A Public Entity's Determination That A Subcontractor Could Be Substituted Under Public Contracts Code Section 4107 Is Denied Preclusive Effect In Subsequent Litigation

Posted on January 25, 2007 by Sheppard Mullin

Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) Cal.App.4th

By Thomas B. Snyder

In this case, Kemp was a prime contractor on two public works projects for the Los Angeles Unified School District ("LAUSD").  It subcontracted the electrical work to Titan Electric on both projects.  Partway through performance, Titan began to struggle with its payroll obligations and Kemp agreed to informally advance payments to Titan to assist in completing the work.  When problems continued, Kemp stopped the advance payments and Titan was unable to meet its payroll.  Kemp then retained another electrical subcontractor who completed the work.  Simultaneously, Kemp requested that the LAUSD approve Titan's substitution as the listed subcontractor under Public Contracts Code Section 4107, arguing that Titan was failing and refusing to perform its work and/or delaying or disrupting the progress of the work.  The LAUSD hearing officer agreed that Titan had been disrupting and delaying the work and therefore determined that Kemp had the statutory right to substitute Titan.

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California Department of Industrial Relations Expands Prevailing Wage Coverage

Posted on January 24, 2007 by Sheppard Mullin

By Richard M. Freeman

In December, 2006, the Department of Industrial Relations adopted a new, official position which could adversely affect the real estate development and construction community.  Its new position is that any type of public subsidy, waiver of permitting fees, discount or assistance from a public body to a developer does not have to be for the purpose of facilitating construction in order for the requirement to be imposed that prevailing wages (i.e., the union wage rates) be paid to the construction workers on the any project within the development.  In 2005, the California Supreme Court, in interpreting California Labor Code § 1720(a)(1), ruled that in order for the prevailing wage requirement to be imposed, any public assistance or benefit under § 1720(a)(1) had to be provided to the developer for the purpose of facilitating the construction.  Even though the amendments to the prevailing wage law under SB975 did not change the language in § 1720(a)(1) of the Labor Code, the DIR has chosen to take the position that the City of Long Beach decision is no longer good law and that any public benefit to a developer relative to its overall development, converts the development into a prevailing wage project.  The DIR's decision is being appealed.  However, this new interpretation makes its increasingly important for developers, contractors, and others to analyze very carefully what the ramifications of any public assistance are to a real estate development.

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