Subletting and Subcontracting Fair Practices Act

Subletting and Subcontracting Fair Practices Act

The purpose of the Subletting and Subcontracting Fair Practices Act is to protect both the public and subcontractors from the practices of bid shopping and bid peddling in connection with public works projects. Bid shopping and bid peddling usually result in poor quality service and lead to insolvencies and losses of wages, among other things.

The Public Contract Code requires that bids include a list of the names and places of business of all subcontractors that will perform specified work on a public works project.

If the prime contractor fails to specify subcontractors in its bid, it is assumed the prime contractor is fully qualified to perform and must perform the relevant portion of the work. If a prime contractor fails to specify subcontractors, then fails to perform the relevant contract work, the prime contractor is subject to subcontractor substitution penalties and other penalties.

Generally, a prime contractor may not substitute a subcontractor listed on its bid once the bid has been accepted. However, the public entity may consent to substitutions under certain circumstances. Public Contract Code § 4107 permits subcontractor substitution in the following situations:

• When a listed subcontractor fails or refuses to execute a written contract.
• When a listed subcontractor becomes insolvent or bankrupt.
• When a listed subcontractor fails or refuses to perform a subcontract.
• When a listed subcontractor fails to meet the requisite bond requirements.
• When the prime contractor demonstrates to the awarding public entity that the name of the subcontractor was listed as the result of an inadvertent clerical error.
• When the listed subcontractor is not licensed.
• When the awarding public entity determines that the work performed by the listed subcontractor is substantially unsatisfactory.

Once a prime contractor has requested a substitution, but prior to approval by the public entity, the listed subcontractor is entitled to notice of the substitution and a hearing, if so requested in writing.