SYNERGY PROJECT MANAGEMENT, INC., and v. CITY AND COUNTY OF SAN FRANCISCO, and Ghilotti Bros., Inc., and v. City and County of San Francisco, and
Summary of the case SYNERGY PROJECT MANAGEMENT, INC., and v. CITY AND COUNTY OF SAN FRANCISCO, and Ghilotti Bros., Inc., and v. City and County of San Francisco, and
The City and County of San Francisco contracted Ghilotti Bros., Inc. for a renovation project, with Synergy Project Management, Inc. as a subcontractor. After Synergy's unsafe practices, including breaking gas lines, the City directed Ghilotti to replace Synergy. Synergy objected, leading to a hearing where the officer found grounds for substitution. Synergy and Ghilotti challenged the hearing officer's jurisdiction, but the court ruled in their favor. On appeal, the decision was reversed, affirming the hearing officer's jurisdiction under the Subletting and Subcontracting Fair Practices Act.
Key Issues of the case SYNERGY PROJECT MANAGEMENT, INC., and v. CITY AND COUNTY OF SAN FRANCISCO, and Ghilotti Bros., Inc., and v. City and County of San Francisco, and
- Jurisdiction of the hearing officer under section 4107(a)
- Compliance with statutory procedures for subcontractor substitution
Key Facts of the case SYNERGY PROJECT MANAGEMENT, INC., and v. CITY AND COUNTY OF SAN FRANCISCO, and Ghilotti Bros., Inc., and v. City and County of San Francisco, and
- Synergy broke five gas lines and engaged in unsafe practices.
- The City directed Ghilotti to replace Synergy, leading to a hearing.
Decision of the case SYNERGY PROJECT MANAGEMENT, INC., and v. CITY AND COUNTY OF SAN FRANCISCO, and Ghilotti Bros., Inc., and v. City and County of San Francisco, and
The judgments are reversed, and the matter is remanded to the trial court with directions to deny Ghilotti's and Synergy's writ petitions.
Impact of the case SYNERGY PROJECT MANAGEMENT, INC., and v. CITY AND COUNTY OF SAN FRANCISCO, and Ghilotti Bros., Inc., and v. City and County of San Francisco, and
The decision clarifies that the awarding authority can initiate subcontractor substitution under the Act, ensuring public safety and control over subcontractor selection.
Opinions
The Subletting and Subcontracting Fair Practices Act ( Pub. Contract Code, § 4100 et seq. ) (Act), which governs public works projects, was enacted to protect the public and subcontractors from bidding practices that "often result in financial difficulties for subcontractors and poor workmanship on public improvements."
In this case, the City and County of San Francisco (City) entered a contract with prime contractor Ghilotti Bros., Inc. (Ghilotti) for a major renovation of Haight Street. Consistent with its accepted bid, Ghilotti entered a contract with subcontractor Synergy Project Management, Inc. (Synergy) for Synergy to perform excavation and utilities work. After Synergy *657broke five gas lines and engaged in other unsafe behavior, the City invoked a provision of its contract with Ghilotti to direct Ghilotti to remove Synergy from the project and substitute a new subcontractor. Under protest, Ghilotti terminated Synergy and identified two potential replacement contractors to the City, and Synergy objected to being replaced. A hearing was held under section 4107(a), and the hearing officer determined that Synergy's poor performance established a statutory ground for substitution.
Synergy and Ghilotti each filed a petition for a writ of administrative mandate in the trial court. Abandoning any challenge to the determination that Synergy's performance justified substitution, they contended the hearing officer lacked jurisdiction because Ghilotti had not made a "request" for substitution within the meaning of either section 4107(a) or the relevant provision of the City-Ghilotti contract. The court agreed and granted the petitions. On appeal, the City claims the court's ruling was erroneous, and we agree. Even though the statute contemplates that the prime contractor will normally be the party to seek substitution, the procedure followed here "complied in substance with every reasonable objective of the statute." ( Titan Electric Corp. v. Los Angeles Unified School Dist. (2008)
I.
FACTUAL AND PROCEDURAL BACKGROUND
Ghilotti was the prime contractor for the City on a major project to renovate Haight Street. Section 4.04(C) of the contract between the City and Ghilotti provides:
When a Subcontractor fails to prosecute a portion of the Work in a manner satisfactory to the City, Contractor shall remove such Subcontractor immediately upon written request of the City, and shall request approval of a replacement Subcontractor to perform the work in accordance with Administrative Code section 6.21(A)(9) and the [Act], at no added cost to the City.
The contract between Ghilotti and Synergy incorporates the terms of the City-Ghilotti contract, and Synergy agreed that Ghilotti would "have the same rights and privileges as against [Synergy] as the [City] ... has against [Ghilotti]" under the City-Ghilotti contract.
Work on the Haight Street project began in April 2015. The hearing officer found that over the next five months, Synergy engaged in many unsafe practices that rendered its work "substantially unsatisfactory and not in substantial accordance with the plans and specifications" under section 4107(a)(7). As summarized by the hearing officer, "Synergy caused five gas line breaks, at least four of which resulted from Synergy's unsafe practices.... Synergy improperly shored trenches on multiple occasions, which could have led to street collapse, trench collapse, and the injury or death of workers or members of the public.... Synergy's failure to properly store equipment led to a pedestrian trip and fall. Its workers also engaged in highly dangerous conduct when they dangled the Synergy foreman by his ankles into an open manhole with no safety equipment or traffic control.
*658And there were many other safety problems."
On October 8, 2015, after Synergy caused the fifth gas line break, the City issued a stop-work order. In an October 9 letter, the City directed Ghilotti, in accordance with Section 4.04 of their contract, "to remove [Synergy] immediately" and "immediately ... request approval of a replacement subcontractor to perform the Work."
In an October 14 letter, the City notified Synergy that it had "directed Ghilotti to remove Synergy and to substitute a replacement contractor" based on Synergy's unsatisfactory work. The City represented that in response, Ghilotti "stat[ed] that it will replace Synergy by either self-performing the work or by subcontracting with one or more entities that Ghilotti has not yet identified." Finally, the City stated that the letter constituted its notice to Synergy under section 4107 that Synergy would be replaced and that Synergy had five days to submit a written objection or else be deemed to "consent to the substitution."
On October 15, Ghilotti wrote to Synergy that "[a]s the City's directive does not provide [Ghilotti] with an alternative to removing [Synergy], to the extent that the City's allegations are valid, it is impossible for [Synergy] to cure the breaches and violations that the City has alleged. Accordingly, effective 48 hours after this notice, [Synergy's] right to prosecute and complete the work shall be deemed to be terminated." A few weeks later, Ghilotti notified the City that it "substantively and procedurally dispute[d] the validity of the City's replacement demand" but had "solicited proposals for the completion of Synergy's remaining scope of work." Ghilotti provided the names of two subcontractors it proposed as potential substitutes should it be "ultimately determined that the City's replacement demand is legally valid and that [Ghilotti] is required to replace Synergy pursuant thereto."
Meanwhile, Synergy responded to the City's October 14 letter by saying it "strongly object[ed] to [the City's] unilateral decision of subcontractor substitution" for numerous reasons. In response, the City scheduled an administrative hearing under section 4107(a), which occurred in December 2015. Only the City and Synergy appeared at the hearing, although Ghilotti was permitted to submit written objections and briefing.
Synergy and Ghilotti argued that the hearing officer did not have jurisdiction to hold a hearing under section 4107(a) because the City, not Ghilotti, had elected to replace Synergy. The hearing officer disagreed, concluding as follows:
Section 4107(a)(7) anticipates that a public entity may initiate a proceeding based on its determination that a subcontractor's work was substantially unsatisfactory. Interpreting Section 4107(a)(7) in the manner proposed by Synergy and [Ghilotti] leads to an absurd result: a public entity having no control over the subcontractors working on its project. This interpretation does not comport with the language or intent of the statute. Moreover, the contract between [Ghilotti] and [the City] incorporates the Section 4107 procedure, which separately provides a basis for this proceeding. And finally, even if Section 4107 is not directly applicable and is not applied by virtue of the contract, Section 4107 does not prohibit an administrative proceeding offered for a subcontractor to object to a public entity's removal determination.
As mentioned above, the hearing officer also found by a preponderance of the evidence that Synergy's work on the Haight Street project was unsatisfactory and noncompliant *659under section 4107(a)(7). The hearing officer's January 2016 decision therefore upheld the City's "determination to remove Synergy as a subcontractor" on the project.
Synergy and Ghilotti each filed a petition for a writ of administrative mandate under Code of Civil Procedure section 1094.5 ( section 1094.5 ) in the trial court, which consolidated the actions.
The trial court held two hearings on Ghilotti's and Synergy's motions in the fall of 2016. The court quickly rejected the notion that section 4107(a) alone gave jurisdiction to the hearing officer, and it focused on whether section 4.04(C) of the City's contract with Ghilotti conferred jurisdiction based on the provision's incorporation of the section 4107(a) procedure. After concluding that the hearing officer had jurisdiction under the contract only if "Ghilotti remove[d] Synergy and request[ed] a replacement of the subcontractor," the court determined that the key issue in the case was whether Ghilotti had taken these actions. The court allowed the parties to submit additional briefing on the issue, which it characterized as a factual dispute, and ultimately found that Ghilotti had not "requested the replacement of Synergy." Accordingly, the court entered judgments in Ghilotti's and Synergy's favor and issued writs "remanding the matter[s] to [the] City and commanding" it to vacate the hearing officer's decision "in its entirety." The City appealed from both judgments.
II.
DISCUSSION
A. Ghilotti Had Standing to Petition for Writ Relief.
Initially, the City contends that the trial court erred by granting Ghilotti's petition for a writ of mandate because Ghilotti failed to demonstrate it had standing to bring the petition. Although Ghilotti did not file a respondent's brief and has not responded to this argument, we conclude that it had standing to bring the writ petition.
"A petitioner must have standing in order to invoke the power of a court to grant writ relief." ( League of California Cities v. Superior Court (2015)
To be "beneficially interested," a petitioner must generally have " 'some special interest to be served or some particular right to be preserved or protected over *660and above the interest held in common with the public at large.' [Citation.] The petitioner's interest must be direct and substantial. [Citation.] Writ relief is not available if the petitioner gains no direct benefit from the writ's issuance, or suffers no direct detriment from its denial." ( League of California Cities v. Superior Court , supra , 241 Cal.App.4th at p. 985,
Standing is a jurisdictional issue that may be raised at any time, including on appeal. ( Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999)
Ghilotti had a beneficial interest in the outcome of the litigation sufficient to confer standing to petition for writ relief. Ghilotti sought relief on the basis that the hearing officer did not have jurisdiction, an issue that implicates Ghilotti's right to oppose substitution of a subcontractor. One basis on which the hearing officer found jurisdiction was that the City-Ghilotti contract "incorporate[d] the Section 4107 procedure." In the hearing officer's view, the contract did not give Ghilotti a right to object to the City's decision that Synergy had to be replaced, a conclusion that could negatively impact Ghilotti in a future action involving the City. Moreover, the hearing officer's determination that section 4107(a) itself conferred jurisdiction regardless of whether the prime contractor requested a substitution involved Ghilotti's ability to object to substitutions more generally. Thus, Ghilotti separately had standing to challenge the hearing officer's jurisdictional determination because it directly and negatively affected Ghilotti's interest in exerting control in the substitution process. (See City of Redding, Cal. v. F.E.R.C. (9th Cir. 2012)
B. The Substitution of Subcontractors Under the Act.
We now turn to the merits of the appeal, and we begin by discussing the pertinent statutory framework. The Act was enacted "to prevent 'bid shopping' and 'bid peddling' after the award of a public contract and to give the awarding authority the opportunity to investigate and approve the initial subcontractors and any replacements." ( Titan , supra , 160 Cal.App.4th at p. 202,
To prevent bid shopping and bid peddling, the Act confers on an awarding agency the power to " 'investigate and approve any subcontractor who is proposed to work on the project,' " whether that subcontractor is proposed in the original bid or as a substitute. ( Thompson Pacific Construction, Inc. v. City of Sunnyvale (2007)
Before "approv[ing] ... the prime contractor's request for the substitution, the awarding authority, or its duly authorized officer, shall give notice in writing to the listed subcontractor of the prime contractor's request to substitute and of the reasons for the request." (§ 4107(a).) If the subcontractor timely submits "written objections to the substitution," "the awarding authority shall give notice in writing ... to the listed subcontractor of a hearing by the awarding authority on the prime contractor's request for substitution." (Ibid. ) In general, the results of a hearing under section 4107(a) are "binding on the parties unless found to be erroneous and set aside by a court of review" in a writ action under section 1094.5. ( Interior Systems, Inc. v. Del E. Webb Corp. (1981)
Finally, section 4107, subdivision (b) (section 4107(b)) prohibits a prime contractor from "[p]ermit[ting] a subcontract to be voluntarily assigned or transferred or allow[ing] it to be performed by anyone other than the original subcontractor listed in the original bid, without the consent of the awarding authority, or its duly authorized officer."
If a prime contractor violates the Act, it "violates [its] contract," and the awarding authority has discretion to either cancel the contract or assess a penalty of up to "10 percent of the amount of the subcontract involved." (§ 4110.) "This scheme plainly contemplates that the awarding authority will monitor the project during construction to ascertain the contractor's compliance with its contractual and statutory obligations." ( Thompson , supra , 155 Cal.App.4th at p. 540,
C. The Hearing Officer Had Jurisdiction Under Section 4107(a).
The trial court granted the writ petitions on the ground that the hearing officer lacked jurisdiction to hold a hearing, a recognized basis for issuing an administrative writ. (See § 1094.5, subd. (b).) Specifically, the court concluded that jurisdiction did not exist under either section 4107(a) or the City-Ghilotti contract. We review the court's jurisdictional holding de novo. ( California Teachers Assn. v. Butte Community College Dist. (1996)
In concluding that the hearing officer lacked jurisdiction, the trial court made a factual finding that Ghilotti had not requested Synergy's replacement within the meaning of the contract. It did not make a factual finding about whether Ghilotti's actions amounted to a "request for substitution" under section 4107(a), likely because it characterized the City as having conceded that the statute alone did not confer jurisdiction.
The City argues that the hearing officer had jurisdiction under the plain language of the Act. When interpreting a statute, "we seek to effectuate the intent of the Legislature, following certain well-established rules. We first look to the ordinary meaning of the statutory language, which controls if it is without ambiguity or uncertainty. [Citation.] Such plain meaning, however, is discerned by reading the statute in context, and '[l]iteral construction should not prevail if it is contrary to the legislative intent apparent in the statute. The intent prevails over the letter, *663and the letter will, if possible, be so read as to conform to the spirit of the act.' " ( Titan , supra , 160 Cal.App.4th at pp. 203-204,
We agree with Synergy that the case law reflects "a consistent fact pattern" of the prime contractor, not the awarding authority, seeking substitution, and we are willing to grant that section 4107(a)'s references to a "request" by the prime contractor contemplate this will be the normal situation. But this does not establish that the prime contractor must always request substitution for there to be jurisdiction for a hearing under section 4107(a). "Rather, the failure to literally comply with an obligatory statutory procedure, such as that of section 4107, is valid if the procedure used complies in substance with all reasonable objectives of the statutory scheme." ( Titan , supra , 160 Cal.App.4th at p. 205,
In Titan , the Second District Court of Appeal applied the doctrine of substantial compliance to uphold the outcome of a section 4107(a) hearing ( Titan , supra , 160 Cal.App.4th at p. 193,
As did the Titan court, we confront a situation that section 4107 "simply does not address": the awarding authority, rather than the prime contractor, seeking substitution. We therefore turn to determine whether the procedure used complied with the reasonable objectives of the statute, which include preventing bid shopping and bid peddling and protecting an awarding authority's control over the selection of subcontractors. ( Titan , supra , 160 Cal.App.4th at pp. 193, 205,
Synergy responds that "[i]t is not within the spirit of the statute to use it to make a subcontractor vulnerable to unilateral, backdoor removal by the awarding authority. The statute is intended to do just the opposite: [p]rotect the subcontractor's right to perform the work, unless removed according to the process provided."
More importantly, Synergy's interpretation of the statute to authorize only prime contractors to seek substitution would undermine the Act's overarching purpose of protecting the public. To accept Synergy's interpretation, we would have to conclude that unless a prime contractor "requests" a substitution, the substitution of an underperforming *665subcontractor is simply barred, leaving an awarding authority with no expedient means of having another entity perform the work. This conclusion "is at odds with the Act's goal of more control for the awarding authority in selecting subcontractors." ( JMS Air , supra , 30 Cal.App.5th at p. 956,
In sum, even though Ghilotti opposed substituting another subcontractor for Synergy, the hearing officer had jurisdiction to issue a decision under section 4107(a) because the procedures employed substantially complied with the Act's objectives. As a result, the trial court erred by granting Ghilotti's and Synergy's writ petitions, and the hearing officer's decision will stand. Our conclusion hardly marks the end of the underlying dispute, which we are told is the subject of at least one other pending lawsuit, and we express no opinion on what effect the hearing officer's decision will have in subsequent actions between the parties. (See JMS Air , supra , 30 Cal.App.5th at p. 959,
III.
DISPOSITION
The judgments are reversed, and the matter is remanded to the trial court with directions to deny Ghilotti's and Synergy's writ petitions. The City is awarded its costs on appeal.
WE CONCUR:
Margulies, J.
Sanchez, J.
All further statutory references are to the Public Contract Code unless otherwise noted.
We deny the City's request that we take judicial notice of various documents, including legislative history of the Act, because they are unnecessary to our decision. (See Rivera v. First DataBank, Inc. (2010)
Synergy and Ghilotti also sought relief under Code of Civil Procedure section 1085, but the trial court granted the petitions under section 1094.5.
Subdivision (c) of section 4107, which does not apply here, prohibits a prime contractor from subcontracting work for which the prime contractor did not originally designate a subcontractor unless a "significant change order" is involved. (Affholder, Inc. v. Mitchell Engineering, Inc. (2007)
We agree with the City that the record does not establish such a concession. But even if it did, "we are not bound to follow the meaning of a statute (or the law) conceded by a party." (Tun v. Wells Fargo Dealer Services, Inc. (2016)
We note that the City did not "remove" Synergy from the project, Ghilotti did. Although the hearing officer characterized his decision as upholding the City's "determination to remove Synergy as a subcontractor" on the project, the question the decision addressed on the merits was whether a statutory basis for substitution existed, not whether the City had the power to remove Synergy itself. To the extent Synergy means to argue that the City-Ghilotti contract did not authorize the City to direct Ghilotti to terminate Synergy, this action is not the appropriate forum in which to resolve such issues. (See JMS Air , supra , 30 Cal.App.5th at pp. 958-959,