CALIFORNIA PUBLIC WORKS CONTRACTS PART 2: FORMING CONTRACTS AND BONDS

For years, our construction law firm has been digging contractors out of messy public works claims and assisting them with claims on public works projects. We hate to see all the trouble they have to go through…which is why our construction-litigation attorneys have created a three-part California Public Works Contract series to help contractors and others involved in public projects know just what they’re getting themselves into.

Last week, in part one, we discussed what a public works contract is and the pros and cons of forming a public contract. Today, we’ll be extending this conversation to how public contracts are formed and what bonds are needed.

1. Contract Formation:

A private contract is formed by a mutual agreement between parties supported by some amount of money as consideration and evidenced by the parties’ signatures.

On the other hand, a Public Contract, is effective when it is awarded under competitive bidding.  The duty to sign the contract is purely a formality.  The contract is formed when the award is made and the parties are bound by it at that point.  Such a contract cannot be impaired at the option of the public agency or of the bidder.

Public Contracts often incorporate standardized specifications and refer to various administrative codes, procedural manuals, the Code of Federal Regulations, and other documents that can have a substantial impact on the interpretation of contract provisions.  These can also contain claim presentation or arbitration provisions that may directly affect the presentation and prosecution of claims. In addition, there are numerous statutory provisions that govern public contracts that need to be consulted. Subcontracts on public projects almost always incorporate the Prime Contract so you have to make sure you review the Prime Contract.

2. SECURITY:

Public contracts may require Bid Bonds, Performance Bonds and Payment Bonds.

A Bid Bond guarantees that, if a construction contract is awarded, it will be signed and the successful contractor will post a bond to guarantee both that the contract will be performed and that subcontractors and material suppliers will be paid.

Performance Bonds are used on virtually all public works and many private works projects as a means to guarantee that the project will be completed.  A lot of State and local agencies are required to obtain performance bonds.

Payment Bonds guarantee payment to suppliers.  Civil Code §9550(a) requires contractors to file payment bonds for public contracts in excess of $25,000.  A public agency may be liable for failure to require a contractor to post a payment bond.

The preceding is a summary of legal subjects provided for informational purposes only.  Most legal issues need complex factual and legal analysis. You are advised not to rely on these blogs and seek legal advice about your specific issues from a licensed attorney in your jurisdiction.  Nothing in these writings is intended to create, or creates, an attorney-client relationship.  For consultation with a licensed attorney you may contact Ghassemian Law Group at 949-436-2785.