The Subletting and Subcontracting Fair Practices Act. Bargain Hunters Beware!

Construction is back!

But downward price pressures continue.

And, if you work on California public works projects, you know that shopping for that lowest price has its limitations.

The Subletting and Subcontracting Fair Practices Act (Public Contract Code section 4100 et seq.), also known as the Listing Law, was intended to prevent prime contractors from bid shopping and bid peddling.

Bid shopping is when a prime contractor discloses a subcontractor’s bid to other subcontractors in an attempt to obtain a lower bid than the one in which it based its bid to the owner.

Bid peddling, is the other side of the equation, and is when a subcontractor whose bid was not selected, lowers its bid in an attempt to induce the prime contractor to substitute it for another subcontractor after the prime contractor’s bid has been awarded.

California is one of only a handful of states that has enacted laws intended to discourage bid shopping and bid peddling which can result in poor workmanship and materials, lost wages by laborers, and insolvency.

So what does the Listing Law provide?

What kinds of projects does the Listing Law apply to?

The Listing Law applies to state and local public works projects.

What does the Listing Law require?

The Listing Law requires that state and local public entities require, either in their specifications or general conditions, that any prime contractor making a bid include in their bid:

(1) The name, place of business and contractor ‘s license number of each subcontractor whose sub-bid is 0.5% or more of the prime contractor’s total bid, or $10,000 or more, whichever is greater; and

(2) The portion of work, as defined by the prime contractor in its bid, that will be performed by each subcontractor. Only one subcontractor can be listed for each portion of work.

If a prime contractor fails to specify a subcontractor or specifies more than one subcontractor for each portion of work in excess of 0.5% of its total bid, the prime contractor is deemed to have agreed that it is fully qualified to perform those portions of work and will in fact perform those portions of work itself.

Note: A public entity may, but is not required to, allow a prime contractor to identify the portions of work to be performed by each listed subcontractor up to 24 hours after the deadline for bid submissions. However, this does not change the prime contractor’s obligation to identify in its bid the name and place of business of each subcontractor whose sub-bid is 0.5% or more of the prime contractor’s total bid, or $10,000 or more, whichever is greater. Also, if a material change is made by a public entity to its invitation to bid within 72 hours of bid closing, the date and time for submission of bids must be extended by no less than 72 hours of the original bid closing.

When can a prime contractor substitute a subcontractor listed in its bid?

A prime contractor whose bid is accepted may not substitute a subcontractor listed in its bid unless the public entity consents to the substitution. Consent may only be given in the following circumstances:

• Failure to Execute Subcontract – The listed subcontractor, after having a reasonable opportunity to do so, fails or refuses to execute a written contract for the scope of work and at the price specified in the subcontractor’s sub-bid;
• Insolvency – When the listed subcontractor becomes insolvent or subject to an order for relief in bankruptcy;
• Failure to Perform Subcontract – When the listed subcontractor fails or refuses to perform its subcontract;
• Failure to Furnish Bonds – When the listed subcontractor fails or refuses to furnish a payment or performance bond as requested by the prime contractor in its request for sub-bids;
• Clerical Error – When the prime contractor can demonstrate that the listed subcontractor was listed as a result of an inadvertent clerical error;
• Unlicensed – When the listed subcontractor is not licensed as required under the licensing law;
• Failure to Perform Work – When the public entity determines that the work performed by the listed subcontractor is substantially unsatisfactory and not in substantial accordance with the plans and specifications, or that the listed subcontractor is substantially delaying or disrupting the progress of work;
• Failure to Pay Prevailing Wages – When the listed subcontractor is ineligible to work on the project for failing to pay prevailing wages; or
• Not Qualified – When the public entity determines that the listed subcontractor is not a responsible subcontractor.

Note: A listed subcontractor may also be substituted in cases of public emergency or necessity but only after a written finding by the public entity setting forth the facts constituting the emergency or necessity is placed in the public record.

What happens if a prime contractor requests a substitution of a subcontractor listed in its bid?

If a prime contractor requests a substitution of a listed contractor, the public entity is required to give written notice to the listed subcontractor of the prime contractor’s request and the reasons for its request by certified mail. The listed subcontractor then has 5 working days to submit written objections to the substitution. If written objections are submitted, a hearing will be held on the prime contractor’s request for substitution, and the public entity must give written notice of the hearing to the listed subcontractor at least 5 working days before the hearing. At the hearing, the public entity will determine whether to consent to the prime contractor’s request for substitution.

What happens if a prime contractor requests a substitution based on a clerical error?

A prime contractor requesting a substitution based on a clerical error must give written notice to the public entity, the listed subcontractor who was purportedly listed in error, and the intended subcontractor who was purportedly not listed, within 2 working days after bid opening. The listed subcontractor then has 6 working days from bid opening to submit to the public entity and prime contractor written objections to the substitution. The prime contractor, the listed subcontractor, and the intended subcontractor then have 8 working days from bid opening to submit affidavits to the public entity in support of their respective positions. The public entity will then hold a hearing to determine whether to consent to the prime contractor’s request for substitution.

Can a listed subcontractor sublet all or a portion of its work to another subcontractor or subcontractors?

A listed subcontractor may only sublet all or a portion of its work to another subcontractor or subcontractors if the subcontractor or subcontractors to whom the listed subcontractor intends to sublet all or a portion of its work was or were specified in the listed subcontractor’s sub-bid.

What happens if a prime contractor violates the Listing Law?

If a prime contractor violates the Listing Law the public entity may cancel its contract with the prime contractor or assess a penalty against the prime contractor of not more than 10% of the amount of the subcontract involved. The prime contractor may also be subject to disciplinary action by the California Contractors State License Board.