Subcontractors: The Public Contract Code Can
Protect You From Abuse — If You Let It
While we may not all agree that our economy is truly in a
recession, it is undeniable that there has been a dramatic
downturn in available projects for subcontractors —
especially in the residential market. Because of this, many
subs have started showing up in the public works project arena
— where the low bidder is supposed to take the work
under the Public Contract Code. This code is supposed to (there’s
that phrase again) level the playing field for legitimate
bidders for public works projects.
In fact, the equalizing objectives of this code can be plainly
seen in the specific wording that is used, some of which are:
“to provide all qualified bidders with a fair opportunity
to enter the bidding process” and “to eliminate
favoritism, fraud and corruption in the awarding of public
contracts.” So, with these objectives, why do I use
the phrase “supposed to” when referring to the
effect of the Public Contract Code? Because, despite this
code’s noble objectives, subcontractors who don’t
know their rights can be taken advantage of when bidding public
works projects.
One good example of the way subcontractors can be taken advantage
of has been presented to me recently by more than one subcontractor.
The situation goes something like this: formally residential
subcontractor decides to put its hat in the ring and bid a
public works project, even though it has not done any public
works projects in many years.
The subcontractor gets a list of general contractors bidding
the project so that the subcontractor can offer its quote
to the bidders. Many of the general contractors arealso somewhat
newcomers to public works projects for the same reasons the
subcontractor is new. The subcontractor also realizes that
many of the general contractors are different, and perhaps
larger, than the subcontractor is used to dealing with. The
subcontractor builds up a little rapport with a few select
generals prior to the bid opening, which results in the general
with the lowest bid using the subcontractor’s number
and the subcontractor is “listed” on the general’s
bid form. Great news for the subcontractor — it gets
the project, right? Again, that’s how it’s supposed
to work.
There’s one more step in subcontractor’s road
to riches — or in the current economy, just keeping
its doors open — it has to sign a subcontract with the
general. The general presents a subcontract with all sorts
of bad terms for the subcontractor, such as overly strong
indemnity provisions; higher than normal insurance requirements;
unreasonably short notice provisions before default; the ability
to hold a higher percentage retention than what the public
entity is going to hold from the general; and a slightly larger
scope of work than the subcontractor included in its bid.
The subcontractor tries to negotiate more reasonable terms
with the general, but the general refuses to negotiate and
threatens to use another subcontractor for the project unless
the subcontractor signs the oppressive and overbroad subcontract.
The subcontractor being in a somewhat desperate situation
because it needs the work, agrees to the bad terms while rationalizing
that it can afford the cost of the extra scope of work by
taking it out of its anticipated profits. A little of something
is better than a lot of nothing, wouldn’t you agree
if you really needed the work?Well, the subcontractor may
not have had to agree to these unfair terms just to keep the
project.
What the subcontractor didn’t realize is the general
can’t just decide to give the work to another subcontractor
just because the subcontractor won’t sign the subcontract.
To make this type of substitution, the general has to jump
through some hoops that are in place to protect listed subcontractors.
Because the subcontractor was listed on the general’s
bid, the general can replace the subcontractor only if after
having had a reasonable opportunity to do so, (the subcontractor)
refuses to execute a written contract for the scope of work
specified in the subcontractor’s bid and at the price
specified in the subcontractor’s bid, when that written
subcontract is based upon the general terms, conditions, plans
and specifications for the project involved and/or the terms
of that subcontractor’s written bid is presented to
the subcontractor.
What this means is that the subcontractor can’t be forced
to sign a subcontract that has different terms than those
in the general terms and conditions of the project, or that
has extra work beyond what was included in the subcontractor’s
bid — nor can a general contractor beat down a subcontractor’s
price after the bid opening. If the general wants to replace
the subcontractor in this case, the general has to follow
the procedure set forth in the Public Contract Code.
The procedure first requires that the general request the
substitution. Then, the public entity must give the subcontractor
written notice of the
request for substitution by certified or registered mail.
After that, the subcontractor has only has five working days
within which to submit written objections to the substitution.
A subcontractor who fails to file these written objections
is deemed to consent to the substitution. If the subcontractor
files written objections, then the public entity must conduct
a hearing on the substitution, and must give the subcontractor
at least
five days’ notice of the hearing. Thus, in this case,
the subcontractor may have held on to the work without caving
in to the general’s demands.
As is usually the case, the subcontractor needs to make a
business decision as to whether it wants to take the less
controversial way out and lose some of it rights and profits
— or, not sign the subcontract, thereby calling the
general’s bluff and taking a chance on the laws that
should protect it.
If you have a construction question, submit it to: info@constructionlaws.
com. We cannot guarantee that we will print your question
and answer, but we will make every effort to include it in
a future column.
General disclaimer The information in this article is based
upon California law and is for general information only. Any
information or analysis presented here is intended solely
to inform and educate the reader on general issues. Nothing
presented or referenced to, regarding facts, documents, or
applicable laws, constitutes legal advice. Before acting or
relying on any information, including any information presented
here, consult with a qualified attorney for your specific
situation.
Scholefield, Esq., holds an active PE license in Colorado,
an undergraduate engineering degree from the University of
Florida, and received her JD from the University of San Diego.
Source Code 20080725tci
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