BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 551
                                                                  Page 1

          Date of Hearing:   May 11, 2011

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                 AB 551 (Campos) - As Introduced:  February 16, 2011 

          Policy Committee:                              Labor and 
          Employment   Vote:                            5-1
                        Judiciary                             7-2

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:              No

           SUMMARY  

          This bill increase the penalties for contractors/subcontractors 
          who fail to pay the prevailing wage on public works projects, as 
          specified.  Specifically, this bill:  

          1)Increases the maximum penalty from $50 to $100 per calendar 
            day for each worker paid less than the prevailing wage for the 
            work or craft in which the worker is employed, as specified. 

          2)Increases the minimum penalty from $10 to $40 per calendar day 
            for each worker paid less than the prevailing wage, unless the 
            failure of the contractor/subcontractor to pay the correct 
            wage was a good faith mistake, as specified.  

          3)Increases the minimum penalty from $20 to $80 per calendar day 
            for each worker paid less than the prevailing wage, if the 
            contractor/subcontractor has been assessed penalties within 
            the previous three years for failing to meet its prevailing 
            wage obligations on a separate contract, as specified.  

          4)Increases the minimum penalty from $30 to $120 per calendar 
            day for each worker paid less than the prevailing wage, if the 
            Labor Commissioner (LC) determines the violation was willful.  


          5)Increases the penalty from $25 to $100 for each calendar day, 
            for each worker, until the contractor /subcontractor complies 
            with the 10-day time period requesting payroll records, as 
            specified.  









                                                                  AB 551
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          6)Prohibits, for three years, a contractor/subcontractor from 
            performing a public works project when it has committed two or 
            more separate willful prevailing wage violations within a 
            three- year period. 
           
          7)Debars a contractor/subcontractor from working on a public 
            works project when it fails to produce payroll records to the 
            LC in a timely manner, as specified.  

           FISCAL EFFECT  

          1)Costs to enforce this measure are likely, minor, and 
            absorbable.  

          2)Potential for increased revenue due to the proposed higher 
            fine structure.  Currently, the Division of Labor Enforcement 
            within the Department of Industrial Relations investigates 
            prevailing wage claims.  According to the 2009 annual Bureau 
            of Field Enforcement (BFE) report, there were 1,352 cases 
            opened regarding prevailing wage violations.  These cases led 
            to $4.5 million in penalties assessed, with a total of 
            $839,123 collected in that year.  Likewise, the BFE reports a 
            total of $10.8 million in back wages due to workers on public 
            works projects.  Of this amount $5.2 million were collected in 
            that year.  

           COMMENTS  

           1)Background  .  According to DIR, California's prevailing wage 
            rate is the basic hourly rate paid on public works projects to 
            a majority of workers engaged in a particular craft, 
            classification or type of work within the locality and in the 
            nearest labor market area (if a majority of such workers are 
            paid at a single rate).  If there is no single rate paid to a 
            majority, the single or modal rate being paid to the greater 
            number of workers is prevailing.  DIR further notes that the 
            prevailing wage is determined by the Director of DIR in 
            written determinations issued annually on February 22 and 
            August 22.  

            Existing law establishes penalties for 
            contractors/subcontractors who fail to pay the prevailing wage 
            to workers and provide payroll records, upon request.  The 
            chart below illustrates current penalties (per calendar day) 
            and the proposed increases in this measure.  








                                                                  AB 551
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                ----------------------------------------------------- 
               |                                   | Current  |  AB  |
               |                                   |   Law    | 551  |
               |-----------------------------------+----------+------|
               |Maximum penalty for paying less    |   $50    | $100 |
               |than the prevailing wage           |          |      |
               |-----------------------------------+----------+------|
               |Minimum penalty for paying less    |   $10    | $40  |
               |than prevailing wage, unless a     |          |      |
               |good faith mistake                 |          |      |
               |-----------------------------------+----------+------|
               |Minimum penalty for paying less    |   $20    | $80  |
               |than prevailing wage, if assessed  |          |      |
               |penalties within the previous      |          |      |
               |three years.                       |          |      |
               |-----------------------------------+----------+------|
               |Minimum penalty for paying less    |   $30    | $120 |
               |than prevailing wage, if LC        |          |      |
               |determines violation was willful.  |          |      |
               |                                   |          |      |
               |-----------------------------------+----------+------|
               |Penalty for compiling with payroll |   $25    |$100  |
               |records request                    |          |      |
                ----------------------------------------------------- 

            Statue also provides whenever a contractor/subcontractor has 
            been found by the LC to be in willful violation of public 
            works laws for a second and subsequent time within a 
            three-year period, the entity shall be ineligible for an up to 
            three-year period from bidding on or being            awarded 
            a public works contract, or performing work as a subcontractor 
            on a public works contract.  This bill proposes to reduce the 
            number of violations from three to two that determines a 
            contractor/subcontractor's eligibility for public works 
            projects, as specified.  

           2)Rationale  .  According to the author, "Currently, contractors 
            are not deterred by penalties that exist for violating the 
            state's Prevailing Wage Act. The penalties are too low to act 
            as a real deterrent and have not been raised or amended in 
            years. Some recalcitrant contractors (often those that are in 
            the underground economy) simply make a business decision to 
            pay the fines if they get caught figuring that with fewer and 








                                                                  AB 551
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            fewer inspectors at the Labor Commissioner's office the 
            chances of them getting caught violating the Act are very 
            low."  This bill, sponsored by the Building and Construction 
            Trades Council, increases penalties for violations of 
            prevailing wage statute, as specified.         
           
          3)Opposition  .  Opponents, private contractors of this measure 
            argue the majority of prevailing wage penalties are due to 
            clerical errors and good faith disputes.  They argue the 
            current fine structure is sufficient and "high enough to put 
            small to medium size companies in financial jeopardy.  It is 
            not uncommon to see cases where the penalties exceed the 
            alleged wage underpayment."  
                
           4)Previous legislation  .  AB 45 (Padilla) increased the penalty 
            on contractors that willfully violate prevailing wage law and 
            permanently removed such contractors from competition with 
            law-abiding contractors.  This measure was vetoed by Governor 
            Schwarzenegger in October 2009 with the following message: 

            "This bill would enact new penalties against contractors found 
            by the Labor Commissioner to be in violation of the public 
            works law with intent to defraud. This bill is not needed 
            because provisions in existing law are already adequate to 
            preclude unscrupulous contractors from bidding on public works 
            jobs.  The standard of what constitutes "intent to defraud" to 
            warrant permanent debarment is also not sufficiently defined.  
            Further, recently enacted legislation strengthens existing law 
            by creating an enforcement program to minimize public works 
            violations."







           Analysis Prepared by  :    Kimberly Rodriguez / APPR. / (916) 
          319-2081