The Subletting and Subcontracting Fair Practices Act (Public Contract Code (“PCC”) §§4100-4114), also known as the Subcontractor Listing Law (“Listing Law”), was enacted by the California Legislature to prevent the unconscionable business practices of bid shopping and bid peddling by contractors. The Listing Law applies to all public works projects within the State of California.
Basically, bid shopping is the use of the low bid already received by a contractor to pressure other subcontractors into submitting even lower bids. Bid peddling, on the other hand, is an attempt by a subcontractor to undercut known bids already submitted to a contractor in order to procure the job. In enacting the Listing Law, the Legislature recognized that the practice of bid shopping and bid peddling in connection with works of public improvements often
- results in poor quality of materials and workmanship to the detriment of the public;
- deprives the public of the full benefits of fair competition among general contractors and subcontractors; and
- leads to insolvencies, loss of wages to employees, and other evils. (PCC §4101).
The Listing Law deters bid shopping and bid peddling in two ways.
- It requires that all bids on public projects list the names and addresses of all subcontractors that will work on the project, as well as the scope of the work each subcontractor will perform. (PCC §4104).
- Once the bid has been accepted by the public entity, it prohibits the substitution of any subcontractor listed in the original bid, except in very limited circumstances, most of which deal with licensing and bond issues or the subcontractor’s refusal or inability to perform the specified work. If certain notice requirements are met, substitution may also be allowed if a subcontractor is erroneously listed due to clerical error.
The mandatory listing and identification of subcontractors and the prohibited deviation from that list are necessary to prevent bid peddling and bid shopping and to deter their negative repercussions. To further prevent these undesirable practices, the Listing Law also subjects noncompliant contractors to statutory penalties. Pursuant to PCC §4110, when a violation occurs, the awarding public entity may either cancel the contract or assess a penalty in an amount not exceeding 10 percent of the amount of the subject subcontract. In addition to these penalties, a violation also constitutes grounds for disciplinary action by the Contractors State License Board. (PCC §4111).
Before submitting a bid on a public works project, it is very important that a contractor ensure its bid correctly lists the subcontractors that will work on the project and accurately reflects each subcontractor’s scope of work. Failure to do so may result in lost profits, penalties, cancellation of the entire contract and/or disciplinary action.