January 1, 1900

In January 2000, the New Jersey legislature passed numerous amendments to the public contract laws which have altered the way construction professionals do business with public entities. Commonly referred to as the "Single-Prime Law", public entities are now permitted to seek only single, over-all bids from prime contractors, who will then subcontract the major portions of work, such as plumbing, gas, electrical, structural steel, ornamental iron, HVAC and other general work to sub-contractors.

Prior To The Enactment of A Statute

The utilization of prime contractors is nothing new to public contracting; however, the ability of public entities to seek only prime contractors is a novelty. Prior to this law's enactment, a public entity was required to allow specialized trades to bid for the major portions of work. Thus, if an electrician did not want to team up with other contractors, it could submit a bid for merely the electrical portion of the contract. On bid opening, the public entity was required to tally two categories: (A) the bids submitted by prime contractors for all work; and (B) the bids submitted for each of the separate portions of work. If the total of the lowest bids for each of the separate portions of work was less than the lowest bid by a prime contractor for all work, the public entity would be required to award the contract to the separate contractors. Local public entities do not have the discretion afforded to the State and must award the contract to the lowest bidder. In contrast, the State could consider factors other than price when awarding the ultimate contract.

With the advent of the Single-Prime Law, a public entity may now preclude a specialized contractor from bidding on a smaller portion of the contract. If a public entity wishes to solicit only prime contractor bids for a project involving multiple facets of work (plumbing, steel, electrical, etc.), an electrician who does not team up with a prime contractor is prohibited from submitting a bid for only the electrical portion of work and, thus, is eliminated from being considered for the contract. The rationale behind the law is that the contract is administratively easier to manage with just one prime contractor. It has also been argued that there is less public oversight required for a single-prime contractor than with multiple contractors doing separate tasks.

However, this law's limitations have created numerous problems for smaller contractors, who find themselves at the mercy of larger prime contractors to be included in public bid proposals. For those specialized contractors lucky enough to be selected as a "sub" by a prime, they find less room for negotiation and almost no interaction with the contracting public entity. This often results in misunderstandings on actual construction, requiring subsequent replacement or re-construction.

Control Is An Issue

Additionally, when utilizing only prime contractors, the public entity has less direct control over the subcontractors. Indeed, with regard to local government entities and school districts, there appears to be an absence of any rules or regulations that govern the qualifications of subcontractors. The Single-Prime Law mandates that all subcontractors utilized by prime contractors must be "named and qualified." However, with the exception of the rules for "bidder classification" that govern State contracts, there exist no rules for subcontractor qualification. This issue is currently being tried before the courts, in an effort to force the promulgation of subcontractor qualification standards. Without guarantees as to a subcontractor's education, training and experience, the public may be left with sub-par construction necessitating premature repair or replacement in addition to possible public safety hazards. These costs may outweigh the anticipated benefit of having to administer only one contract as opposed to separate contracts for the multiple facets of work.

Until the responsible administrative agencies or the courts decide upon proper qualifications for subcontractors, all contractors interested in bidding upon public contracts being solicited under the Single-Prime Law should pay special attention to the qualifications set forth for subcontractors. In this regard, it is advised that professional legal counsel be retained at the outset of the bidding process so as to avoid being declared ineligible to participate in the contract.

Anthony L.Velasquez is an associate of Hill Wallack where he is a member of the Litigation Division and the Administrative Law/Government Procurement Practice Group.