BILL ANALYSIS                                                                                                                                                                                                    







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       |Hearing Date:April 27, 2009    |Bill No:SB                            |
       |                               |258                                   |
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                      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.





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       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  





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         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,  





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            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  





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         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.  






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       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  





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         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.





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       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."





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        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  





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       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