The performance of extra work or disputed on any given competitively bid public works construction project has become customary in the industry. Generally, controversies regarding such work arise out of the scope of work to be performed pursuant to the contract documents. A typical situation involves the public agency asserting that the contract documents require the contractor to perform specified work for which the contractor or subcontractor contend is outside the contractual scope of work.
Pursuant to Section 3-3 of the Standard Specifications for Public Works Construction (The Greenbook), entitled Extra Work, new and unforeseen work will be classified as extra work when the Engineer determines that it is not covered by Contract Unit Prices or stipulated unit prices. Consequently, expenses would be necessitated by the conditions being other than as represented. In accordance with Section 3-5 of the Greenbook, entitled Disputed Work, if the Agency directs the general contractor (General to proceed with work which cannot be agreed upon, the General (or its subcontractor) must complete the work in accordance with the plans and specifications and dispute such work, per the Greenbook, for payment resolution at a later date.
Duties and Options of the General Contractor
Problems do however arise, when it comes to making a request that a listed subcontractor perform extra work or disputed work. In most cases, the listed subcontractor will perform the work pursuant to the Disputed Work provision in the Greenbook. However, the General is placed in a precarious position when the subcontractor refuses to perform the work. The General must decide whether it will hire another subcontractor or perform the work itself.
If the subcontractor refuses to perform the work, the General is left open to the "purported" risk of violating Public Contract Code ' 4107. In accordance with Public Contract Code ' 4107, a prime contractor whose bid is accepted may not substitute a subcontractor in place of the subcontractor listed in the original bid. There are however, exceptions to the statute, wherein the Agency may give the General permission to substitute another subcontractor. Frequent situations falling within such exceptions include, but are not limited to the following:
- Bankruptcy or insolvency;
- The listed subcontractor's refusal to execute a written contract;
- Performance of substantially unsatisfactory work or delaying or disrupting work progress (as determined by the awarding authority);
- Improper licensing;
- Failure or refusal to perform its subcontract;
- Failure or refusal to meet the bond requirements;
- Determination by the awarding authority that a listed subcontractor is not a responsible contractor; and/or
- When the General makes an inadvertent clerical error in its listing of a subcontractor. (1)
If any of the above situations arise, the General may substitute the listed subcontractor. In doing so, it must make a request(2) for the subcontractor's substitution to the Agency, or its duly authorized officer. Although not specifically required by statute, case law dictates that the General should specifically state a reason for the request, and get permission from the Agency as to the replacement subcontractor(s) who will be performing the work in place of the listed subcontractor.(3)
Failure to comply with the statute may result in penalties against the Agency and/or General.(4) However, special circumstances such as emergency situations do arise, which would likely provide justification for such a departure from the formal substitution requirements. But, as a practical matter, unless one of the statutory exceptions is satisfied, the General has no right to substitute another subcontractor in place of the listed subcontractor for work in which the subcontractor is listed. To that end, the statute confers upon the listed subcontractor the right to perform the subcontract, unless statutory grounds for a valid substitution exist. Moreover, that right may be enforced by way of an action for damages against the General to recover the profits (i.e., benefit of the bargain) which the listed subcontractor would have otherwise realized had it not been prevented from performing the work contained within the original bid documents.(5) Conversely, if any set off is claimed, the general rule is that a setoff must rest on a claim enforceable in its own right.(6)