ConstructionPro Week, Volume: Construction Advisor Today - Issue: 25 - 10/15/2009

Do Teaming and Subcontracting Arrangements Amount to Brokering the Contract?

Many construction projects require the skills and resources of more than one party. These forces are deployed through joint venturing, partnering and subcontracting. It is the entity that signed the contract that is obligated to the project owner. Yet the parties in the field may largely be strangers to the owner.

 

In a recent case, a prime contractor on a federal construction contract subcontracted 87 percent of the work. The contractor designated the subcontractor’s president as assistant project manager, with authority to “run the project.” That individual issued directives on the contractor’s company letterhead. The government argued that the contractor had essentially brokered the contract, violating the Anti-Assignment Act and annulling the contract. The contractor responded that it had merely entered into a partnering and subcontracting arrangement.

 

I invite your comments on this issue, below. If a financially responsible company signs and bonds the contract, should the project owner care who is in the field? To what extent should owners attempt, through the terms of the contract, to limit or control subcontracting?

In next Monday's issue of Construction Claims Advisor:

  • Expert Witness Allowed to Rely on Information from Others
  • Project Owner Waived Right to Terminate for Late Completion
  • “Measured Mile” Produced Close Enough Approximation of Lost Productivity

 

Comments

I don't buy the government's argument. This speaks to "means and methods", and the owner has no control over that beyond taking the contractor to task for poor performance.

It depends a great deal on the language of the contract between the contractor and the gov't.

 

The contract provisions should prevail. In practically all federal contracting for example, and particularly for project set asides to VOB, SDVOSB, HubZone or other small business entities, there is usually specific language that requires a minimum percentage of work by employees of the GC, i.e. 15%, 25%, direct superintendency by the GC of the construction at all times work is being performed, and direct managerial oversight by the general contractor who's status was used to qualify to bid the project. Sham bids using turnkey numbers by big firms that on their own would not qualify to bid such projects, or by "construction management only" small businesses seriously undermines the spirit and intent of small business set aside processes, is in violation of law, and perpetrators should be barred from all such construction work in perpetuity.

 

I take issue with Mr. Higginson's characterization of "CM only" small business as undermining the spirit and intent of small business set aside incentives. On the contrary, a General Contractor's prime responsibility to the client is to effectively and diligently manage and prosecute the work for which they are being contracted. A General Contractor, is not a specialty contractor - they are not hired by the client to act as one. Rather a GC professionally manages the work by subcontracting out to the various CSI division specialty subcontractors whom are expert in their respective fields. The client does not and should not expect the firm entrusted to expeditiously manage the entire project to pick-up a hammer and start pounding nails. The result of this is to limit the field to small companies of generally very questionable management capabilities who are attempting to manage the client's project as well as do it all themselves - and generally doing a marginal job at both; or the firms which now are pushing the size standard envelope under SBA/F.A.R. guidelines and have already grown large enough to be able to develop their own specialty divisions, or at least crews.

 

The days of Master Carpenters who self-performed all of their client's work from start to finish have long since passed (somewhere shortly after the time Jesus plied the trade). It is absolutely ridiculous to expect a GC, and especially a small sized standard GC to self perform anything but a very small portion of the work - such as pick-up, prep & close-out.

All that said, I agree with the previous poster (and the law, by the way) the conditions of the contract prevail - so long as none of them directly contradict F.A.R., which will supersede the contract, unless there were specific and allowable clauses which have been negotiated out.

It is absolutely, not ethical to ever auto-pilot a project, such as is inferred in the reference project. Not only is precluded by law - it is also a basic condition of every liability insurance policy I have ever seen. The prime must be on-site and actively managing the project ANYTIME any work is being performed on the project. The GC/Prime is also directly responsible for QC and Safety on the project as their principal roles.

Although there is nothing to prevent a GC from delegating responsibilities (often-times key personnel listed in the winning proposal can only be changed with prior approval of the Contracting Officer as a condition of the contract) in this case they would appear to have assigned a large part (if not all) of the very tasks the government hired them to perform.

Lastly, the only way I think the contractor will prevail in this case, is if they can show that the teaming agreement and duties of the key personnel, including the key subcontractor in question, were submitted and defined as such as part of the proposal for which they received the subsequent Award.

I agree wholeheartedly with Mr. Heinz's post. Very well put.

 

What about insurances in this case? Would the "project manager" (i.e. subcontractor) who signed on the general's letterhead be named in a lawsuit. I would guess yes to this question. However, would the "project manager" insurance cover him? Typically the subcontractor is issued insurances in his/her company name and therefore, he/she is left uncovered!!!! The insurance does not cover his work as "project manager" for a completely different company.

 


Thanks very much L Higginson for necessary clarity on the subject. I seek your opinion on the issues raised by me as under:
Most contracts under FIDIC require that the GC shall not subcontract whole of the "works", and not more than the prescribed percentage with the prior approval of the Engineer. The clause restricting the portion of works intends to permit ONLY those agencies with credentials which are unquestionable. 
The moot question that needs to be answered is: how do we decide what constitutes "sub contracting. or "brokering" the conract.
Let us take the exapmle of a 100 Km long stretch of Four laning of an existing two lane Highway where the scope of GC includes construction from Embankment upto the RIGID pavement, flexible service roads and all items like sign posting, marking, road furniture along with bridges/drainage works.The contract agreement stipulats that the GC will not subcontract more than 10% of the "works" without the prior approval of the Engineer. Also provision of labour was not to be construed as 'subcontracting"

 

Thus if we define the "Works" as 100Km of the Highway in all respects, a "portion" of the "works" would mean 10km or 15 Km or more in all respects.

The GC sub let the "items" like earth work from borrow pits (in nearby fields) alonwith providing labour and transportation for all the other pavement layers etc. All materials and other infrastructure and most of the other items did not find themselves in the sub contractors' scope.

The value of the "items" so sub let exceedeed 10 percent of contract value but the "works" as described/defined in scope were compelted by the GC using his own/hired materials, laboratory, batching palnts/Hot mix plants and most of the Managerial and technical staff .

 

THE QUESTION IS:

Should getting the items of work done from another agency as /brokering?

i do belive that they should of did a joint venture licence for that project and that should of been done before the signing of the contract. 

 

I managed contracts using HUD General Conditions for Construction Contracts for 10 years. Included in the conditions/contract there is a form for the GC to identify the project manager who will be representing the GC and has the authority to act on behalf of the GC's company. If the GC designates the PM of the Subcontracting company to act as his representative based on my knowledge this is appropriate. The GC is accepting the liability. Designating the PM is acknowledging a relationship with the Sub's PM. I believe in this case the PM is covered under the bonding of the GC and maybe as an employee may also be covered by both the insurance of the GC and Subcontractor. Read HUD General Conditions for Construction Contracts for clarification.

 

FAR rules require the General Contractor to keep a minimum of 14% of the project. This contractor kept only 13%, hence the issue. I note the regulations called out by name and number reference only, then Google and read them. It has kept us out of a few jams like this one. Also to note - it does not appear to me that this rule holds for all. The government has knowingly given 8A Contractors projects that were 100% subcontracted to us and allowed it. So it would seem to me that if you could prove it, you might argue that unless a rule applies to everyone, it applies to no one?? Good luck!

 

It is one thing to be a Legit GC subcontracting trades as normal. It is another to be a front for a large prime on small business set-aside projects. The FAR has affiliation guidelines and when a small business is "unduly reliant on a large business, the team or JV is considered large by SBA standards and thus not eligible to participate and subject to stiff penalties. JV or Teaming agreements must be made between 2 small businesses, not large & small on small biz set-aside.

 

 

 

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