SUBCONTRACTING LAWS
and
CITY REQUIREMENTS
Okay, so there are rules. It seems like the rules are too complicated.
(Not really. It’s just easier to break things down and look at it from a
different perspective.)
What is the intent of the California Public Contract Code and the
City’s requirements under the Master General Conditions?
(The intent is to protect the rights of both Prime and Subcontractors
while looking after Public monies.)
Do I have to be a lawyer to run my job?
(NO. But you DO need to know some important principles when
involved with Public Funds. We have some help for you here.)
General Services Division / Special Research & Investigation Section
Subcontracting
Basic Contract Breakdown
Prime’s Participation
Level
Mandatory
Subcontracting Minimum
(MSM) for project
(Set either by Law or
Awarding Authority
Prime must selfperform this
percentage of the
work
If you have taken our
BIDDERS’ INFO
Tutorial, you will
recognize this chart.
25%
30%
Discretion of the Prime
If you haven’t checked
out “BIDDERS’ INFO,
please do so.
General Services Division / Special Research & Investigation Section
45%
Part of Sealed Bid. –
Prime is contractually
obligated
Additional Subcontracting
Opportunities
Subject to specific limitations
on subcontract amount
Subcontractor Substitutions
Subcontractor Replacement
COMPLETED $100,000
$250,000
Subcontract
$150,000 REMAINING WORK
JOE CAN’T FINISH
HELP ! ! !
JOE’s CONCRETE
A subcontractor is bidlisted for concrete work
on a project and he has
been approved to work.
After performing some
of the work, he is unable
to continue or withdraws
from the project (for
various types of
reasons)
General Services Division / Special Research & Investigation Section
This creates the need
to substitute him with a
sub that can finish the
remaining work.
Subcontractor Substitutions
Subcontractor Replacement (Cont’d)
Often, and particularly in this case
since it’s concrete work, the critical
path of the project is now in some
trouble.
There is no time to lose!
A CHUNK OUT OF
THE SCHEDULE !
General Services Division / Special Research & Investigation Section
If you already know the substitution
process, your biggest problem will
be to get somebody in to replace Joe
instead of struggling with figuring
out the process at the last minute.
Subcontractor Substitutions
Penalties for Non-Compliance
TOTALLY COOL !!
GREAT NEWS ! !
We just saved a
bunch of money !!
Only if you just
got a great
deal on your
car insurance !
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Subcontract Amounts Reviewed
In the “Bidder Info” Tutorial, we go over these principles in detail.
Make sure and take a look. But here are a couple important tips to
remember. (It’s why our dog is having too much fun…)
$250,000
Subcontract
If a Prime bid-lists a subcontractor, the total amount
specified in the bid must be paid to the subcontractor by
the end of the project. If the prime has to replace the
subcontractor, the remainder of the original bid-listed
amount must be paid out to whomever is the replacement.
COMPLETED $100,000
JOE’s CONCRETE
If Joe leaves the job unfinished,
JOE CAN’T FINISH
The substituting sub is paid the
remainder of the bid-listed amount.
$150,000 REMAINING WORK
NO LESS!!
General Services Division / Special Research & Investigation Section
HELP ! ! !
Subcontractor Substitutions
Subcontract Amounts Reviewed
GREAT NEWS ! !
We just saved a
bunch of money !!
TOTALLY COOL !!
Actually, not cool at all. Even if there are the best of intentions, this
is not permissible. The Public sees things a little differently. If the
City is contracted to pay $250,000 for somebody to perform
concrete work, then that somebody is supposed to get the money. If
it’s a subcontractor and/or a substitute, then the prime can’t keep
any savings. Lowering bid-listed amounts on a Public project is
illegal without a change in scope from the owner (City). If you have
a situation where you find that you will not have to pay your sub all
of what you bid for, you need to address this with the City before
Project Closeout. A cost savings, even from an agreeable sub,
still belongs to the owner. Protect yourself from penalties ! !
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Subcontract Amounts Reviewed
BID-LISTED AMOUNT
WORK COMPLETED
WORK REMAINING
$ 250,000
+
BID-LISTED AMOUNT
$ 100,000
$ 150,000
$ 250,000
SUBSTITUTE SUB’s AMOUNT $ 150,000
BALANCE the BOOKS !
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Penalties for Non-Compliance
DURING THE
PROJECT:
25%
30%
Let BCA S R I help
you over the humps
when we can. We will
do everything possible
to keep your project
on track and on
schedule. This means
time and money to
you… and to us, your
customer, as well
45%
For more information about
the subcontracting
regulations and
requirements, take a look at
the information under:
BCA Subcontractor Outreach and Enforcement
General Services Division / Special Research & Investigation Section
The INSPECTOR of PUBLIC WORKS is
the Designated Authority on
ALL subcontracting matters for the
BOARD of PUBLIC WORKS
The Required Procedures for obtaining approval of subcontractors for work on
Public Projects are not complex.
They are, however, strictly enforced so that the rights of subcontractors and
prime contractors alike are protected, as well as the Public’s interest.
This tutorial is designed show you the “nuts and bolts” of bidding with
regard to your employment of subcontractors on City Projects, as well as the
procedures for obtaining approvals for your subcontract issues.
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Format & Procedures Cont’d
Requests for approval of all subcontractors, or request for substitution of a
subcontractor, shall be made in writing to the Inspector of Public Works at the
following address:
John L. Reamer, Jr.
Inspector of Public Works
1149 South Broadway
Los Angeles, California 90015
Attn. H. Russell Strazzella, Chief
General Services Division
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Format & Procedures Cont’d
Requests for subcontractor substitutions must contain the following information:
Project Name
Project Work Order Number (W.O.#)
Bid-listed Subcontractor’s Name
Bid-listed Subcontractor’s letter of withdrawal (if it consents) giving reasons.
Prime’s basis for request (if no letter of withdrawal)
Replacement Subcontractor’s business address
Replacement Subcontractor’s business phone number
Replacement Subcontractor’s business FAX number ( when applicable)
Replacement Subcontractor’s status ( OBE / MBE / WBE / DBE )
Replacement Subcontractor’s State of California Contractor License Number
Replacement Subcontractor’s City of Los Angeles Business Tax Receipt
Certificate (BTRC)
Dollar amount of work to be performed by the subcontractor
Description of the work to be performed by the subcontractor
“MINI” Good Faith Effort Documentation
Remember !!
If you don’t provide us with the required information, we cannot process your
request. This can create a delay for you.
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Substitution Requests
Remember, -- Substitutions have specific additional requirements that
differ from a standard subcontractor approval.
As you can see, your letter to the Inspector of Public Works must include
all of the information in an approval request, but in addition, we need the
following documentation:
1. Written agreement from the original subcontractor that they do not object
to the substitution, and explaining why they cannot respond to do the work
for which they were listed. (called a “withdrawal letter”).
2. Your “Mini” Good Faith Effort – showing that you attempted to obtain bids
from at least 1 OBE, 1 MBE and 1 WBE as a replacement for the work.
(See OCC’s Webpage for the Good Faith Effort requirements and
procedure)
3. The amount for which you will utilize the replacement sub (cannot be less
than what the original sub was listed to perform unless the original sub has
already performed a portion of the work).
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Substitution Requests (Notifications))
Primes and their subcontractors may have issues which
should not effect the City’s project.
Your business is your business, ---- it’s not the City’s
business.
Sometimes a subcontractor will not consent to be substituted, or is not
cooperating with a request for written agreement to the substitution. The
Board of Public Works cannot arbitrarily replace that sub without their
side of the story.
In cases where the subcontractor’s withdrawal letter is not forthcoming, a
Certified “5 DAY LETTER” is sent to the subs’ last known business
address, informing them of the Prime’s wish to substitute them.
The subcontractor then has 5 DAYS from receipt of this notification to
respond in writing as to whether it consents to the substitution.
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Substitution Requests (Hearing Process)
If BCA does not receive a written response from the subcontractor
within 5 days of it receiving the certified letter, BCA makes its
recommendation to the Board to approve the substitution since the
effected sub, by failing to respond, has waived its right to a hearing.
If a written response is received and the effected subcontractor does
not consent to the substitution, then it is entitled to a hearing by the
Board.
BCA Staff will arrange for the hearing appointment at the
Commissioner’s earliest convenient time. Our Commissioners
understand the importance of these hearings and their effect on
City projects, so every effort is made to expedite this process.
BCA Staff will also make all notifications to the concerned parties
as to date, time and location of the hearing.
Once a hearing is set, both subcontractor and prime must honor
this appointment or waive their rights to the matter.
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Substitution Requests (Hearing Process) Continued
The Hearing Commissioner is not a judge.
He/She is not going to mediate the dispute between
parties.
The Hearing Commissioner is also not a referee. He/She
may not assist you in determining who is right and who is
wrong.
The Hearing Commissioner is there to determine
whether or not the substitution request is warranted
under the Public Contract Code.
The Commissioner will represent the interests of the City
and its project.
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Substitution Requests (Hearing Process) Continued
The hearing Commissioner will have been briefed by
BCA staff on the issue being presented.
He/She will have been provided with all the
documentation that was submitted up to the hearing
date.
You will be expected to provide any other supporting
documentation to the Commissioner when you come to
the hearing.
Your issue will be evaluated and compared to the
requirements in the California Public Contract Code
Section 4107.
The Hearing Commissioner’s responsibility is to determine whether or not the
substitution request is reasonable. His/Her responsibility is also to protect the rights
of the bid-listed subcontractor. He/She has been delegated the authority to act for
the Board of Public Works
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
Substitution Requests Board Approval
If the Hearing Commissioner agrees to the substitution, he/she submits a motion to
the Board of Public Works to approve the substitution. The motion is heard in public
session and voted upon by the members. This satisfies the requirements of the Public
Contract Code.
This is an administrative process and is final. It does not, however preclude the
involved parties from seeking other legal solutions to their original issue, as long as
this is done outside the City’s contracting process.
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
The Critical Path
When you are building a construction project, the last thing you need is delays…. We
agree!! After all, we want our project finished as quickly as possible for the public’s
convenience. Delays cost everybody.
As a Public Agency, however, we are bound by the law. And substitution issues take a
little time to go all the way through the process. This is why BCA is the agency
delegated by the Board of Public Works, to help the Board expedite the process.
General Services Division / Special Research & Investigation Section
Subcontractor Substitutions
The Critical Path (Approvals)
Bureau of ContractAdministration
Subcontractor Approval Process
Division of General Services in coordination with Office of Contract Compliance
BCA/SRI Adds to
project Subc-list
Bid List Approval
Request
BCA/SRI
Approval
Processing
Checklist
Subs pass
checklist?
Yes
BCA/SRI
Letter of approval
No
OCC Processes in
Pre-bid Phase for
MBE / WBE & GFE
Notify Prime to
Resolve issue
Prime
must
respond
Issue
Resolved?
Yes
No
Okay, for you
folks out there
that like the
fancy stuff…
Unapproved
PRE-AWARD &
MOBILIZATION PHASE
CONSTRUCTION PHASE
Request to
Add
Subcontractor
BCA/SRI Adds to
project Subc-list
< 1/2 1 % ?
Yes
BCA/SRI
Approval
Processing
Checklist
Sub passes
checklist?
Yes
BCA/SRI
Letter of approval
No
No
Unapproved
Notify Prime to
Resolve issue
General Services Division / Special Research & Investigation Section
Prime
must
respond
Issue
Resolved?
Yes
No
Unapproved
This is how it
looks plotted
out.!
Subcontractor Substitutions
The Critical Path (Substitutions)
ENOUGH
ALREADY !!
Bureau of ContractAdministration
Subcontractor Substitution Process
BCA/SRI
Approval
Processing
Checklist
Subc
Withdrawal
letter attached?
Prime's
Substitution
Request
Required Documentation
includes letter of withdrawal
from subcontractor
NEW Sub passes
checklist?
Yes
No
No
"Five day"
notification to
subcontractor
Copy Prime
Notify Prime to
Resolve issue
Five Day
Mandatory
Wait
Yes
Subcontractor
Response?
Yes
"COMMR.
Letter"
"Mini GFE"
Approval
Process
Mini GFE OK?
Yes
Notify Prime;
Substitution
Approved
Subcontractor
Agrees?
No
Formal Final approval of Substitutions comes from the Board of
Public Works
No
"COMMR.
Letter"
Notify
Subcontractor and
Prime; Substitution
Approved
Board Approves
Commr. Motion
Substitution by
Prime
Yes
Schedule
Commissioner
for Hearing
"Commr.
Letters" to Prime
Substitution
Approved at
Hearing?
General Services Division / Special Research & Investigation Section
No
Subcontractor
Remains on
project
& Subc confirming
resolution
Board Approves
Commr. Motion
Subcontractor Substitutions
The Bottom Line
Anyone who has watched a construction
project knows that, on the surface, it appears
to be a noisy, dirty and sometimes dangerous
operation.
However, those of us in the business (like you)
also know that looks are often deceiving.
A construction project is also a delicate exercise
in planning, coordination, and execution
involving many people doing many different
things simultaneously.
General Services Division / Special Research & Investigation Section
The Bottom Line
When it comes to being competitive, your administrative skills are as
important to you as your building expertise.
Knowing the rules of the business is as important to your profit margin
as your quality work.
BUREAU of CONTRACT ADMINISTRATION
+
RESPONSIBLE CONTRACTORS
+
CITY of LOS ANGELES
THE WINNING TEAM ! ! !
General Services Division / Special Research & Investigation Section