BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 13, 2012 20011-2012 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: AB 1598
Author: Buchanan
As Introduced/Amended: April 26, 2012
SUBJECT
Public contracts: public works: installation
KEY ISSUE
Should the assembly and disassembly of freestanding and affixed
modular office systems for public works projects be subject to
the payment of prevailing wages?
PURPOSE
To clarify the meaning of "installation" within state public
works law to include the assembly and disassembly of
freestanding and affixed modular office systems.
ANALYSIS
Existing law requires that workers employed on public works
projects in California be paid the applicable prevailing wage,
as determined by the Department of Industrial Relations. Among
other things, existing law:
Requires that not less than the general prevailing
wage rate be paid to all workers
employed on a "public works" project costing over $1,000
dollars and imposes misdemeanor penalties for a violation
of this requirement.
Defines "public work" to include, among other things,
construction, alteration, demolition, installation or
repair work done under contract and paid for in whole or
in part out of public funds. (Labor Code §1720)
Also defines "public works," as the hauling of refuse
from a public works site to an outside disposal location,
with respect to contracts involving any state agency,
including the California State University and the
University of California, or any political subdivision of
the state.
Defines "paid for in whole or in part out of public
funds" as, among other things, "Fees, costs, rents,
insurance or bond premiums, loans, interest rates, or
other obligations normally required in the execution of a
contract that are paid, reduced, charged at less than
fair market value, waived or forgiven." (Labor Code
§1720)
This Bill would define "installation," for the purpose of public
works projects, to include the assembly and disassembly of
freestanding and affixed modular office systems.
COMMENTS
1. Background on "Public Works":
Existing law requires that not less than the general
prevailing wage rate of per diem wages, as determined by the
director of the Department of Industrial Relations (DIR), be
paid to all workers employed on a "public works" projects.
The 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. The
determination of whether a project is deemed to constitute a
"public work" is important because the Labor Code requires
(except for projects of $1,000 or less) that the "prevailing
wage" to be paid to all workers employed on public works
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Senate Committee on Labor and Industrial Relations
projects.
In general, "public works" is defined to include construction,
alteration, demolition, installation or repair work done under
contract and "paid for in whole or in part out of public
funds." Over a decade ago, there was much administrative and
legislative action over what constituted the term "paid for in
whole or in part out of public funds." These debates
culminated in the enactment of SB 975 (Alarcón), Chapter #
938, Statutes of 2001, which codified a definition of "paid
for in whole or in part out of public funds" that included
certain payments, transfers, credits, reductions, waivers and
performances of work. At the time, supporters of SB 975 stated
that it established a definition that conformed to several
precedential coverage decisions made by the Department of
Industrial Relations (DIR). SB 975 also exempted certain
affordable housing, residential and private development
projects that met certain criteria.
2. Need for this bill?
As discussed above, current law defines '"public works" as
"construction, alteration, demolition, installation, or repair
work done under contract and paid for in whole or in part out
of public funds." However, concerns have been raised
regarding work that may or may not be included under the
undefined term of "installation." There have been many
administrative decisions over the years concerning the
assembly of modular office systems and whether such work
constitutes a public work under state prevailing wage law.
Prior to the passage of SB 975, several DIR public works
determinations held that the assembly of such systems only
constituted a "public work" if the system was bolted, secured
or mounted to the realty (walls and/or floors). ÝExamples:
Valley View Elementary School, PW 99-034 (September 1999), and
Metal Workers and Metal Storage Shelving, PW 99-060 (November
1999)]
The author and sponsor of this bill state that SB 975 added
the term "installation," in part, to clarify that such work
would be covered by prevailing wage law. However, even after
the passage of SB 975, DIR continued to apply the
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affixed/freestanding dichotomy in determining whether such
work was covered by prevailing wage law. For example, in
Western Contract Services, PW 2005-017 (December 2005), DIR
found that the mere assembly and/or disassembly of
free-standing modular furniture was not subject to prevailing
wage requirements. In a subsequent decision, DIR stated that
the determination of whether such work was included as a
public work was not affected by SB 975's codification of
"installation." Modular Furniture, County of Sacramento, PW
2008-035 (November 2009). In that decision, DIR stated that,
"The relevant distinction between the pre-SB 975 and post-SB
975 versions of the Labor Code are immaterial. Whether the
work is installation rising to the level of construction under
the pre-SB 975 version or 'installation' under the post-SB 975
version produces the same result. The pre-SB 975 and the
post-SB 975 coverage determinations have in common the
bolting, securing or mounting of items to the realty as
fixtures."
DIR further stated that, "The Department publishes advisory
scopes of work to assist the regulated public in determining
appropriate rates of pay, not in determining whether a
particular type of work is covered." This bill is necessary to
address this issue and the lack of clarity regarding what may
or may not be included under "installation" for public works
purposes. The bill would include in code, the assembly and
disassembly of freestanding and affixed modular office systems
as part of the definition of installation, therefore, making
this work subject to the payment of prevailing wage.
3. Proponent Arguments :
According to proponents, confusion and questions on whether
certain kinds of installation projects are considered public
works and subject to prevailing wage coverage have been raised
due to the fact that there is currently no definition of
"installation" (for public works projects) in law. Proponents
argue that before 2001, when the definition of "public works"
was limited to "construction, alteration, demolition or
repair," the Director of Industrial Relations issued three
precedential public works determinations finding that
installation of modular office systems only met the definition
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of "public works" if it was bolted, secured, or mounted to
walls. According to proponents, this finding causes certain
kinds of installations to be excluded from prevailing wage
coverage.
Proponents argue that SB 975 (Alarcón), chaptered in 2001,
sought to clarify the types of public funds and public
subsidies that trigger prevailing wage, as well as redefine
"public works" to include "installation." Proponents argue
that the purpose of including "installation" as covered work
was to ensure that the assembly and disassembly of modular
office systems would be covered by prevailing wages whether
the office systems installed were affixed or freestanding. In
support of the measure, some proponents state that the tools,
processes and materials used to build and install 'free
standing' office modular systems are, in the vast majority of
cases, either analogous or identical to those used in the
construction of interior office walls. Unfortunately, they
argue, no definition was provided for the term "installation,"
and as a result, the Director has continued to rely on the
precedential decisions referred to above that were made before
the term "installation" was added to the definition of covered
work. This bill would eliminate any confusion by specifying
that "installation" includes the assembly and disassembly of
freestanding modular office systems.
4. Opponent Arguments :
Opponents of the measure argue that nearly all analyses of the
impact of prevailing wage requirements clearly show that
prevailing wage mandates result in higher costs due to a
variety of factors. According to opponents, this bill
continues the unwarranted expansion of state mandated
construction wage rates to projects that are not, in reality,
construction. Additionally, they argue that it is important
to note that modular systems set up and take down is something
that is normally obtained by purchase contract with office
furniture equipment suppliers, not under a public works
construction contract.
5. Prior or Related Legislation :
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Senate Committee on Labor and Industrial Relations
SB 975 (Alarcón) of 2001: Chaptered
This bill declared legislative intent that projects financed
through Industrial Development Bonds issued by the California
Infrastructure and Economic Development Bank must comply with
existing laws pertaining to prevailing wages. Additionally,
the bill established a definition for "public funds" and
included "installation" in the existing definition of "public
works."
SUPPORT
Northern California Carpenters Regional Council (Sponsor)
Advanced Installation Services
California Conference of Carpenters
California Labor Federation
California Teamsters Public Affairs Council
Construction Employers' Association
Galindo Installation and Moving Services
Modular Installers Association
Northern California District Council of Laborers
Operating Engineers Local Union #3
Quality Systems Installation
Service West
Southwest Regional Council of Carpenters
State Building and Construction Trades Council
OPPOSITION
Associated Builders and Contractors of California
Hearing Date: June 13, 2012 AB 1598
Consultant: Alma Perez Page 6
Senate Committee on Labor and Industrial Relations