Subletting and Subcontracting in Public Contracts

California’s Public Contract Code, in Division 2, Part 1, Chapter 4, is called the “Subletting and Subcontracting Fair Practices Act” pursuant to Section 4100.

Section 4101 sets forth a legislative finding that the practices of bid shopping and bid peddling in connection with the construction, alteration, and repair of public improvements often result in poor quality of material and workmanship to the detriment of the public, deprive the public of the full benefits of fair competition among prime contractors and subcontractors, and lead to insolvencies, loss of wages to employees, and other evils.

Section 4103 states that nothing in this chapter limits or diminishes any rights or remedies, either legal or equitable, which an original or substituted subcontractor may have against the prime contractor, his or her successors or assigns, the state or any county, city, body politic, or public agency may have against the prime contractor, his or her successors or assigns, including the right to take over and complete the contract.

Section 4104 specifies that any officer, department, board, or commission taking bids for the construction of any public work or improvement must provide in the specifications prepared for the work or improvement or in the general conditions under which bids will be received for the doing of the work incident to the public work or improvement that any person making a bid or offer to perform the work is required to set forth specified items in the bid.

Section 4104.5 requires the officer, department, board, or commission taking bids for construction of any public work or improvement to specify in the bid invitation and public notice the place the bids of the prime contractors are to be received and the time by which they are to be received.

Section 4105 provides that circumvention by a general contractor who bids as a prime contractor of the requirement for him or her to list his or her subcontractors, by the device of listing another contractor who will in turn sublet portions constituting the majority of the work covered by the prime contract, must be considered a violation of this chapter and subject that prime contractor to specified penalties.

Section 4106 states that, if a prime contractor fails to specify a subcontractor or if a prime contractor specifies more than one subcontractor for the same portion of work to be performed under the contract in excess of one-half of 1% of the prime contractor’s total bid, the prime contractor agrees that he or she is fully qualified to perform that portion himself or herself, and that the prime contractor will perform that portion himself or herself.

Section 4107 prohibits a prime contractor whose bid is accepted from doing specified activities, including substituting a person as subcontractor in place of the subcontractor listed in the original bid, but the awarding authority may consent to the substitution of another person as a subcontractor in any of the nine specified situations.

Prior to approval of the prime contractor’s request for the substitution, the awarding authority, or its duly authorized officer, must give notice in writing to the listed subcontractor of the prime contractor’s request to substitute and of the reasons for the request. If written objections are filed, the awarding authority must give notice in writing of at least five working days to the listed subcontractor of a hearing by the awarding authority on the prime contractor’s request for substitution.

Section 4107.2 prohibits any subcontractor listed by a prime contractor ss furnishing and installing carpeting from voluntarily subletting his or her subcontract with respect to any portion of the labor to be performed unless he or she specified the subcontractor in his or her bid for that subcontract to the prime contractor.

Section 4107.5 provides that the prime contractor, as a condition to assert a claim of inadvertent clerical error in the listing of a subcontractor, is required within two working days after the time of the prime bid opening by the awarding authority give written notice to the awarding authority and copies of that notice to both the subcontractor he or she claims to have listed in error and the intended subcontractor who had bid to the prime contractor prior to bid opening.

The awarding authority is required to consent, after a public hearing and in the absence of compelling reasons to the contrary, to the substitution of the intended subcontractor in specified circumstances.

Section 4107.7 provides that, if a contractor who enters into a contract with a public entity for investigation, removal or remedial action, or disposal relative to the release or presence of a hazardous material or hazardous waste fails to pay a subcontractor registered as a hazardous waste hauler within 10 days after the investigation, removal or remedial action, or disposal is completed, the subcontractor may serve a stop notice upon the public entity.

Section 4108 makes it the responsibility of each subcontractor submitting bids to a prime contractor to be prepared to submit a faithful performance and payment bond or bonds if requested by the prime contractor. In the event any subcontractor submitting a bid to a prime contractor does not, upon the request of the prime contractor and at the expense of the prime contractor at the established charge or premium, furnish to the prime contractor a bond or bonds issued by an admitted surety.

In addition, the bond or bonds may be required under this section only if the prime contractor in his or her written or published request for subbids clearly specifies the amount and requirements of the bond or bonds. Failure to specify them precludes the prime contractor from imposing bond requirements under this section.

Section 4109 states that subletting or subcontracting of any portion of the work in excess of one-half of 1% of the prime contractor’s total bid as to which no subcontractor was designated in the original bid is only permitted in cases of public emergency or necessity, and then only after a finding reduced to writing as a public record of the awarding authority setting forth the facts constituting the emergency or necessity.

Section 4110 provides that a prime contractor violating any of the provisions of this chapter violates his or her contract and the awarding authority may exercise the option, in its own discretion, of canceling his or her contract or assessing the prime contractor a penalty in an amount of not more than 10% of the amount of the subcontract involved. The prime contractor must be given adequate notice and a public hearing.

Section 4111 states that a violation of this chapter by a licensee of the Business and Professions Code constitutes grounds for disciplinary action by the Contractors State License Board.

Section 4112 says that the failure on the part of a contractor to comply with any provision of this chapter does not constitute a defense to the contractor in any action brought against the contractor by a subcontractor.

Section 4113 defines the terms “subcontractor” and “prime contractor.”

Section 4114 states that the county board of supervisors, when it is the awarding authority, may delegate its functions to any officer designated by the board. The authorized officer makes a written recommendation to the board of supervisors and the board of supervisors may adopt the recommendation without further notice or hearing.