Substitution of Subcontractors - 1203.2

(New: 02/2022)

After award of a contract, the successful bidder/contractor shall use the DVBE subcontractors and/or suppliers proposed in the bid or proposal to the State unless a substitution is requested and approved. A prime contractor shall request the substitution in writing to the awarding department and must receive approval from both the awarding department and the DGS Office of Small Business and Disabled Veteran Business Enterprise Services (OSDS) in writing prior to the commencement of any work by the proposed DVBE subcontractor or supplier in order to replace a DVBE identified by the prime contractor in its bid with another DVBE pursuant to Military and Veterans Code, Section 999.5(f) and the California Code of Regulations (CCR), Title II, Section 1896.73.

Situations Allowing Substitution of Subcontractors 

The California Code of Regulations (CCR), Title II, Section 1896.73 provides the current requirements for awarding departments to approve the substitution of a DVBE subcontractor.  Departments shall follow the process set forth in 2 CCR, Section 1896.73 when a prime contractor requests the substitution of a DVBE subcontractor with the added provisions that:

• Only another DVBE subcontractor shall be considered to replace a DVBE subcontractor, and
• The awarding department shall obtain final approval to replace a DVBE subcontractor from DGS.

Required Language in Solicitations

To ensure prime contractors honor their commitments to use DVBE subcontractors and meet the commitment levels identified in bids, departments must include language in solicitations and contracts that highlight legal requirements.

The following suggested or similar language shall be incorporated into solicitations and resulting contracts:

Contractor understands and agrees to comply with the requirements set forth in Military and Veterans Code, Section 999 et seq. that should award of this contract be based in part on their commitment to use the Disabled Veteran Business Enterprise (DVBE) subcontractor(s) identified in their bid or offer, per Military and Veterans Code, Section 999.5(f), a DVBE subcontractor may only be replaced by another DVBE subcontractor and must be approved by both the awarding department and the Department of General Services (DGS) prior to the commencement of any work by the proposed subcontractor.  Changes to the scope of work that impact the DVBE subcontractor(s) identified in the bid or offer and approved DVBE substitutions will be documented by contract amendment. 

Failure of Contractor to seek substitution and adhere to the DVBE participation level identified in the bid or offer may be cause for contract termination, recovery of damages under rights and remedies due to the State, and penalties as outlined in MVC, Section 999.9; Public Contract Code (PCC), Section 10115.10.

When general provisions are not used, every contract that contains DVBE subcontractor participation shall include a provision requiring the prime contractor to comply with the DVBE subcontractor certification reporting requirements of MVC, Section 999.5(d) and Public Contract Code, Section 10230. The following suggested or similar language shall be incorporated into solicitations and resulting contracts:

Upon completion of this Contract, the department requires the Contractor to certify using the Prime Contractor’s Certification – DVBE Subcontracting Report (STD 817), all of the following:

1. the total amount the prime Contractor received under the Contract;
2. the name, address, Contract number and certification ID number of the DVBE(s) that participated in the performance of this Contract;
3. the amount and percentage of work the prime Contractor committed to provide to one or more DVBE(s) under the requirements of the Contract and the total payment each DVBE received from the prime Contractor;
4. that all payments under the Contract have been made to the DVBE(s); and
5. the actual percentage of DVBE participation that was achieved. Upon request, the prime Contractor shall provide proof of payment for the work.

If for this Contract the Contractor made a commitment to achieve the DVBE participation goal, the Department will withhold $10,000 from the final payment, or the full final payment if less than $10,000, until the Contractor complies with the certification requirements above. A Contractor that fails to comply with the certification requirement shall, after written notice, be allowed to cure the defect. Notwithstanding any other law, if, after at least 15 calendar days but not more than 30 calendar days from the date of written notice, the prime contractor refuses to comply with the certification requirements, the department shall permanently deduct $10,000 from the final payment, or the full payment if less than $10,000. (MVC, Section 999.7)

A person or entity that knowingly provides false information shall be subject to a civil penalty for each violation. (MVC, Section 999.5(d); Government Code, Section 14841)

Contractor agrees to comply with the rules, regulations, ordinances, and statutes that apply to the DVBE program as defined in MVC, Section 999, including, but not limited to, the requirements of Section 999.5(d). (PCC Code, Section 10230)

Written DVBE Substitution Request to DGS/OSDS

Requests to replace a DVBE subcontractor must be documented to show that the replacement meets the criteria as specified in the CCR or the PCC.  Documentation may include, but is not limited to the request, confirmation of receipt of the request, the subcontractor's objection and request for hearing and the final Statement of Decision.  Requests and resulting amendments generated by the DVBE subcontractor substitution should be timely so as not to unreasonably delay the contractor’s performance of the contract, resulting in potential claims against the awarding department for delay damages.

Requests are to be sent electronically to SB.DVBECompliance@dgs.ca.gov.

Click here to access the “DVBE Substitution” Form and Instructions.