Substitution In Public Works Projects

Law Talk

Kemp Bros. Construction, Inc. (Kemp) was the prime contractor for the Los Angeles Unified School District (District) on two public works projects. Titan Electric Corp. (Titan) was Kemp's electrical subcontractor on both projects. During construction, Kemp petitioned, under Public Contract Code section 4107 to replace Titan with another subcontractor contending that Titan had failed to perform its subcontract, which in turn disrupted the process of the work. Of course, Titan opposed the substitution claiming that it was ready, willing and able to perform the remaining work had Kemp not hired another electrician.

The District granted Kemp's motion for substitution and denied Titan's request for a hearing. Pending the decision, Kemp hired another subcontractor who completed the subcontract work.

Titan then petitioned for a Writ of Administrative Mandate (which is the manner in which one may seek a decision and have the court correct its prior actions). The Superior Court denied Titan's petition. Titan then appealed, contending that section 4107(b) of the Public Contract Code prohibited Kemp from replacing Titan before the District approved the substitution.

The Appellate Court affirmed the decision. It actually upheld Kemp's substitution. The case was affirmed allowing the awarding authority to consent to substituting out the listed subcontractor for a proposed replacement. Typically, consent must occur before the prime contractor permits the replacement to perform any work. However, a deviation from this procedure is valid if the procedure used actually complies in substance with the reasonable objective of the statute. Kemp replaced Titan because Titan abandoned the projects. Kemp's procedure in substituting Titan, though not in literal compliance, substantively complied with the purpose of section 4107. Therefore, the District's consent should not be invalidated. That is because this continues the practice by preventing bid peddling and bid shopping after the award of a public works contract and providing for an opportunity to the awarding authority to investigate the proposed replacement subcontractor before consenting to substitution.

The court held that although section 4107 asserts that the awarding authorities consent to the substitution approval of a replacement subcontractor will occur before the replacement performs the subcontracted work, a deviation from this procedure is valid so long as the procedure used actually complies in substance with the reasonable objectives of the statutes. Here, such substantial compliance occurred. The court also held that although Titan is correct in arguing that section 4107 contemplates the holding of a substitution hearing and the issuing of a ruling before a replacement subcontractor performs the work, Titan is incorrect in asserting that the failure to comply with the chronology necessarily invalidates the awarding authorities consent. Nothing in the statutory language allows that to happen. The grounds that were cited on behalf of Kemp was that Titan failed to perform its subcontract and substantially delayed or disrupted the project. By then, the substituted subcontractor had completed the subcontract work.

The court also stated that where there is compliance as to all matters of substance, technical deviations are not to be given the stature of noncompliance. Substance prevails over form. When the plaintiff embarks on a course of substantial compliance, every reasonable objective of the statute at issue has been satisfied.

Although I agree with the decision, it is somewhat of a problem in determining when it should be put into effect.