{"id":896004,"date":"2019-06-12T11:28:50","date_gmt":"2019-06-12T17:28:50","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=896004"},"modified":"2019-06-12T11:28:57","modified_gmt":"2019-06-12T17:28:57","slug":"public-entity-can-unilaterally-replace-subcontractor-california","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/public-entity-can-unilaterally-replace-subcontractor-california\/","title":{"rendered":"Court Holds That Public Entity Can Unilaterally Replace Subcontractor Under California\u2019s Subletting and Subcontracting Fair Practices Act"},"content":{"rendered":"\n

Garret Murai | California Construction Law Blog<\/a> | June 10, 2019<\/p>\n\n\n\n

The Subletting and Subcontracting Fair Practices Act (Public Contract Code section 4100\u00a0et seq.<\/em>), also known as the Listing Law, is intended to prevent direct contractors on public works projects from \u201cbid shopping\u201d and \u201cbid peddling.\u201d<\/p>\n\n\n\n

Bid Shopping:<\/strong> Bid shopping is when a direct contractor discloses a subcontractor\u2019s bid to other subcontractors in an attempt to obtain a lower bid than the one in which it based its bid to the owner.<\/p>\n\n\n\n

Bid Peddling:<\/strong> Bid peddling is the other side of the equation. It is when a subcontractor whose bid was not selected, lowers its bid in an attempt to induce the direct contractor to substitute it for another subcontractor after the prime contractor\u2019s bid has been awarded.<\/p>\n\n\n\n

The Listing Law advances these goals by prohibiting a direct contractor from replacing a subcontractor listed in the direct contractor\u2019s bid unless:<\/p>\n\n\n\n

  1. Consent is given by the public owner; and<\/li>
  2. That consent is based on one of several specifically enumerated situations, including a subcontractor\u2019s failure to perform its work, failure to pay prevailing wages, failure to carry the proper contractor\u2019s license for the work, etc.<\/li><\/ol>\n\n\n\n

    As set forth in statute, the Listing Law allows a direct contractor<\/em> to request a \u201csubstitution\u201d from a public owner. However, it says nothing about a public entity\u2019s<\/em> ability to require a direct contractor to make a \u201csubstitution.\u201d That is, unless you read between the lines, as courts are sometimes apt to  do.<\/p>\n\n\n\n

    Synergy Public Management, Inc. v. City and County of San Francisco <\/em><\/h3>\n\n\n\n

    In\u00a0Synergy Public Management, Inc. v. City and County of San Francisco<\/em>, Case No. A151199 (March 14, 2019), the City and County of San Francisco awarded a bid submitted by Ghilotti Bros. for street repairs in the historic\u00a0Haight-Ashbury\u00a0area of San Francisco. Ghilotti had listed Synergy Public Management, Inc. in its bid to perform excavation and utilities work.<\/p>\n\n\n\n

    Ghilotti\u2019s contract with the City also included a provision providing:<\/p>\n\n\n\n

    When a Subcontractor fails to prosecute a portion of the Work in a manner satisfactory to the City, Contractor shall remove such Subcontractor immediately upon written request of the City, and shall request approval of a replacement Subcontractor to perform the work in accordance with Administrative Code section 6.21(A)(9) and the [Act], at no added cost to the City.<\/p><\/blockquote>\n\n\n\n

    Work on the project began in April 2015. During performance of the work, Synergy broke five gas lines, improperly shored trenches on multiple occasions which could have led to a street collapse, and \u201cdangled\u201d one of its foremen \u201cby his ankles\u201d into an open manhole with no safety equipment. It reminds me of those hilarious, at least to me,\u00a0construction fails\u00a0you read about on occasion.<\/p>\n\n\n\n

    Following the fifth gas line break, the City had had enough and issued a stop-work order. In a letter to Ghilotti, the City directed Ghilotti, pursuant to the contract, \u201cto remove [Synergy] immediately\u201d and \u201cimmediately . . . request approval of a replacement subcontractor to perform the work.\u201d<\/p>\n\n\n\n

    In response, Ghilotti informed the City that it \u201csubstantively and procedurally dispute[d] the validity of the City\u2019s replacement demand\u201d but had \u201csolicited proposals for the completion of Synergy\u2019s remaining scope of work.\u201d Synergy submitted its own response stating that it \u201cstrongly object[ed] to the [the City\u2019s] unilateral decision of subcontractor substitution.\u201d And we\u2019re off to the races.<\/p>\n\n\n\n

    The City, in turn, scheduled a hearing under the Listing Law. At the hearing, Ghilotti and Synergy argued that the hearing officer did not have jurisdiction to hold a hearing under the Listing Law because it was the City, not Ghilotti, who was seeking to replace Synergy. The hearing officer basically called Ghilotti and Synergy\u2019s arguments hogwash (more specifically, \u201cabsurd\u201d) and upheld Synergy\u2019s removal from the project.<\/p>\n\n\n\n

    Synergy and Ghilotti each filed a petition for writ of  mandate to have the Superior Court review the decision by the hearing officer. At the hearing on the writ, the trial court found that because Ghilotti had not requested the replacement of Synergy that the hearing officer had acted outside of his jurisdiction.<\/p>\n\n\n\n

    The City appealed.<\/p>\n\n\n\n

    The Court of Appeal Decision<\/h3>\n\n\n\n

    On appeal, the First District Court of Appeals acknowledged that \u201ccase law reflects \u2018a consistent fact pattern\u2019 of the prime contractor, not the awarding authority, seeking substitution, and [the Listing Law\u2019s] references to a \u2018request\u2019 by a the prime contractor contemplates this will be the normal situation.\u201d<\/p>\n\n\n\n

    But, explained the Court, \u201cthis does not establish that the prime contractor must always request a substitution for there to be jurisdiction for a hearing under the [the Listing Law]. \u2018Rather, the failure to literally comply with an obligatory statutory procedure, such [as those contained in the Listing Law], is valid if the procedure used complies in substance with all reasonable objectives of the statutory scheme.’\u201d<\/p>\n\n\n\n

    And here, held the Court of Appeals:<\/p>\n\n\n\n

    There is no dispute for purposes of this appeal that Synergy performed substandard and unsafe work, yet for reasons that are unclear Ghilotti wanted to retain Synergy. Thus, no risk existed of bid shopping by Ghilotti, much less bid peddling by Synergy or another subcontractor. And once the City elected under its contract with Ghilotti to force Ghilotti to remove Synergy for unsatisfactory work, another party\u2019s work on Synergy\u2019s portion of the project could not lawfully proceed without the City\u2019s consent. The City\u2019s decision to hold a hearing on its own initiative instead of waiting for Ghilotti to \u201crequest\u201d substitution furthered the statutory objective of protecting public safety by giving the awarding authority control over which subcontractors work on a project.<\/p><\/blockquote>\n\n\n\n

    Conclusion<\/h3>\n\n\n\n

    So, there you have it. A public entity can<\/em> unilaterally replace a subcontractor on a public works project under the Listing Law without waiting for a direct contractor to make a request for a \u201csubstitution,\u201d so long as the public entity contractually reserves its right to replace a subcontractor. What\u2019s less clear is if a public entity can reserve its right to replace a subcontractor for any<\/em> reason or whether the reason must be based on one of the enumerated situations identified under the Listing Law.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Garret Murai | California Construction Law Blog | June 10, 2019 The Subletting and Subcontracting Fair Practices Act (Public Contract Code section 4100\u00a0et seq.), also known as the Listing Law, is intended to prevent direct contractors on public works projects from \u201cbid shopping\u201d and \u201cbid peddling.\u201d Bid Shopping: Bid shopping is when a direct contractor discloses… Continue reading Court Holds That Public Entity Can Unilaterally Replace Subcontractor Under California\u2019s Subletting and Subcontracting Fair Practices Act<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[172],"tags":[9895,52,10735,10829],"class_list":["post-896004","post","type-post","status-publish","format-standard","hentry","category-construction-law-2","tag-advise-consult","tag-contractors","tag-listing-law","tag-subletting-and-subcontracting-fair-practices","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nCourt Holds That Public Entity Can Unilaterally Replace Subcontractor Under California\u2019s Subletting and Subcontracting Fair Practices Act - 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