This feature is a part of "The Dotted Line" series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.
With a nearly $1 trillion federal infrastructure plan under discussion between President Joe Biden and lawmakers, contractors that specialize in private work could be considering a leap into the public sector. One thing they need to know is that disagreements can arise on any size project and over a wide variety of issues and public work is no exception.
Two of the top areas of contention involve change orders and having the leeway to replace a nonperforming subcontractor.
Contractors that are not used to working on public projects should become very familiar with the process that the governmental entity will follow when approving extra work and schedule extensions.
"There's a very prescribed manner in which to pursue change orders and claims against the government," said Michael Branca, managing partner at Peckar & Abramson PC's Washington, D.C., office. "You have to follow those procedures, or you're not going to be successful in recovering your additional costs."
On private projects, he said, the subcontractor, general contractor and owner might have relationships that allow for flexibility in how the contractors are permitted to proceed with changes to the work. For example, the general contractor's superintendent could make a phone call to the office, obtain permission for the change and then pass that on to the contractor or subcontractor. The details of how the change order price and how much extra time will be added to the schedule are then left to be worked out at some future point.
On public projects, Branca said, only the contracting officer and formally designated individuals have the authority to bind the government to any agreements that provide for changes beyond the original contract amount, scope of work and schedule.
"Relationships have a lot less to do with it than they do in the private world," he said.
Contractors also can run into a lot more red tape when they are trying to get change order approval, said attorney Todd Baxter, chair of the construction practice group at with Dickinson Wright PLLC in Phoenix.
"It can be more of a logjam in terms of keeping the project moving," he said.
In his experience, though, Baxter said that there are typically more rights for a contractor on a public project when it comes to stopping work while a claim is being reviewed.
Replacing a subcontractor
When one of its subcontractors has problems — i.e. it can't pay its suppliers leading to liens and lawsuits or it fails to provide adequate labor and falls behind on the schedule — the language in many forms of contracts between the general contractor and subcontractor allows the general contractor to terminate the subcontractor after following certain notice provisions or even for convenience if necessary.
If the owner is on board, and the general contractor has done everything it can to resolve the issue, then removing a nonperformer from the project isn't too difficult.
In general, said attorney Lisa Colon, partner in Saul Ewing Arnstein & Lehr's Fort Lauderdale, Florida, office, most public works contracts require that prime contractors provide the contracting agency with a list of the subcontractors they plan to use on the project. The prime contractor then typically would have to get written permission to replace any of the subcontractors on that list.
This, she said, is primarily to prevent bid shopping, which is when general contractors reveal a subcontractor's bid to other subcontractors in an effort to get them to lower their prices.
If one of the listed subcontractors is not performing, Colon said, then the prime contractor should document events that prove it and follow all notice procedures outlined in the subcontract.
"Usually the government is more than willing to give you the permission to change because it's in everybody's best interest to keep the project moving," she said.
Where it gets trickier, Colon said, is when the nonperforming subcontractor is a minority, small, woman-owned or other certified, disadvantaged business that helps the project meet mandated participation goals.
"You cannot just fire them," she said. "You cannot just replace them."
In that situation, Colon said, the contracting agency will probably want the prime contractor to go to extra lengths to help the subcontractor overcome whatever difficulties it is having in order to stay on the project and complete its work successfully. Barring that, the subcontractor will likely have to be replaced with another minority or small business contractor, which could be very difficult.
"In reality, there may not be a qualified subcontractor to do that type of work on a moment's notice," she said, "so you really have to manage that process and try to work against termination because it's not as easy as it seems."
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