LEGAL ISSUES
The Painstaking Process of Substituting Subcontractors on Public Projects
By Richard M. Harris Rogers Joseph O’Donnell
Replacing subcontractors on a
public works project can be a laborious process, risking significant delay to a construction project. Bernard Bros., Inc. recently learned
this lesson on a project for the Santa Monica Community College District. Under the subcontractor listing laws, the awarding authority has wide discretion to create a speedy process to replace a non-performing subcon- tractor, or a drawn-out process that ultimately delays the project.
Background In this 2019 case (JMS v. Santa
Monica Community College District), Bernard Bros. Inc. was the low bidder on construction contract for the Santa Monica Community College District. Pursuant to Public Contract Code 4104, the District required all significant subcontractors to be listed. Bernard Bros. listed JMS Air Conditioning for the heating, ventilation, and air condi- tioning for the project for $8.2 million. After signing a subcontract, JMS began its scope of work in April 2015. By March 2016, things had soured
between Bernard Bros. and JMS, and Bernard Bros. began the process to remove a subcontractor from a public project. Tis requires 1) Bernard Bros. to inform the District of the intention to and reasons for removing a subcon- tractor, 2) the District to give JMS five working days to object, 3) when JMS objects, the District must set up a hearing to decide the matter. Bernard Bros. started the process
on March 30, 2016, stating that JMS 1) had refused to perform under its subcontract or, alternatively 2) JMS was not licensed to complete its work. Unfortunately, the District took almost a month to set up hearing and
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its procedures and did not produce a decision until May 10, 2016. Tus, even though Bernard Bros. would prevail, it could not replace the subcon- tractor for over a month.
The “Hearing” Even with all this time and
planning, the District limited the hearing structure, allowing each side to state its case to the hearing officer for only 40 minutes and produce whatever documentary evidence it thought was appropriate. No testimony was under oath and there was no cross-examination. Te most significant piece of
evidence was a letter written by Robert Berrigan, a lawyer who used to work for the California State License Board. Tis lawyer stated that he believed JMS was not licensed to complete some of the work in its contract. (Specifi- cally, the “boiler work” included in JMS’s contract was not incidental to HVAC work, and therefore JMS was not licensed to complete that work.) Berrigan’s letter, like all the evidence, was not certified or under oath. Brown, the hearing officer desig-
nated by the District, credited Berrigan in a written decision, and agreed to allow Bernard Bros. to substitute JMS with another contractor because JMS was not licensed to perform the boiler work.
The Court Affirms the Process JMS filed suit, complaining
that the “hearing” described in the statute must constitute more than it had received. Without a chance for cross-examination or sufficient time to prepare, JMS claimed it was unfair for them to be substituted without a more robust process. Ultimately, the Court of Appeals agreed with Brown’s decision and rejected JMS’s claim. Te Court found that the hearing gave JMS a sufficient opportunity to be
heard, given the limited nature of its rights. Because the subcontractor listing laws are meant to stop bid shopping and bid peddling, the hearing only needs to give each party a reasonable opportunity to be heard, with due regard for the factual context. Tus, this hearing was suffi- cient, and JMS failed to object before or during the hearing about any of its complaints. As such, the Court affirmed the decision.
Even Less Process Acceptable? In JMS v. Santa Monica Community
College District, the Court of Appeal gives wide discretion to the awarding authority to structure the hearing however it sees fit. Te substitution process took over a month to complete (followed by two years of litigation), but the District had the freedom to be more elaborate, if it chose. Te District could have held a
much more elaborate hearing, delaying the HVAC work for far more than a month, and Bernard Bros. would have little power to challenge that decision. Alternatively, the hearing could have been completed in less than a week, as long as each party has an opportunity to be heard by a neutral decisionmaker. Given this case, a prime contractor
might want to review the substitution process with the owner before the process begins. Finding a process that is sufficient for the courts but also efficiently organized for the construction context may take work at the beginning, but will limit any delays a substitution may cause.
Richard M. Harris is an Associate
with Rogers Joseph O’Donnell, San Francisco. He can be reached at 415.956.2828, or
rharris@rjo.com.
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