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CONSEQUENCES AND RAMIFICATIONS OF BEING LISTED AS
A SUBCONTRACTOR ON A PUBLIC WORKS PROJECT

By Attorney Beard Hobbs

The following article will explore two common occurrences pertaining to a subcontractor being listed by a general contractor on a Public Works Project.

Assuming that the general/prime contractor is the low bidder on the project, the following applies to the rights and duties of the general/prime contractor and/or the listed subcontractor.

Section 4106 of the Public Contract Code provides in part that a general/prime contractor must list a subcontractor to perform any scope of work that exceeds one-half of one percent of the total contract value. Failure of the general/prime contractor to list a subcontractor for work that exceeds more than one-half of one percent of the total contract price, means that the general/prime contractor is certifying that he/she is “fully qualified” to perform that portion of the work him or herself and that the general/prime contractor shall actually perform that portion of the work himself or herself.

Although many general/prime contractors subsequently subcontract out unlisted work, the practice is known as bid shopping and is in direct violation of the Public Contract Code. A general/prime contractor that has been reported for not complying with Section 4106 of the Public Contract Code is subject to a 10% penalty levied by the Public Entity or forfeiture of the contract.

A more typical event happens when a subcontractor submits a bid to the general/prime contractor, and the general/prime subcontractor listing the subcontractor then decides not to use the listed subcontractor.

The Subcontractors Fair Practices Act confers a right on a listed subcontractor to perform the subcontract unless a valid reason exists to substitute another subcontractor in place of the listed subcontractor. Pursuant to the case R.J. Land & Associates Const. Co. v. Kiewit-Shea (App. 2 Dist 1999) 81 Cal. Rptr. 2d 615; the subcontractor who is harmed because he is not awarded the subcontract may file a lawsuit against the general/prime contractor for the benefit of the bargain the subcontractor would have realized had the subcontract not been wrongfully deprived of the subcontract.

Public Contract Code Section 4107 et seq, list the follow reasons that a general/prime contractor may seek to substitute another subcontractor in place of a listed subcontractor.

1.) When the subcontractor after reasonable time refuses to execute a written contract for the scope of work specified in the subcontractor’s bid.

2.) When the listed subcontractor becomes bankrupt or insolvent.

3.) When the listed subcontractor fails or refuses to perform its scope of the subcontract.

4.) When the listed subcontractor fails to meet the bond requirements of the general/prime contractor in accordance with Public Contract Code Section 4108.

5.) When the general/prime contractor demonstrates to the awarding authority that the name of the subcontractor was listed as a result of a clerical error.

6.) When the listed subcontractor is not licensed.

7.) When the awarding authority determines that the listed subcontractors work is unsatisfactory and not in accordance with the plans and specifications.

8.) When the listed subcontractor is ineligible to work on a public works project.

9.) When the awarding authority determines that the listed subcontractor is not a responsible contractor.

All of the above actions cannot be imposed without proper notice and an opportunity for an administrative hearing on the subject.

The next most common event occurs when the listed subcontractor determines that it made a significant error on its bid and no longer wants to perform the work. Be advised that if the general contractor had no reasonable reason to believe that your bid was made in error and the general contractor relied on your bid to obtain the awarded project, you are obligated to perform the work for the bid price. Failure on the part of the subcontractor to perform the work for the bid price, will give rise to the general/prime contractor having the right to retain the service of the next lowest bidder and to recover the benefit of the bargain damages from the subcontractor who refused to perform the work as bid.

The test as to reasonable belief is somewhat subjective, but if you bid $100,000 to perform a specific scope of work, and the general contractor receives three other bids for $110,000. $120,000, and $130,000 there would probably be no way you would successfully argue that the general/prime contractor knew or should have known that you had made an error when you submitted your bid for the project. However, if your bid was $100,000 and the other three bids were $175,000, $190,000 and $200,000, the general/prime contractor probably was put on sufficient notice that something was wrong with you bid and that before using your bid, the general/prime contractor should have contacted you to see if there was an error in your bid.

For assistance in having a null or void Mechanic’s Lien expunged from your property,
contact Attorney Beard Hobbs at 619-698-0977.

Disclaimer

The article provided here is for your convenience. You may copy and distribute the information in any form, print or electronic. But, this disclaimer and the information below must remain with the article in whichever form it is distributed.

BEARD HOBBS CONSTRUCTION LAW

Mechanic’s Liens, Stop Notices, Payment Bonds, Miller Act,
Construction and Contract Disputes, Construction Defects

http://www.contractorjustice.com

7844 La Mesa Boulevard
La Mesa, CA 91942
Ph: (619) 698-0977

MECHANIC'S LIEN FILING AND SERVICE REQUIREMENT

By Beard Hobbs Attorney at Law

For years, contractors and material suppliers have recorded Mechanic's Liens with the knowledge that once the Mechanic's Lien was recorded, the contractor/material supplier had 90 days to perfect the Mechanic's Lien by filing a lawsuit. Beginning January 01, 2011, the law changes and failure to comply explicitly with the new change to the law, a recorded Mechanic's Lien, will be unenforceable as a matter of law.

Beginning January 01, 2011, Civil Code Section 3084(6)(7) will require that once your Mechanic's Lien has been recorded at the County Recorder’s Office, you must send a copy of the Mechanic's Lien to the owner/reputed owner of the property by registered, certified or first class mail accompanied by a very specific Notice of Mechanic's Lien.

The Notice of Mechanic's Lien advises the owner/reputed owner that a Mechanic's Lien has been recorded against their property. That the property is subject to a legal action seeking a court ordered foreclosure sale of the property. The notification must advise the owner/reputed owner that any legal action must be commenced within 90days of having recorded the Mechanic's Lien. The notice must advise the owner/reputed owner that you have provided labor and/or material to the property and that you have not been paid. The notice must also inform the owner/reputed owner that the Mechanic’s Lien may affect the owner/reputed owner's ability to borrow against, refinance or sell the property. Finally, the notice must advise the owner/reputed owner that they may want to discuss the Mechanic's Lien with the general contractor, CSLB and/or an attorney.

In addition to sending the owner/reputed owner a very specific and code compliant Notice of Mechanic's Lien, the sender is obligated to execute a proof of service affidavit.

FAILURE TO SEND A NOTICE OF MECHANIC'S LIEN BY REGISTERED, CERTIFIED OR FIRST CLASS MAIL AND EXECUTE A PROOF OF SERVICE AFFIDAVIT WILL RENDER YOUR MECHANIC'S LIEN UNENFORCEABLE AS A MATTER OF LAW!!!!

We are advising our clients and Master Liens to immediately comply with the new provisions of the Civil Code. We are also advising our clients to send all notifications via registered or certified mail.

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PROMPT PAYMENT STATUTES

PENALTIES LEVIED AGAINST CONTRACTORS FOR NOT MAKING TIMELY PAYMENTS TO SUBCONTRACTORS AND/OR MATERIAL SUPPLIERS and PENALTIES LEVIED AGAINST PROJECT OWNERS FOR NOT MAKING TIMELY PAYMENTS TO GENERAL CONTRACTORS

Business & Professional Code Section 7108.5

Civil Code Section 3260 et. seq.,

Public Contract Code Section 7107, 20104.50, 10853 & 10261.5

Progress Payment from Project Owner to General Contractor: (Private Works)

Civil Code Section 3260.1, provides in part that a project owner must make a progress payment to the general contractor within 30 days after having received a request for payment. Failure to make a timely progress payment by the project owner subjects the project owner to a 2% per month penalty in lieu of interest, plus attorney fees and cost.

Retention Payment from Project Owner to General Contractor: (Private Works)

Civil Code Section 3260, provides in part that the owner must pay all retention being held within 45 days of the date of completion of the project. Completion of the project is determined by the date that the building department signs the project off as final. Generally speaking punch list generated after the project has been signed off as final does not extend completion of the project. The penalty for not paying retention within 45 days of completion of the project is 2% per month in lieu of interest, plus attorney fees and cost.

Progress Payment from Local Agency to General Contractor: (Public Works)

Public Works Contract Code Section 20104.50, provides in part that a local agency must make progress payments to the general contractor within 30 days after having received a request for payment. Failure to make a timely progress payment by the local agency subjects the local agency to a penalty of 10% per annum interest.

Progress Payment from a California State University to General Contractor:

Public Works Contract Code Section 10853, provides in part that a California State University must make progress payments to the general contractor within 30 days of having received a payment request. Failure to make a timely progress payment by the University, subjects the University to a 10% per annum interest penalty from the date the payment is due.

Progress Payment from a State Agency to General Contractor: (Public Works)

Public Works Contract Code Section 10261.5, provides in part that a State Agency must make progress payments to the general contractor within 30 days of having received a payment request. Failure to make a timely progress payment by the State Agency, subjects the State Agency to a 10% per annum interest penalty from the date the payment is due.

Retention Payment from a Public Entity to General Contractor: (Public Works)

Public Works Contract Code Section 7107, provides in part that a Public Entity must tender the contract retention to the general contractor within 60 days after the date of completion of the project. Failure to tender the retention after completion of the project subjects the Public Entity to a 2% per month penalty in lieu of interest plus attorney fees and cost.

Progress Payment from General Contractor to Subcontractor – Subcontractor to Subcontractor (all tiers): (Public & Private Works)

California Business and Professional Code Section 7108.5, provides in part that a General contractor must tender payment to its subcontractors within 10 days of receipt of payment from the owner for the amount allowed by the owner for the subcontractors work. This statute also applies to payments owed by a subcontractor to a lower tier subcontractor. The penalty for not tendering allowed progress payments within 10 days of receipt of same is 2% per month, plus interest at the legal rate of 10% plus attorney fees and cost.

Progress Payment from General Contractor to Subcontractor: (Public Works)

Public Works Contract Code Section 10265.5, provides in part that a general contractor must tender payment to its subcontractors within 10 days of having received payment from the project owner for the amount of work allowed by the owner for the subcontractors work. The penalty for not tendering allowed progress payments within 10 days of receipt of same is 2% per month, plus interest at the legal rate of 10% per annum, plus attorney fees and cost.

Retention Payment from General Contractor to Subcontractor: (Private Works)

California Civil Code Section 3260, provides in part that the general contractor must tender retention to its subcontractors within 10 days of receipt of the retention from the project owner. Failure to tender retention within 10 days of receipt of the retention subjects the general contractor to 2% per month penalty in lieu of interest plus attorney fees and cost.

Retention Payment from General Contractor to Subcontractor:
(Public Works)

Public Works Contract Code Section 7107, provides in part that the general contractor must tender retention to its subcontractors within 10 days of receipt of the retention from the public entity. Failure to tender retention within 10 days of receipt of the retention subjects the general contractor to a 2% per month penalty in lieu of interest plus attorney fees and cost.

Conclusion

Without exception, general contractors and subcontractors are entitled to be paid within very specific and specified time frames. Keeping track of progress payment request and retention payments, will put you in a better position to apply pressure on either the project owner or general contractor to assure that you receive payments as required by various codes. Protect your rights by being educated and aware of the rule of law pertaining to progress and retention payments.

This summary of progress and retention payment rights is prepared by Attorney Beard Hobbs a Construction Law Attorney who can be reached by calling 619-698-0977 or 888-232-7314.

Disclaimer

The article provided here is for your convenience. You may copy and distribute the information in any form, print or electronic. But, this disclaimer and the information below must remain with the article in whichever form it is distributed.

BEARD HOBBS CONSTRUCTION LAW

Mechanic’s Liens, Stop Notices, Payment Bonds, Miller Act,
Construction and Contract Disputes, Construction Defects

http://www.contractorjustice.com

7844 La Mesa Boulevard
La Mesa, CA 91942
Ph: (619) 698-0977

QUESTIONS ABOUT RECORDING A MECHANIC’S LIEN

Question: Do I have the right to record a Mechanic's Lien on someone's property?

Answer: Mechanic's, material suppliers, contractors, subcontractors, lessors of equipment, artisans, architects, registered engineers, licensed land surveyors, machinists, builders, teamsters, and draymen, and all persons and laborers of every class performing labor upon or bestowing skill or other necessary services on, or furnishing materials or leasing equipment to be used or consumed in, or furnishing appliances, teams, or power contributing to work of improvement shall have a lien upon the property.

The bottom line is that if you have somehow ENHANCED the value of real property and under very specific circumstances, you have the right to record a Mechanic's Lien against the person's whose property you enhanced.

Question: I am an unlicensed contractor. Do I have the right to record a Mechanic's Lien against someone's property?

Answer: NO!!!! If you perform work that requires a contractor's license and you do not have a contractor's license during all phases of the work, you DO NOT have the right to record a Mechanic's Lien against someone's property.

Question: Do I have to have a direct contract with the property owner in order to have the right to record a Mechanic's Lien?

Answer: If you do not have a direct contract with the owner, you must serve the owner with a 20-Day Preliminary Lien Notice within twenty days of first having performed the work or you cannot record a Mechanic's Lien.

If you have a direct contract with the property owner, you can record a Mechanic's Lien without first having to serve the owner with a 20-Day Preliminary Lien Notice. (See July 2009, Update on Preliminary Lien Notices)

Question: When can I record a Mechanic's Lien against someone's property?

Answer: When someone owes you money for work performed on their property and subject to previously discussed pre-recording requirements, you have the legal right to record a Mechanic's Lien against the property.

Question: What is the last date that I can record a Mechanic's Lien?

Answer: If you are a general contractor, subcontractor or material supplier you generally have ninety (90) days from the last day that anyone worked on the project. The general rule of law is that the clock starts ticking on the day the building inspector signs the project off as completed.

If a Notice of Completion has been recorded and mailed to you by certified mail, the time to record your Mechanic's Lien changes depending on whether you are a general contractor or a subcontractor and/or material supplier. General contractors have sixty days after the Notice of Completion has been recorded and subcontractors and/or material suppliers have thirty (30) days after the Notice of Completion has been recorded.

If the project becomes abandoned and no Notice of Cessation is recorded, you have 150 days from the date that all work stopped to record your Mechanic's Lien.

Question: Once I record a Mechanic's Lien, what do I do?

Answer: If you haven't been paid, you must file a lawsuit within ninety days of the date your Mechanic's Lien has been recorded or the Mechanic's Lien becomes legally void.

Question: What happens if I don't file a lawsuit within the ninety days and I don't release the Mechanic's Lien?

Answer: A void Mechanic's Lien is a SLANDER on the title of the property. It does not disappear just because you haven't filed a lawsuit. If you do not release the Mechanic's Lien, you can be sued for slander of title and, at the minimum, the court will award the property owner $2,000 in damages despite the fact that the property owner may owe you money.

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RELEASE, REMOVAL, EXPUNGE, VOID, UN-PERFECTED OR WRONGFULLY RECORDED MECHANIC’S LIENS

Civil Code Section 3154 et. seq.

By Attorney Beard Hobbs

619-698-0977

Subject to certain restrictions just about anyone who provides labor, materials and/or supplies to a construction project can record a Mechanic’s Lien against that project. The problem arises when someone either records a Mechanic’s Lien when they have no legal right or entitlement to record the Mechanic’s Lien, or when the person or entity that recorded the Mechanic’s Lien fails to file a lawsuit to perfect or foreclose its Mechanic’s Liens.

When a Mechanic’s Lien is recorded against your property, it acts as a cloud on title. Once a Mechanic’s Lien has been recorded the Mechanic’s Lien claimant has 90 days to perfect the Mechanic’s Lien by filing a lawsuit to perfect or foreclose the Mechanic’s Lien.

If the lien claimant fails to file a lawsuit to perfect or foreclose the Mechanic’s Lien within 90 days of the recording of the Mechanic’s Lien, the Mechanic’s Lien becomes legally null and void.

Although a Mechanic’s Lien which has not been timely perfected is legally null and void, the Mechanic’s Lien still acts as a cloud and slander on the title the subject property.

California Civil Code Section 3154, provides an owner of property a legal means to have a null and void Mechanic’s Lien expunged from their property.

The steps to expunge a null or void Mechanic’s Lien are as follows:

1.) You must send a written demand to the lien claimant demanding that they immediately release the Mechanic’s Lien.

2.) If the lien claimant refuses to release the Mechanic’s Lien you can file a verified petition to expunge the Mechanic’s Lien with a Superior Court located in the County and venue where the Mechanic’s Lien was recorded.

3.) The petition must contain the following:

a.) The date of recording the Mechanic’s Lien.

b.) A legal description of the property.

c.) A declaration that no action to foreclose the Mechanic’s Lien has been commenced.

d.) A declaration that the Mechanic’s Lien claimant has refused to release the Mechanic’s Lien.

e.) A declaration that the owner of the property has not filed for any relief under any law governing bankruptcy and that there exist no other restraint to prevent the lien claimant from perfecting the Mechanic’s Lien.

Once the petition to expunge the Mechanic’s Lien has been filed with the court, the court must set a hearing date within 30 days of the filing of the petition. The petition must be served on the lien claimant.

If you are the prevailing party, the court will issue an order that the Mechanic’s Lien be released and expunged from your property. If you are the prevailing party you are entitled to attorney’s fees in an amount not to exceed $2,000.

For assistance in having a null or void Mechanic’s Lien expunged from your property, contact Attorney Beard Hobbs at 619-698-0977.

UN-LICENSED CONTRACTOR

By Attorney Beard Hobbs

619-698-0977

Far to many contractors believe that they can avoid maintaining workers compensation insurance by simply hiring, what in the trade is called “day labor” or by giving employees a 1099. The law is very clear on this subject and the penalty for not maintaining workers compensation insurance or under reporting to your workers compensation insurance carrier is harsh and unforgiving.

When ever you employ someone either by the hour or piece work, unless they have a valid contractor license they are as a matter of law presumed to be an employee. You cannot circumvent tax laws or workers compensation requirements by paying cash or issuing an employee a 1099 at the end of the year.

Business & Professional Code Section 7125, states that if you have employees and do not maintain workers compensation insurance or you under report or make a false report to your workers compensation insurance carrier you are deemed to be an unlicensed contractor IMMEDIATELY as of the date you were required to maintain workers compensation insurance or from the date you under or falsely reported the number of employees to your workers compensation insurance carrier.

Section 7031 of the Business & Professional Code states that you must be duly licensed at all times during the performance of the work of improvement. What that means is that from the day you start working on a project until the day you finish working on the project, you must maintain a valid California State Contractors License. If you do not properly maintain workers compensation insurance or under report or falsely report the number of workers in your employment, your license will be automatically deemed suspended.

Unlicensed contractors are not entitled to be paid for labor or materials and in fact they must disgorge any and all payments they have received. An unlicensed contractor is not entitled to offset his or her misdeeds with materials purchased or wages paid.

The law in California is extremely harsh and unforgiving. Do not get caught in this license trap by failing to maintain workers compensation insurance or by under reporting or falsely reporting the number of employees employed by you on any given project.

For assistance in having a null or void Mechanic’s Lien expunged from your property, contact Attorney Beard Hobbs at 619-698-0977.

INDEPENDENT CONTRACTOR OR EMPLOYEE?

By Attorney Beard Hobbs

619-698-0977

Newly implemented law SB 459 amends the Labor Code with respect to independent contractors. The penalties and potential disciplinary action against a contractor for purposefully misclassifying an employee as an independent contractor will result in fines of $5,000 to $15,000 for the first offense and between $10,000 and $25,000, per violation for repeated violations of the Labor Code. Additionally, failing to maintain workers compensation insurance, for misclassified employees, in violation of Business & Professional Code 7125, can result in you being automatically deemed an un-licensed contractor.

Whether a person can or cannot be classified as an independent contractor depends on several factors. As a matter of law it is a rebuttable presumption that a person performing work at your request is an employee. In other words, the person in question is presumed to be your employee unless you can prove that the person in question is truly self employed.

It is fairly safe to say that an independent contractor is really an employee if:

(1) He does not have a contractor license to perform work that requires a contractor license.

(2) He does not purchase and supply materials for his scope of work.

(3) He did not present you with a written proposal or contract.

(4) He does not control the days, time and hours that he works on your project.

(5) He does not control the manner or means by which an end result is reached.

(6) He is paid an hourly or daily rate.

(7) He does not have a store front, business license or advertises as a business.

As indicated the burden is on you to prove that the individual in question is an independent contractor. The safest route to follow is to only hire licensed contractors and treat everyone else as your employee. Put the person in question on your payroll, take out taxes and maintain workers compensation insurance for them.

The only exceptions to this rule are as follows:

Minor Work:

The Contractor’s License Law does not apply when the entire project is under $500 in value. Example: If the project is to build a house but a subcontractor’s portion of the work is less than $500 that subcontractor still needs to be licensed. For the exemption to apply, the entire project must be less than $500.

Definition of Contractor:

A good rule of thumb to follow is if one is doing some physical work that alters or adds to a structure, and that work becomes part of the real estate or the person is building something to be affixed to the real estate, then that person is defined as a contractor.