Matters involving subcontracting are best left to the discretion of the general contractor. The percentage of work the contractor plans to subcontract, the form of subcontract to be utilized, and the manner in which the subcontract packages will be broken down are all issues to be decided by the contractor based on his needs and the needs of the project. Those decisions form the basis for that contractor’s competitiveness and quality.

With specific regard to public work, the issues of SUBLISTING, SUBCONTRACTOR APPROVAL, SUBCONTRACTING LIMITATIONS, SUBCONTRACTOR AGREEMENTS, and SUBCONTRACTOR PAYMENTS are discussed below.

SUBLISTING: Sublisting requirements on public work have been viewed by the courts in New York State, most notably in the case of GBC v. the City of Syracuse, as illegal forms of prequalification. Likewise, viewing the qualifications of the low prime bidder in the light of his proposed subcontractors and suppliers is inappropriate. Award is to be based solely on the responsibility of the prime bidder.

As a practical matter, requirements for the listing of subcontractors at the time of bid are daunting and stifling. Oft times, subcontract prices are not provided prime bidders until minutes prior to bid opening. It is tough enough, although a task to which the industry is accustomed, to make the decision about what number to plug into the overall bid. To ask, in addition, that the contractor fully analyze the sub-bids for scope and quality of subcontractor and then come to an agreement is simply not practical. As an owner, you typically take up to 45 days to make such a decision on the prime contractor. It is unfair to ask that prime, who carries a great deal of risk, to make such a decision in minutes.

SUBCONTRACTOR APPROVAL: Owners, both public and private, have the right of subcontractor approvals or, as the case may be, disapprovals where objective facts dictate. Clauses in AIA’s A701, Instructions to Bidders, and A201, General Conditions, are instructive as to the process. On public work, talk of a change in price is inappropriate. It amounts to negotiation and is subject to abuse.

SUBCONTRACTING LIMITATIONS: Attempts to limit the ability of the general contractor to subcontract work with requirements of 25%, 35% or even 50% self-performance unduly hamstring the contractor. That matter should be left to the discretion of the prime bidder to determine the best and most efficient way to complete the project on time and within budget. Given the nature of the industry today, particularly in building construction, such requirements are not practical.

More important, such restrictions are arbitrary and anti-competitive on public work. There is no empirical evidence that would suggest that those who subcontract more than a given percentage of the work are not qualified. In the case of GBC v. Marathon C.S.D., the Commissioner of Education states, "There is no authority in the law for imposing such a restriction."

SUBCONTRACT AGREEMENTS: Requirements that the general contractor use specific subcontract agreement forms invade upon the prerogatives of the contractor in his relationships with subcontractors. It is the prime contractor who guarantees the work, who puts up a bond, and who is ultimately responsible for his subcontractors’ indiscretions in many areas. With the exception of certain flow-down clauses in the prime contract, contractors should be left to determine and put in place the management tools necessary to the situation. It is no more equitable to dictate in this area than it would be for the government to dictate to owners what forms of contract to use.

In addition, owners need to understand that subcontract agreements are proprietary documents that are not their concern except that there are certain contractual requirements of the prime that must be passed on.

SUBCONTRACTOR PAYMENT: Like the subcontract agreement above, this is a freedom to contract issue. Payment is a primary subcontract management tool. Invasion into this process by dictating retainage amounts or, worse, engaging in direct subcontractor payments can seriously hinder the contractor’s ability to complete the work. For more information regarding timing of payment and retainage click here.