Setting Up for a Successful Project: Subcontractor Bidding Issues

• Author: By Jennifer L. Dauer
• Pages: 5-14

THE CONSTRUCTION LAWYER 5Winter 2020

Jennifer L. Dauer

Published in The Construction Lawyer, Volume 40, Number 1 Winter 2020. © 2020 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion

thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Setting Up for a Successful Project: Subcontractor

Bidding Issues

By Jennifer L. Dauer

Jennifer L. Dauer is a partner at Diepenbrock Elkin Dauer

McCandless LLP in Sacramento, California.

Unlike private construc-

tion projects, public works

projects generally must be

competitively bid, allowing

all qualied contractors the

opportunity to submit a bid

and secure the contract. The

competitive bidding process

traditionally involves public

advertisement for the sub-

mission of sealed bids, the

public opening of bids, and

the award of contracts to the

lowest responsible bidder that is responsive to the solicita-

tion.

1

Bidders may be required to list the subcontractors

they expect to use on the project if awarded the contract.

In many jurisdictions, bidders must list some percentage

of subcontractors (or show good faith efforts to enlist)

who are socially disadvantaged business enterprises, such

as local businesses, woman- or minority-owned businesses,

disabled veteran business enterprises, or qualied “small”

businesses. In some of those jurisdictions, bidders are

required to use those listed subcontractors unless limited,

specied grounds for substitution exist. When federal

funding is involved, such listing and outreach to disadvan-

taged business enterprises may be required, even absent a

state or local law requiring same. Other jurisdictions, such

as California, impose subcontractor listing requirements

for all public projects above a threshold dollar value.

Bidders required to list and use subcontractors nd

themselves with additional pre-bid responsibilities at a

time when they are rushing to complete their bids and

minimize their price. At a minimum, bidders must verify

that selected subcontractors are properly licensed and

have the skill and experience to perform the work. In

addition, in instances where a bidder is unable to meet

a disadvantaged business participation requirement or

goal, it may be necessary for the bidder to demonstrate

“good faith efforts” to involve such businesses. Such efforts

must be documented, and extensive documentation may

be required when, or shortly after, the bid is submitted.

Moreover, for listed subcontractors, the bidder is often

required to show they are performing a “commercially

useful function,” which is intended to ensure that the

subcontractors are not merely an extra, superuous

participant in the transaction, listed only to win the bid.

Even where outreach to disadvantaged subcontrac-

tors is not required, the bid process can be fraught where

the bidder is required to use any listed subcontractors.

Absent a teaming agreement by a subcontractor to work

exclusively with one bidder, subcontractor bids often are

submitted only hours before the prime bid is due. Bid-

ders then are rushed to review and compare all sub-bids

in various trades and determine the most appropriate

bid. Potential subcontractors will not necessarily bid the

same scopes of work within one trade and may offer var-

ious options that change their pricing. In addition, the

sub-bids may contain terms that differ from terms in the

prime contract when awarded (e.g., payment terms that

differ from the public entity’s obligations). If a bidder

does not identify such discrepancies during bidding, it

may be bound to use a subcontractor at terms that are

different from what the bidder expected.

This article addresses common subcontractor outreach

and listing requirements, as well as subcontractor bidding

issues that arise during the pre-bid process that may have

material implications on performance if not addressed.

Subcontractor Listing Requirements—

Use of Disadvantaged Business Subcontractors

Whether under requirements on contracts that are feder-

ally funded or pursuant to state law, many public works

projects contain percentage participation goals for disad-

vantaged businesses to remedy past discrimination or to

lower barriers to underrepresented groups participating

in construction.

2

Programs supporting socially disadvan-

taged businesses frequently require bidders either to be

a disadvantaged business or to commit to use disadvan-

taged businesses for a specied percentage of the work.

Bidders may have the option to establish “good faith

efforts” to meet the goal percentage. Bidders who fail to

meet the goal or establish good faith efforts generally are

not eligible for the contract award. In addition, or in the

alternative, some public entities provide pricing prefer-

ences to bidders who are, or commit to use, disadvantaged

businesses in performing the contract. Disadvantaged

businesses frequently include businesses owned by minori-

ties, women, or veterans (sometimes disabled veterans).

Some public entities have preferences for businesses in

economically undeveloped or underdeveloped areas.

Local public entities, in particular, may award prefer-

ences to favored contractors or subcontractors located

in the awarding entity’s jurisdiction. Although types of

PRE-BID PROCESS