Synergy Project Management, Inc. v. City and County of S.F.

Filed 3/14/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
SYNERGY PROJECT MANAGEMENT,
INC.,
Plaintiff and Respondent, A151199
v. (San Francisco City and County
CITY AND COUNTY OF SAN Super. Ct. No. CPF16514783)
FRANCISCO,
Defendant and Appellant.
GHILOTTI BROS., INC.,
(San Francisco City and County
Plaintiff and Respondent, Super. Ct. No. CPF16514835)
v.
CITY AND COUNTY OF SAN
FRANCISCO,
Defendant and Appellant.
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.”1 (Cal-Air Conditioning,
Inc. v. Auburn Union School Dist. (1993) 21 Cal. App. 4th 655, 660 (Cal-Air
Conditioning).) To this end, section 4107, subdivision (a) (section 4107(a)) requires a
1
All further statutory references are to the Public Contract Code unless otherwise
noted.
1
prime contractor to obtain the consent of the awarding authority before replacing a
subcontractor listed in the original bid, and it limits the awarding authority’s ability to
consent to specified circumstances. If the original subcontractor objects to being
replaced, section 4107(a) requires the awarding authority to hold a hearing “on the prime
contractor’s request for substitution.”
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 broke 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) 160 Cal. App. 4th 188, 208 (Titan).) Thus, the
hearing officer had jurisdiction under the Act to issue a decision, and we need not address
2
whether jurisdiction separately existed under the City-Ghilotti contract.2 Accordingly,
we reverse.
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. And there were many other safety problems.”
2
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) 187 Cal. App. 4th 709, 713.)
3
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.
4
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
under 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.3 Neither petitioning party pursued a challenge to the hearing
officer’s factual findings involving Synergy’s work on the project or his ultimate
conclusion that Synergy’s performance was “substantially unsatisfactory and not in
substantial accordance with the plans and specifications” under section 4107(a)(7).
Rather, Synergy and Ghilotti moved for issuance of a writ on the basis that the City had
not proceeded in the manner required by law, because section 4107 did not authorize the
City to remove a subcontractor except upon the prime contractor’s request.
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
3
Synergy and Ghilotti also sought relief under Code of Civil Procedure
section 1085, but the trial court granted the petitions under section 1094.5.
5
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) 241 Cal. App. 4th 976,
984.) Under Code of Civil Procedure section 1086, a petition warrants writ relief only if
brought by a “party beneficially interested.” Even though the statute refers to a “party,”
however, “it is well established that one who petitions for an extraordinary writ need not
have been a party to the action below if the one seeking relief demonstrates a beneficial
interest in the litigation or is affected by the outcome.” (California Cities, at p. 985.)
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 and 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
6
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; see also J & K Painting Co. v. Bradshaw (1996) 45 Cal. App. 4th 1394, 1399
[“ ‘technical, abstract[,] or moot right’ ” insufficient].) “This standard ‘is equivalent to
the federal “injury in fact” test, which requires a party to prove by a preponderance of the
evidence that it has suffered “an invasion of a legally protected interest that is
‘(a) concrete and particularized, and (b) actual or imminent, not conjectural or
hypothetical.’ ” ’ ” (SJJC Aviation Services, LLC v. City of San Jose (2017)
12 Cal.App.5th 1043, 1053.)
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)
21 Cal. 4th 352, 361.) In its writ petition, Ghilotti alleged it had standing because it had
“a substantial, direct, and beneficial interest in [its contract with the City] and its rights
under [that contract] may be directly and adversely affected by” the hearing officer’s
decision. The City’s answer to the petition denied those allegations and raised Ghilotti’s
lack of standing as an affirmative defense. Ghilotti did not present any evidence to the
trial court on the issue, and the court did not explicitly rule on it.
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
7
Ghilotti’s interest in exerting control in the substitution process. (See City of Redding,
Cal. v. F.E.R.C. (9th Cir. 2012) 693 F.3d 828, 835 [petitioners had standing to challenge
regulatory proceeding in which they prevailed where agency’s action was basis for
contract lawsuits against them].) As a result, the trial court properly considered Ghilotti’s
writ petition on the merits.
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, fn. omitted; § 4101; see also Cal-Air Conditioning, supra,
21 Cal.App.4th at p. 668.) “Bid shopping is the use of [a] low bid already received by the
[prime] contractor to pressure other subcontractors into submitting even lower bids. Bid
peddling, conversely, is an attempt by a subcontractor to undercut known bids already
submitted to the [prime] contractor in order to procure the job.” (Southern Cal. Acoustics
Co. v. C.V. Holder, Inc. (1969) 71 Cal. 2d 719, 726, fn. 7 (Southern Cal. Acoustics).)
These practices cause “a profit squeeze on subcontractors” (ibid.), “result[ing] in poor
quality of material and workmanship to the detriment of the public, depriv[ing] the public
of the full benefits of fair competition among prime contractors and subcontractors, and
lead[ing] to insolvencies, loss of wages to employees, and other evils.” (§ 4101.)
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) 155 Cal. App. 4th 525,
540 (Thompson).) Under the Act, “a prime contractor that bids on a public works project
must list in its bid each subcontractor who will perform work in an amount ‘in excess of
one-half of 1 percent of the . . . total bid.’ ” (Titan, supra, 160 Cal.App.4th at p. 202,
quoting § 4104, subd. (a)(1).) Once its bid is accepted, the prime contractor cannot
“[s]ubstitute a person as subcontractor in place of the subcontractor listed in the original
8
bid, except that the awarding authority . . . may . . . consent to the substitution of another
person as a subcontractor” in nine listed situations (§ 4107(a)), all of which involve “the
subcontractor’s inability or unwillingness to perform the subcontract.” (E.F. Brady
Co. v. M.H. Golden Co. (1997) 58 Cal. App. 4th 182, 188.) The provision relevant here
permits the awarding authority to consent to substitution “[w]hen [it], or its duly
authorized officer, determines that the work performed by the listed subcontractor is
substantially unsatisfactory and not in substantial accordance with the plans and
specifications, or that the subcontractor is substantially delaying or disrupting the
progress of the work.” (§ 4107, subd. (a)(7).)
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) 121 Cal. App. 3d 312, 318 (Interior Systems).)
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.”4 While section 4107(a) limits the prime contractor’s ability to “substitut[e] one
subcontractor for another,” section 4107(b) goes further and prohibits the prime
4
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) 153 Cal. App. 4th 510, 519.)
9
contractor from “permit[ting] or allow[ing] the subcontract to be performed by anyone
other than the original subcontractor listed in the bid. The main purpose is that the
original subcontractor may not be replaced and his [or her] work done by another”—even
the prime contractor itself—“without the consent of the [awarding] authority.” (Fred J.
Early, Jr., Co. v. County Sanitation Dist. (1963) 214 Cal. App. 2d 505, 507-508.)
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) 48 Cal. App. 4th 1293, 1299; see also Duncan v. Department of Personnel
Administration (2000) 77 Cal. App. 4th 1166, 1174.)
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.5 For purposes of our analysis, which addresses only jurisdiction under the
5
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) 5 Cal.App.5th 309, 327.)
10
Act, we will assume without deciding that Ghilotti did not make a request for substitution
within the meaning of section 4107(a), and we therefore need not resolve the parties’
dispute involving the propriety of the court’s factual finding about Ghilotti’s actions.
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, and 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; Cal-Air Conditioning, supra, 21 Cal.App.4th at p. 667; see
also Crane v. Board of Supervisors (1936) 17 Cal. App. 2d 360, 367 [“jurisdiction may not
be made to depend upon a precompliance with acts which manifestly are immaterial to
the foundational elements of jurisdiction”].) Thus, although Synergy accurately observes
that courts generally do not insert words into a statute, “that maxim does not permit this
court to ignore the broader goals of [section 4107]—particularly where the Legislature
has codified those goals.” (JMS Air Conditioning and Appliance Service, Inc. v. Santa
Monica Community College Dist. (2018) 30 Cal.App.5th 945, 956 (JMS Air).)
11
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), and we conclude the same result is warranted here. In that
case, the prime contractor requested substitution, and the subcontractor objected and
demanded a hearing. (Ibid.) In the meantime, the prime contractor hired another
subcontractor who then completed the work before the hearing occurred. (Ibid.) On
appeal, the original subcontractor contended that section 4107 “prohibited [the prime
contractor] from replacing [it] before the [awarding authority] consented to the
substitution, and that the [awarding authority] had no authority to consent to substitution
after another subcontractor had completed the work.” (Titan, at p. 203.) The Court of
Appeal agreed with the original subcontractor “that the plain meaning of the statutory
language, construed in context, contemplates that the awarding authority’s consent to
substituting out a listed subcontractor and substituting in a proposed replacement will
occur before the prime contractor permits the replacement to perform any work.” (Id. at
p. 204.) The court nevertheless upheld the awarding authority’s consent to the prime
contractor’s substitution request, concluding that “the procedure used complied in
substance with every reasonable objective of the statute.” (Id. at p. 208.)
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.) There is no dispute for purposes of this appeal
that Synergy performed substandard and unsafe work, yet for reasons that are unclear
Ghilotti wanted to retain Synergy. Thus, no risk existed of bid shopping by Ghilotti,
much less bid peddling by Synergy or another subcontractor. (See id. at p. 206.) And
once the City elected under its contract with Ghilotti to force Ghilotti to remove Synergy
for unsatisfactory work, another party’s work on Synergy’s portion of the project could
not lawfully proceed without the City’s consent. (See id. at p. 204.) The City’s decision
12
to hold a hearing on its own initiative instead of waiting for Ghilotti to “request”
substitution furthered the statutory objective of protecting public safety by giving the
awarding authority control over which subcontractors work on a project. (See id. at
p. 206; Thompson, supra, 155 Cal.App.4th at p. 540.)
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.”6 This focus on the
protection the Act affords subcontractors is misplaced. True, the Act “confers the right
on the listed subcontractor to perform the subcontract unless statutory grounds for a valid
substitution exist,” which “may be enforced by an action for damages against the prime
contractor to recover the benefit of the bargain the listed subcontractor would have
realized had [it] not wrongfully been deprived of the subcontract.” (Southern Cal.
Acoustics, supra, 71 Cal.2d at p. 727.) But this statutory right is not violated where a
valid ground for substitution exists, as it concededly did here. (Titan, supra,
160 Cal.App.4th at p. 206; Interior Systems, supra, 121 Cal.App.3d at pp. 317-318.)
Synergy does not explain how the fact that the City instead of Ghilotti was the party to
initiate substitution otherwise impinged upon Synergy’s rights. Moreover, the Act “is not
solely, or even primarily, for the protection of private interests” (R.M. Sherman Co. v.
W.R. Thomason (1987) 191 Cal. App. 3d 559, 566), and it “protects subcontractors only to
6
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.) Otherwise, we construe the
parties’ arguments about whether the City could “remove” Synergy or request its
“removal” to refer to the substitution process more generally. (See Titan, supra,
160 Cal.App.4th at p. 204 [any “distinction between ‘substitution’ and ‘termination’ [or
removal] is not one drawn by the statute”].)
13
the extent that preventing bid peddling and bid shopping might protect them.” (JMS Air,
supra, 30 Cal.App.5th at p. 958, italics omitted.) In other words, the limited personal
protection the Act gives subcontractors is hardly the statute’s exclusive or even
paramount objective.
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 subcontractor 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; see also R.M. Sherman
Co. v. W.R. Thomason, supra, 191 Cal.App.3d at pp. 565-566 [Act not intended to protect
prime contractors].) A far more reasonable reading, as proposed by the City, is that the
statute refers to a prime contractor’s request for substitution simply because “it is the
prime contractor who is in contractual privity with the subcontractor,” not the awarding
authority, and thus the prime contractor will be the party who actually effectuates the
subcontractor’s removal and replacement with another subcontractor.
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.)
14
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.
15
_________________________
Humes, P.J.
WE CONCUR:
_________________________
Margulies, J.
_________________________
Sanchez, J.
Synergy Project Management, Inc. v. City and County of San Francisco A151199
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Trial Court:
Superior Court of the City and County of San Francisco
Trial Judge:
Hon. Harold E. Kahn
Counsel for Defendant and Appellant:
Dennis J. Herrera, City Attorney
Ronald P. Flynn, Chief Deputy City Attorney
Elaine M. O’Neil, Construction & Public Contracts Team Leader
Jaime Huling Delaye, Deputy City Attorney
Counsel for Plaintiff and Respondent Synergy Project Management, Inc.:
Matthew K. Yan, Moscone Emblidge & Otis LLP
Kris A. Cox, Moscone Emblidge & Otis LLP
Erin H. Reding, Moscone Emblidge & Otis LLP
Synergy Project Management, Inc. v. City and County of San Francisco A151199
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