By Bruce Jervis
Public works contracts frequently include clauses limiting the subcontracting of the work. The prime contractor is required to perform a stipulated minimum percentage of the work, typically 50 percent, with its own forces. The policy behind these limitations is to award public contracts to companies that will actually construct the projects, not just bid, bond and broker out the work.
It is interesting to note that these clauses seldom specify a penalty for violation of the subcontracting limitation. Default termination? That is a severe sanction and may not be in the project owner’s best interest. Assessment of damages? Calculation would be problematic, and there is little precedent to provide guidance.
A recent federal case addressed this issue. A prime contractor performed no actual work with its own forces, maintaining only a supervisory presence at the site. As damages for breach of the subcontracting limitation, the prime’s contract price was reduced. The contractor was paid only its direct subcontract costs, plus administrative and bonding costs.
What is your opinion on this matter? Should responsible prime contractors be allowed to accomplish the work using the means and methods of their choice without limitation on the use of subcontractors? Or are these limitations appropriate to prevent contractors from serving merely as brokers of publicly funded work? And if a subcontracting limitation is violated, what is an appropriate sanction? I welcome your comments.
