CALIFORNIA SUBCONTRACTOR LISTING LAW
The Subcontractor Listing Law was enacted by the California Legislature over 50 years ago to protect subcontractors from the unfair and undesirable business practice of bid peddling and bid shopping by entities with whom they subcontract. In Public Contract Code (“PCC”) §4101 the Legislature expressly declared:
The Legislature finds that the practices of bid shopping and bid peddling in connection with the construction, alteration and repair of public improvements often result in poor quality of material and workmanship to the detriment of the public, deprive the public of the full benefits of fair competition among prime contractors and subcontractors, and lead to insolvencies, loss of wages to employees, and other evils.
Bid peddling and bid shopping was described by the California Supreme Court in Southern California Acoustics Co., Inc., v. C.V. Holder, Inc., (1969) 71 Cal.2d 719, 726-727, as:
“Bid shopping is the use of the low bid already received by the general contractor to pressure other subcontractors into submitting even lower bids. Bid peddling, conversely, is an attempt by a subcontractor to undercut known bids already submitted to the general contractor in order to procure the job. The statute [PCC §4104] is designed to prevent only bid shopping that takes place after the award of the prime contract. …Bid peddling and shopping prior to the award of the prime contract fosters the same evils but at least have to effect of passing the reduced costs on to the public in the form of lower prime contract bids.” Id.
Although bid shopping and bid peddling may result in lowering the cost of construction, such price savings are of no benefit to the public if they are obtained after a public entity awards a project because the awarding agency it has already committed to pay the general contractor a sum certain for the work. So. Cal. Acoustics, supra. General contractors peddle and shop bids after contract award to increase the difference between the price they will be paid by the awarding agency for a given scope of work and the price they will actually pay to have the work performed by a subcontractor, thereby increasing the general contractor’s profit.
By requiring a general contractor to list the subcontractors it will utilize to perform a specific scope of work at the time the general contractor submits the price at which the scope of work will be performed, Public Contract Code §4104 prohibits a general contractor from obtaining an award of work at a specific price and later peddling and shopping for the lowest bid of the subcontractor who will actually perform the work.
Currently, the Subcontractor Listing Law prevents bid peddling and bid shopping by:
- Requiring the entity which contracts with a public agency to identify (“list”) the subcontractors who it will use to perform more than one-half of one percent of the entity’s total bid to the public agency. [PCC §4104] AND
- Prohibiting the entity which contracts with the public agency from substituting a non-listed subcontractor for a listed subcontractor after bid time except under narrowly defined circumstances. [PCC §4107]
Both subcontractor listing at bid time and prohibiting deviations from the listed subcontractors are necessary to prevent bid peddling and bid shopping and the negative consequences that naturally follow.