Tuesday, August 6, 2013

The Risks of Requiring Use of Specific Subcontractors

Not all subcontractors are created equal.  There are good ones and ones that a public agency may prefer not be used on their projects, based on past performance issues.

The Question:  May a public agency require use of a specific subcontractor, or prohibit use of certain subcontractors?

Risks:  Here are three risks associated with asking or requiring a contractor to substitute a subcontractor they have planned to use with a different subcontractor:
  • Cost:  Since the contractor's bid was based on the use of specific subcontractors, requiring the contractor to use a different subcontractor may result in added costs to the contractor that the contractor will want to pass onto the public agency.  In essence, the substitution request or requirement of the public agency represents a changed condition from the bid documents in which the contractor was free to select their own subcontractors.  
  • Liability:  If a public agency dictates the use of a specific subcontractor and there are any problems associated with the subcontractor's performance, the contractor will assert that the public agency is responsible for any added costs, since the contractor was forced to use a subcontractor not of their own choosing.
  • Third party action:  The substituted subcontractor may take action against both the contractor and the public agency, alleging that they were improperly removed from the project.  Depending on the outcome of such an action, that could end up in court, the public agency may be required to pay damages to the substituted subcontractor.
Strategies:  One of the best strategies for ensuring that qualified subcontractors are used on the project is to establish bidder responsibility criteria related to subcontractors that the contractor would need to demonstrate were met prior to being deemed a responsible contractor and being awarded the contract.  In Washington state, RCW 39.04.350 permits public agencies to establish supplemental bidder responsibility criteria that may relate to the qualifications and experience of the contractor, subcontractors, and key personnel.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

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