Court clarifies subcontractor substitution requirements
A California appellate court recently clarified the requirements for substitution of a subcontractor on a public works project under Public Contract Code sections 4100-4114. (Titan Electric Corp. v. Los Angeles Unified School District (2008), 160 Cal.App.4th 188.) Public Contract Code section 4107 prohibits a contractor on a public works project from substituting a subcontractor unless the public agency consents to the substitution, and one of nine specific statutory circumstances has occurred. Section 4107 also requires the public agency to provide notice to the subcontractor being removed and to conduct a hearing on the substitution if requested by that subcontractor. However, the Titan court upheld the substitution of an electrical subcontractor even though a hearing was not conducted until after a new subcontractor had already been hired and completed the remaining work, concluding that the parties had substantially complied with the statutory requirements.
In the Titan case, the Los Angeles Unified School District awarded two separate public works projects to Kemp Bros. Construction: the Huntington Park Elementary School and the Los Angeles Center for Enriched Studies. Titan Electric Corporation was the electrical subcontractor to Kemp for both of these projects. During the course of the work, Kemp petitioned the District to substitute Titan, alleging that Titan had failed or refused to perform its subcontracts and had substantially delayed or disrupted the progress of the work. Titan opposed the substitution requests and demanded an administrative hearing under Public Contract Code section 4107. The District granted Kemp’s request to substitute Titan. However, by the time the hearings were conducted, Kemp had already hired a new electrical subcontractor which had completed the remaining electrical work.
Titan sued the District seeking administrative mandamus to reverse the District’s approval of the substitution, arguing that the District had no authority to approve the substitution after another subcontractor had already completed the work. The trial court denied Titan’s petition, concluding that nothing in the statute or case law precludes a public agency from consenting to a substitution after a new subcontractor has already been hired. The appellate court came to the same conclusion, stating as follows: “Although section 4107 contemplates that the awarding authority’s consent to substitution and approval of a replacement subcontractor will occur before the replacement performs the subcontract, a deviation from this procedure is valid so long as the procedure used actually complies in substance with the reasonable objectives of the statute. Here, such substantial compliance occurred.”
The Titan case may be welcome news for public agencies and general contractors. It allows for the substitution of a subcontractor even where the hearing contesting that substitution occurs after a new subcontractor has been hired, provided there has been “substantial compliance” with the statutory requirements. Of course, the best practice is still to conduct the hearing prior to a new subcontractor being hired.
