fringe benefits, set forth in applicable Wage Determinations, (1) for the appropriate locality, (2) for the appropriate work classification (e.g., carpenter, electrician, mason, plumber), and (3) for the appropriate job title (e.g., Apprentice, Journeyman, Forman), published by the New Jersey Department of Labor and Workforce Development (NJDOL) pursuant to the New Jersey Prevailing Wage Act (NJPWA), N.J.S.A. 34:11-56.25 et seq., and corresponding NJDOL rules, N.J.A.C. 12:60.

This proposed certification would eliminate the ability of a bidder not to include prevailing wage rates in its bid, even when it understood that it would have to pay prevailing wage rates if awarded the contract.