BILL ANALYSIS ---------------------------------------------------------------------- |Hearing Date:April 27, 2009 |Bill No:SB | | |258 | ---------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Gloria Negrete McLeod, Chair Bill No: SB 258Author:Oropeza As Amended:April 21, 2009 Fiscal: Yes SUBJECT: Contractors: public works. SUMMARY: Establishes a public works certification requirement under an unnamed state certifying agency for licensed contractors and subcontractors who perform public works projects. Existing law, the Business and Professions Code: 1)Provides for the licensure and regulation of more than 250,000 contractors under the Contractors State License Law (Contractors Law) by the Contractors' State License Board (CSLB) within the Department of Consumer Affairs (DCA). 2)Authorizes the CSLB to adopt regulations to set various application, licensure, and renewal fees, not to exceed specified limits, and provides for the deposit of those fees in the Contractors License Fund. 3)Requires the CSLB to initiate disciplinary action against a licensee upon certified notification of the Labor Commissioner's finding of the licensee's willful and deliberate violation of the Labor Code. 4)Authorizes the CSLB to adopt regulations to establish specialty classifications of contractors, and provides that in public works contracts, the awarding authority shall determine the license classification necessary to perform the project. 5)Requires contractors to obtain special certifications from the CSLB in order to perform asbestos-related work or to engage in hazardous substance removal or remedial action, as specified. SB 258 Page 2 Existing law, the Public Contract Code: 1)Authorizes a public entity to require that each prospective bidder for a contract complete and submit a standardized questionnaire and financial statement, including a complete statement of the prospective bidder's experience in performing public works. 2)Requires the Department of Industrial Relations, in collaboration with affected agencies and interested parties, to develop model guidelines for rating bidders, and draft the standardized questionnaire, that may be used by public entities for these purposes. 3)Requires the questionnaire and financial statement to be verified under oath by the bidder in the manner in which civil pleadings in civil actions are verified. 4)Authorizes a public entity to establish a process for prequalifying prospective bidders on a quarterly basis and makes a prequalification valid for one calendar year following the date of initial prequalification. This bill: 1)States legislative intent to certify that only the most qualified contractors perform on public works projects in order to promote the safety of California's publicly owned facilities and ensure the best use of tax dollars. 2)Establishes within the Contractors Law, beginning January 1, 2012, that a contractor is prohibited from performing work as a contractor or subcontractor on a public work contracted by the state or a state agency, or any other public agency, unless the contractor has obtained a public works certification from a state certifying agency to be determined by the Legislature. 3)Provides that to obtain the public works certification, the license qualifier shall submit the public works certification prequalification document developed and administered by the agency and receive certification from the agency. 4)Authorizes the agency to deny or revoke a public works certification for a contractor's failure to comply with the laws SB 258 Page 3 which apply to public works, or for committing any acts which are grounds for license denial, and requires revocation of a public works certification to be subject to the Administrative Procedures Act. 5)Specifies that the above provisions shall not be construed to: a) Affect the requirements relating to specialty contractors. b) Restrict the state or any other public agency from imposing additional requirements on contractors in awarding public works contracts. c) Expand the enforcement authority of the agency. 6)Defines certain terms relative to the bill: a) "Public agency" is a city, county, city and county, including chartered cities and chartered counties, the University of California and any special district, and any other agency of the state for the local performance of governmental or proprietary functions within limited boundaries. "Public agency" also includes a nonprofit transit corporation owned by a public agency, as specified. b) "Public work" is any work that is subject to the requirements of Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code. 7)Provides that the certifying agency shall do all of the following: a) By January 1, 2011, establish and validate minimum standards for the competency and prequalification of all contractors performing work on public works projects through a system of prequalification certification. b) By March 1, 2010, establish advisory committees as necessary to carry out these functions. Provides that the committees shall be made up of contractor representation from both the general contractor community and the subcontractor community with at least one representative from the following organizations on all committees or panels: Associated General Contractors, Construction Employers Association, California Legislative Conference of the Plumbing, Heating and Piping Industry, and the National Electrical Contractors Association, SB 258 Page 4 and at least one representative from organized labor designated by California Building and Construction Trades Council. c) By July 1, 2011, adopt regulations to enforce these provisions. d) Issue certification cards to contractors who have been prequalified and certified pursuant under the bill. e) Make information on certified contractors publicly available. 8)The public works prequalification certification shall be developed according to professionally accepted principles for prequalification and should adhere as closely as possible to the guidelines set forth in the Public Contract Code (see Existing law, the Public Contract Code, above). The certification shall not be based on a per-project basis and shall be based on a per-applicant basis. 9)Establishes fees which shall be deposited into the Public Works Certification Fund, as follows: a) By January 1, 2011, requires the certifying agency to establish fees necessary to implement the public works certification, and charge each applicant the fee. b) Until December 31, 2014, establishes a public works certification examination fee of not more than $65, after which the fee shall be not more than $125. 10)Creates the Public Works Certification Fund within the State Treasury, which is continuously appropriated to the certifying agency only for the costs to prequalify and certify contractors and subcontractors, and issue certification cards. FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by Legislative Counsel. COMMENTS: 1.NOTE : Last Year's SB 1698 (Romero). This bill is essentially the same as last year's SB 1698 (Romero) which was vetoed by the Governor. That bill would have prohibited a contractor from SB 258 Page 5 performing work as a contractor or a subcontractor on a public work unless the contractor obtained a public works certification from the CSLB. The bill required CSLB to develop a certification examination and required the qualifier for certification to pass the license exam. The bill authorized the CSLB to charge a fee in an amount sufficient to pay for the costs of administering the examination. That bill passed this Committee on a 5-3 vote. In the veto message, the Governor stated: "I believe that sufficient safeguards are already in place to prevent contractors from bidding on public works projects if they fail to comply with current Labor Code provisions. This bill would create barriers to small business by adding additional requirements to become a qualified bidder on public works projects, while providing little additional value to the public works process. By creating this barrier, competition on public works projects could be reduced, that may result in increased bid and project costs." 2.Purpose. This bill is sponsored by the National Electrical Contractors Association , the Construction Employers Association , the State Building and Construction Trades Council (Sponsors) to establish a new pre-qualification requirement for contractors who bid on public works projects. 3.Background. The Contractors State Licensing Board (CSLB) establishes licensing requirements for contractors in California. Existing law also authorizes CSLB to establish application, licensure, and renewal fees. Additionally, The Department of Industrial Relations, Division of Labor Standards Enforcement, investigates public works complaints to ensure compliance with public works laws including prevailing wages, certified payroll, fringe benefits, apprenticeship statutes, and workers compensation. 4.Public Works Complaint Enforcement. The Division of Labor Standards Enforcement (DLSE) within the Department of Industrial Relations (DIR) receives complaints and enforces the law regarding prevailing wages on public works projects. An employee, former employee, or anyone wishing to report a violation of the State's public works laws can file a complaint that prevailing wages were not paid on a public works project. SB 258 Page 6 The Sponsor indicates that complaints against contractors are frequently settled out of court before they ever reach the DIR review panel, and states: The two primary reasons for this are lack of sufficient enforcement staff at DIR, and the length of time and expense associated with the appeals process. The frequency with which these complaints are settled before they get to the board indirectly encourages non-compliance, because contractors in violation often go unpunished for their negligent or even willful behavior. Even worse, they retain the ability to bid on and secure contracts for public works projects. Moreover, when an investigation discovers an infraction, steep fines and damages are levied against the contractor. According to DIR, in calendar year 2007 $5.6 million in wages were recovered and $6.1 million penalties assessed. Thus far in 2008, $3.4 million in wages have been recovered and $3.7 million in penalties assessed. Apparently DIR continues to make a robust effort at enforcement of compliance issues, but has been drastically understaffed, due to significant reductions in budget and staff resources. This means that DIR cannot meet the current scale of oversight demands. While the lack of state resources for enforcement cannot be remedied in the short term, given the current fiscal situation, this bill is an effort to address the problem via heightened certification requirements. The Sponsor believes that this bill will put contractors on notice that despite limited resources, the state is nonetheless serious about compliance issues, and may ease the investigatory burden on DIR for the cases that come to their attention. A new certification exam is therefore a necessity for the quality and safety of future public works projects, according to the Sponsor. 5.Scope and Jurisdiction of CSLB Enforcement Regarding Public Works Projects. As introduced, this bill would have established a contractor public works certification program within the Contractors State License Board. However this bill was amended to provide that the certification would be done through a "certifying agency to be determined by the Legislature." CSLB's complaint process and procedures are designed to protect the public in matters pertaining to construction and to assist in the resolution of construction related complaints. CSLB handles any violations of the Contractors License Law, whether the contractor is licensed or unlicensed. However, the CSLB has no direct involvement or jurisdiction over public works projects. Business SB 258 Page 7 and Professions Code, Section 7059 states that the public works agency has the authority to select classifications for the project. CSLB has no jurisdiction over protests or disputes with the awarding entity on public works projects. While the CSLB is not specifically involved in the enforcement of public works projects, the Board presents information on its Internet website intended to assist both contractors and employing public agencies involved in public works projects. The CSLB lists a number of resources that can help contractors learn how to bid on public works projects, including: Business and trade associations, such as chambers of commerce and industry groups, that have workshops, conferences and/or conventions that can provide training, networking, and contract opportunities with the private and public sector. Agencies that award public works contracts that usually provide briefings of the request for proposal and bid process. Private schools and community colleges that offer courses on reading blueprints, estimating and bidding. Government agencies that are required to post a "Request for Proposal" for contracts that go out to bid. The Request for Proposal usually lists all requirements and specifications including contractor classifications. In general, the CSLB does not take enforcement action for violation of public works laws. However, the CSLB does have authority to take action against a licensed contractor based upon action taken by another public agency. 1.Arguments in Support. According to the Author's office, many contractors are unaware of the additional rules regarding public works projects. This results in those contractors who abide by the laws to be at a competitive disadvantage relative to those contractors who fail to comply with current labor laws and regulations. In short, the good actors are punished for obeying the law. The Author further states, with infrastructure projects funded by the bonds voters passed in 2006, and the federal stimulus dollars coming to California, it is now more important than ever to ensure that all contractors bidding on these public work projects are knowledge about the process and applicable laws and regulations. SB 258 Page 8 The State Building and Construction Trades Council , one of the bill's sponsors, argues that unlike general contracting law, public works contracts require specific protocols as their projects are being constructed. For instance, construction workers must be paid the local prevailing wage, the contractor must maintain certified payrolls under penalty of law, and the contractor must maintain special surety bonds. Other supporters contend that current law requires public agencies to use the contractor or contractors who submit the lowest responsible bid on public works projects. These requirements are in statute for good reason, as they ensure competitive bid prices, protect against corruption and guarantee equity in the bidding process. This places agencies in a position of having to use contractors that might have submitted the low bid, but do not have the experience, knowledge of public work requirements or financial stability to complete the project. Providing a state minimum standard of competency for contractors who wish to bid on public works projects would correct this issue. 2.Arguments in Opposition. Opponents of this measure do not see the need for this legislation, and argue that public agencies already have the authority to pre-screen bidders on public works projects to assure that the prime contractor and subcontractor have the requisite experience, knowledge of public works contracting law, and financial capacity to perform. California Landscape Contractors Association (CLCA) sees the bill as being inconsistent with the goal of encouraging greater small business participation in government contracting and states: "Requiring smaller contractors to obtain special . . . certification before bidding on public works projects erects yet another barrier that discourages participation in taxpayer-financed works of improvement." Associated Builders and Contractors (ABC) argues that the bill is unneeded because of the existing certification authorization, but contends that any type of certification issues for public works is more appropriately placed in the Department of Industrial Relations. However, ABC suggests before embarking on a new certification program, some demonstration of the existence of a problem needs to be provided, "particularly since certification proposals often have the unintended impact of restricting competition and choices for consumers and ultimately, for taxpayers." SB 258 Page 9 California Professional Association of Specialty Contractors (CALPASC) argues: "This bill will add one more barrier for small and minority owned businesses who are trying to participate in public works infrastructure projects." CALPASC further believes that the bill is a "thinly veiled attempt by certain businesses that are currently engaged in public works projects to keep other businesses from competing for these jobs." 3.Who is the Certifying Agency? As introduced, the bill would have established a contractor public work certification program within the Contractors State License Board. However, as indicated above, there is concern that the CSLB is not suited for this type of certification program. Some have suggested that the Department of Industrial Relations would be the appropriate agency for the certification program. On April 21, the bill was amended to remove references to the CSLB, and to instead refer to a "certifying agency to be determined by the Legislature." While this bill does not specify the CSLB as the certifying agency, it still casts its provisions within the Contractors Law. In light of the fact that the certifying agency is yet to be determined, the Committee may want to consider whether or not the Department of Industrial Relations may be the more appropriate "certifying agency." If still unresolved, the Committee should reserve the right to have the bill referred back to the Committee depending on which agency is named in this measure. SUPPORT AND OPPOSITION: Support: California Chapters of the National Electrical Contractors Association (Sponsor) Construction Employers Association (Sponsor) State Building and Construction Trades Council (Sponsor) Air Conditioning Sheet Metal Association Air-conditioning & Refrigeration Contractors Association California Legislative Conference of the Plumbing, Heating and Piping Industry Opposition: Note : The opposition listed below is based upon the bill as SB 258 Page 10 introduced. The significant change in the amended version is to recast references to the CSLB to instead refer to a "state certifying agency to be named by the Legislature." Associated Builders and Contractors California Professional Association of Specialty Contractors (CALPASC) Associated General Contractors of California (AGC) California Landscape Contractors Association Engineering and Utility Contractors Association Consultant:G. V. Ayers