BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1092| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 1092 Author: De León (D) Amended: 4/9/12 Vote: 21 SENATE TRANSPORTATION & HOUSING COMM : 9-0, 04/10/12 AYES: DeSaulnier, Gaines, Harman, Kehoe, Lowenthal, Pavley, Rubio, Simitian, Wyland SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SUBJECT : Brokers of construction trucking services: surety bonds SOURCE : California Construction Trucking Association DIGEST : This bill requires that brokers of construction trucking services provide written evidence to specified parties and in a specified manner of possession of a valid surety bond. ANALYSIS : A broker of construction trucking services (broker) is someone who arranges services from and is responsible for paying an independent contractor who provides dump truck services (dump truck operator). Existing law requires that a broker pay a dump truck operator by the 25th day following the last day of the month in which the dump truck provided services, provided that the dump truck operator documents the charges, the dump truck operator is properly permitted, and no dispute CONTINUED SB 1092 Page 2 exists between the two over the charges. If the broker does not pay in a timely fashion, state law prescribes a penalty of two percent per month of withheld charges. Since 2011, existing law has required a broker to secure a surety bond of not less than $15,000 to ensure that a contracted dump truck operator receives payment, even if the broker fails to pay the dump truck operator by the 25th day of the month following when services were rendered. A broker who does not secure this surety bond is guilty of a misdemeanor and subject to a fine of up to $5,000. This bill: 1.Requires a broker to post evidence of its bond to its website or annually to provide written evidence of the broker's surety bond to a third-party nonprofit organization that is related to the industry and regularly maintains a published database of bonded brokers. The broker must remove the evidence from its web site or notify the third party organization when its surety bond expires or is canceled. 2.Prohibits a broker from engaging the services of any dump truck operator unless prior to the commencement of work in each calendar year, the broker first provides written evidence of its valid surety bond to any person that hires the broker to furnish construction transportation services and also to the hired dump truck operator. 3.Defines "written evidence of the broker's valid surety bond" as a copy of the bond, a certificate of insurance, a continuation certificate, or other similar documentation originally issued from the surety that includes the surety and broker's name, bond number, and effective and expiration dates of the bond. Comments The author introduced this bill at the request of the California Construction Trucking Association, which represents construction-related trucking companies that operate fleets of dump trucks. In 2010, the author and sponsor of the bill teamed up on AB 145 (DeLeon), Chapter SB 1092 Page 3 429, Statutes of 2010, in response to reports from dump truck operators that construction trucking brokers were engaging in unscrupulous practices toward the dump truck operators whose services they broker. AB 145 requires brokers of construction trucking services to secure a surety of bond of $15,000 to ensure payment of contracted dump truck operators. The sponsor now reports that some unscrupulous, unprofessional brokers are shirking their bonding responsibilities under AB 145. Specifically, these brokers have either failed to obtain a bond or have refused to provide bond information to the dump truck operators whose services they broker. AB 145 included no affirmative obligation that brokers notify others of the bond information. This bill addresses that problem by adding notification requirements to the existing broker bond. By creating easier access to a copy of the bond, a contracted dump truck owner will know up front if in fact he or she is contracting with a bonded broker. Moreover, if the dump truck operator has already completed the work for the broker and has not been paid, he or she can easily access the bond information in order to file a claim on the bond. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT : (Verified 5/1/12) California Construction Trucking Association (source) California Teamsters OPPOSITION : (Verified 5/1/12) California Trucking Association ARGUMENTS IN SUPPORT : According to the sponsor: Since January 1, 2011, the new broker bond law has had considerable success in cleaning up the abuses within construction trucking industry. While CCTA has no ability to determine exact figures, it is our understanding that many reputable construction trucking brokers have obtained a surety bond as a SB 1092 Page 4 result of AB 145. However, CCTA has been notified by a number of its member owner-operators that some unscrupulous, unprofessional brokers have continued to shirk their bonding responsibilities under the law. Specifically, these brokers have either failed to obtain a bond at all, or have refused to provide bond information to their subhaulers as there is currently no affirmative obligation to notify others of the bond information. Without a copy, subhaulers do not have the requisite information to file on a broker's bond and a broker can continue to refuse to pay their obligations without repercussions. This bill, SB 1092 by Senator De Leon is designed to resolve this problem by creating transparency and adding notification requirements to the existing broker bond. By creating easier access to a copy of the bond, a subhauler will know up front if in fact they are contracting with a bonded broker. Moreover, if they have already completed the work for the broker and have not been paid, they can easily access the bond information if they choose to file on the bond. This is accomplished through a series of strategic points of access for a subhauler including from the broker him- or herself, online from a 3rd party organization or broker's website, or from a person that hires the broker. This would provide for assurance of payments. ARGUMENTS IN OPPOSITION : According to the California Trucking Association: SB 1092 would conflict with federal law that forbids states to enact laws related to the "enact or enforce a law ? related to a price, route, or service of any motor carrier," 49 U. S. C. §14501(c)(1) or "enact or enforce any law?relating to intrastate rates, intrastate routes, or intrastate services of any freight forwarder or broker" 49 U.S.C. §14501(b)(1). The provisions of this bill are similar to a Maine law that was found to be pre-empted by the Supreme Court based on the fact that it directly affected the manner SB 1092 Page 5 in which services are provided. (Rowe v. New Hampshire Motor Transport Association et al.) SB 1092 directly regulates the manner in which the services of motor carriers and brokers are provided. Also, it would require carriers and brokers to offer a system of services that the market does not now provide by establishing disclosure, recordkeeping and reporting requirements as a precondition of arranging transportation services, thereby creating a significant and adverse impact in respect to the federal Act's ability to achieve pre-emption related objectives. JJA:nl 5/1/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****