ConstructionPro Week, Volume: 6 - Issue: 28 - 07/14/2017

Should Project Owners Dictate Choice Of Subcontractors?

By Bruce Jervis

Project owners have legitimate concerns regarding the subcontractors utilized by their contractors. Quality of work is an obvious concern. Issues of job site safety and security also arise. Public project owners have limited control over their contractors’ choice of subs. Private owners have broader discretion, but this authority is not foolproof.

On a private construction project in Ohio, the project owner learned that its prime contractor had awarded a subcontract to a company owned by an individual with a grudge against the owner. The individual had threatened an employee of the owner and was engaged in ongoing litigation against the owner. When the project owner directed the contractor to replace the subcontractor, the sub sued the owner for tortious interference with contract.

Private project owners are entitled to retain, under the terms of the prime contract, the right to approve in advance all subcontracts. Owners are sometimes reluctant, however, to include this contract language. The implicit control over subcontractors carries with it potential responsibility and liability. Should owners exercise this control or is it better to leave subcontracting to the discretion of the prime contractor? Your comments are welcomed.

COMMENTS

Private Work - If an Owner wants to choose his or her sub-contractor, the option should be available. But that said, in a lump sum contract, the owner may have to pay the extra expense of his or her sub-contractor of choosing. The Prime is responsible for their subs, so this should not change the fact, but if the prime feels that it does, then the beauty of private contracts is everything is negotiable and may leverage that concern to get their original sub-contractor back.

Posted by: Jeff Evans - Friday, July 14, 2017 12:18 PM

I will allow an owner to choose a sub if they want to. I still make the same mark up on their costs, but I do not guarantee their work. If they choose a plumber that is not mine, don't call me when the toilet has hot water in it !
Posted by: Paul Nagy - Friday, July 14, 2017 12:27 PM

There are many good reasons for an Owner to exercise influence on subcontractor selection. They may have a previous bad experience with a particular sub. The Owner may want a sub that they believe has special expertise in the their particular installation. Also in some situations the Owner will have an ongoing service relationship with the sub long after the GC is gone. Having the sub that they need, but with the supervision and coordination of the GC is the best approach.
Posted by: Eden Milroy - Friday, July 14, 2017 1:22 PM

I think the GC should be allowed to hire its subcontractors of choice provided the subcontractors selected are qualified. I see nothing wrong with owners having qualification requirements for subcontractors or have strict qualification requirement s for GC's which include requirements for the GC to hire a qualified sub.

I also think its a good idea for owners to see prices submitted by subcontractors to GC's when bids are turned in. Otherwise, the less ethical GC will bid shop the subs after the contract is awarded in order to reduce it's (The GC's cost). In these cases everyone loses, particularly the owner and the subs who submitted fair prices. Only the GC wins. This happens too often.
Posted by: Michael Damiano - Friday, July 14, 2017 9:58 PM

I think that in this case the project owner has a solid case for requesting a different sub, given the current dispute. The other question that I have is, how does the GC know that this sub will perform to industry standard and not leave them stuck in the middle with substandard workmanship that they are now on the hook for.
Posted by: Brett LeCompte - Monday, July 17, 2017 1:33 AM

Anyone can use over anything - doesn't mean they are right. I am curious, in court, who won this case? I would understand the reluctance of an Owner having a sub on their job that they have a bad history with and it should be their prerogative, but I also agree it should have been worked out PRIOR to a contract being let.
Posted by: Stephanie D. Ireland - Monday, July 17, 2017 6:55 AM