Subcontractor Costs May Become Public Record in Federal Aid Contracts

Many local public agencies take advantage of federal money to fund their construction projects. Of course, federal money does not come without strings attached, and using federal funds requires these local agencies to follow federal rules. Navigating the additional administrative requirements has proven difficult for several Northern California agencies, and they often discover midway through the project that they are not following all of the requirements. This can come as a surprise to many unsuspecting contractors that are used to less complicated local agency contracts.

One Northern California city recently put out an invitation to bidders for a road improvement project. The project was partially funded by federal money. The city received bids, and awarded the contract to the low bidder, as is usually the case. However, before work was to commence, the city discovered that it was supposed to approve the contractor’s subcontractors. Form FHWA 1273, also known as the Required Contract Provisions – Federal-Aid Construction Contracts, imposed this requirement:

VI. SUBLETTING OR ASSIGNING THE CONTRACT

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4.  No portion of the contract shall be sublet ... except with the written consent of the contracting officer, or authorized representative, ... Written consent will be given only after the contracting agency has assured that each subcontract is evidenced in writing and that it contains all pertinent provisions and requirements of the prime contract. (Emphasis added).

After the award of the contract, which implicitly approved the contractor’s listed subcontractors, the city then demanded fully executed copies of all subcontract agreements. Like many contractors, some of its subcontractors are regularly used on a multitude of projects and as a result, favorable pricing terms are in place between the contractor and some of the subcontractors. Naturally, the contractor objected, placing it at odds with the city.

A plain reading of the subletting requirement does not seem to impose a requirement by the contractor to supply its subcontractor pricing terms, but rather, the contractor is obligated to demonstrate that the subcontracts are “in writing” and that they contain “all pertinent provisions and requirements of the prime contract.” For example, one such requirement is that all subcontracts must expressly incorporate form FHWA 1273. If the contractor can demonstrate that these requirements have been met, and redact the subcontractor’s dollar quote, it should be enough to satisfy the federal-aid requirements.

However, some agencies, such as the Northern California city discussed above, read this provision more broadly, and use it as a basis to demand unredacted complete copies of subcontracts. If the prime contractor complies with the city’s demand, the subcontracts and all of the costing data will be subject to Public Records Act requests by competitors.

To avoid this issue, contractors should be proactive before bids are opened, and send the agencies formal requests for information to see how each agency plans to implement the federal-aid requirements. Find out in advance if the agency will demand complete copies of all subcontracts, including pricing data.

“Subcontractor Costs May Become Public Record in Federal Aid Contract” was originally published in the Daily Journal of Commerce on July 15, 2016.