General Services Division / Special Research & Investigation Section SUBCONTRACTING LAWS and CITY REQUIREMENTS Okay, so there are rules. It seems like.

General Services Division / Special Research & Investigation SectionGeneral Services Division / Special Research & Investigation Section

SUBCONTRACTING LAWS SUBCONTRACTING LAWS and and

CITY REQUIREMENTSCITY 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.)


SubcontractingSubcontractingBasic Contract BreakdownBasic Contract Breakdown

25%30%

45%

Prime’s Participation Level

(Set either by Law or Awarding Authority

Prime must self-perform this

percentage of the work

Mandatory Subcontracting Minimum

(MSM) for project

Part of Sealed Bid. –

Prime is contractually obligated

Discretion of the PrimeAdditional Subcontracting

Opportunities

Subject to specific limitations on subcontract amount

If you have taken our If you have taken our BIDDERS’ INFO BIDDERS’ INFO Tutorial, you will Tutorial, you will recognize this chart.recognize this chart.

If you haven’t checked If you haven’t checked out “BIDDERS’ INFO, out “BIDDERS’ INFO, please do so.please do so.


Subcontractor SubstitutionsSubcontractor SubstitutionsSubcontractor ReplacementSubcontractor Replacement

$250,000Subcontract

JOE’s CONCRETE

COMPLETED $100,000

JOE CAN’T FINISH

$150,000 REMAINING WORK

HELP ! ! !

A subcontractor is bid-listed 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)

This creates the need to substitute him with a sub that can finish the remaining work.


Subcontractor SubstitutionsSubcontractor SubstitutionsSubcontractor Replacement (Cont’d)Subcontractor Replacement (Cont’d)

A CHUNK OUT OFTHE SCHEDULE !

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!

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 SubstitutionsSubcontractor SubstitutionsPenalties for Non-CompliancePenalties for Non-Compliance

GREAT NEWS ! !

We just saved a bunch of money !!

TOTALLY COOL !!

Only if you just got a

great deal on your car

insurance !


Subcontractor SubstitutionsSubcontractor SubstitutionsSubcontract Amounts ReviewedSubcontract Amounts Reviewed

$250,000Subcontract

JOE’s CONCRETE

COMPLETED $100,000

JOE CAN’T FINISH

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…)

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.

If Joe leaves the job unfinished,

The substituting sub is paid the remainder of the bid-listed amount.

NO LESS!!$150,000 REMAINING WORK

HELP ! ! !



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 ! !



BID-LISTED AMOUNT $ 250,000

WORK REMAINING $ 150,000

WORK COMPLETED $ 100,000

++

BID-LISTED AMOUNT $ 250,000

SUBSTITUTE SUB’s AMOUNT $ 150,000$ 150,000

BALANCE the BOOKS !BALANCE the BOOKS !


Subcontractor SubstitutionsSubcontractor SubstitutionsPenalties for Non-CompliancePenalties for Non-Compliance

25%30%

45%

BCA Subcontractor Outreach and EnforcementBCA Subcontractor Outreach and Enforcement

DURING THE PROJECT:

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

For more information about the subcontracting regulations and requirements, take a look at the information under:


The The INSPECTOR of PUBLIC WORKSINSPECTOR of PUBLIC WORKS is is the Designated Authority on the Designated Authority on

ALL subcontracting matters for theALL subcontracting matters for the

BOARD of PUBLIC WORKSBOARD of PUBLIC WORKS

The Required Procedures for obtaining approval of subcontractors for work on The Required Procedures for obtaining approval of subcontractors for work on Public Projects are not complex.Public Projects are not complex.

They are, however, strictly enforced so that the rights of subcontractors and They are, however, strictly enforced so that the rights of subcontractors and prime contractors alike are protected, as well as the Public’s interest.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 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 regard to your employment of subcontractors on City Projects, as well as the procedures for obtaining approvals for your subcontract issues.procedures for obtaining approvals for your subcontract issues.


Subcontractor SubstitutionsSubcontractor SubstitutionsFormat & Procedures Cont’dFormat & 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 BroadwayLos Angeles, California 90015

Attn. H. Russell Strazzella, Chief General Services Division


Subcontractor SubstitutionsSubcontractor SubstitutionsFormat & Procedures Cont’dFormat & Procedures Cont’d

Requests for subcontractor substitutions must contain the following information:Project Name Project Work Order Number (W.O.#)Bid-listed Subcontractor’s NameBid-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 addressReplacement Subcontractor’s business phone numberReplacement Subcontractor’s business FAX number ( when applicable)Replacement Subcontractor’s status ( OBE / MBE / WBE / DBE )Replacement Subcontractor’s State of California Contractor License NumberReplacement Subcontractor’s City of Los Angeles Business Tax Receipt Certificate (BTRC)Dollar amount of work to be performed by the subcontractorDescription 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.


Subcontractor SubstitutionsSubcontractor SubstitutionsSubstitution RequestsSubstitution 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).


Subcontractor SubstitutionsSubcontractor SubstitutionsSubstitution Requests (Notifications))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.


Subcontractor SubstitutionsSubcontractor SubstitutionsSubstitution Requests (Hearing Process)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.


Subcontractor SubstitutionsSubcontractor SubstitutionsSubstitution Requests (Hearing Process) ContinuedSubstitution 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.


Subcontractor SubstitutionsSubcontractor SubstitutionsSubstitution Requests (Hearing Process) ContinuedSubstitution 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


Subcontractor SubstitutionsSubcontractor SubstitutionsSubstitution Requests Board ApprovalSubstitution 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.


Subcontractor SubstitutionsSubcontractor SubstitutionsThe Critical PathThe 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.


Subcontractor SubstitutionsSubcontractor SubstitutionsThe Critical Path (Approvals)The Critical Path (Approvals)

Bureau of ContractAdministrationSubcontractor Approval Process

Division of General Services in coordination with Office of Contract Compliance

OCC Processes inPre-bid Phase forMBE / WBE & GFE

Bid List ApprovalRequest

Request toAdd

Subcontractor< 1/2 1 % ?

BCA/SRIApproval

ProcessingChecklist

Sub passeschecklist?

Yes

Unapproved

No No

Notify Prime toResolve issue

Primemust

respond

BCA/SRILetter of approval

BCA/SRI Adds toproject Subc-list

Yes

Unapproved

IssueResolved?

No

Yes

BCA/SRIApproval

ProcessingChecklist

Subs passchecklist?

Yes

BCA/SRI Adds toproject Subc-list

BCA/SRILetter of approval


Primemust

respond

IssueResolved?

No

Yes

UnapprovedNo

PRE-AWARD &MOBILIZATION PHASE

CONSTRUCTION PHASE

Okay, for you folks out there that like the fancy stuff…

This is how it looks plotted out.!


Subcontractor SubstitutionsSubcontractor SubstitutionsThe Critical Path (Substitutions)The Critical Path (Substitutions)

Bureau of ContractAdministrationSubcontractor Substitution Process

Prime'sSubstitution

Request

Required Documentationincludes letter of withdrawal

from subcontractor

SubcWithdrawal

letter attached?

No

"Five day"notification tosubcontractor

Five DayMandatory

Wait

SubcontractorResponse?

No

Copy Prime

"COMMR.Letter"

NotifySubcontractor andPrime; Substitution

Approved

YesSubcontractor

Agrees?

No

"COMMR.Letter"

Notify Prime;SubstitutionApproved

ScheduleCommissioner

for Hearing

SubstitutionApproved at

Hearing?

Substitution byPrime

Yes

SubcontractorRemains on

projectNo

"Commr.Letters" to Prime& Subc confirming

resolution

BCA/SRIApproval

ProcessingChecklist

NEW Sub passeschecklist?

"Mini GFE"ApprovalProcess

Mini GFE OK? Yes

Yes


No

Formal Final approval of Substitutions comes from the Board ofPublic Works

Yes

Board ApprovesCommr. Motion

Board ApprovesCommr. Motion

ENOUGH ALREADY !!


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.

Subcontractor SubstitutionsSubcontractor SubstitutionsThe Bottom LineThe Bottom Line


The Bottom LineThe Bottom LineWhen 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 ADMINISTRATIONBUREAU of CONTRACT ADMINISTRATION

+RESPONSIBLE CONTRACTORSRESPONSIBLE CONTRACTORS

+CITY of LOS ANGELESCITY of LOS ANGELES

THE WINNING TEAM ! ! !THE WINNING TEAM ! ! !

General Services Division / Special Research & Investigation Section SUBCONTRACTING LAWS and CITY REQUIREMENTS Okay, so there are rules. It seems like.

Documents

public project

prime bid

subcontractor andor

bidlisted amounts

concrete work

remaining work

original bidlisted

sealed bid