BILL ANALYSIS Ó
AB 1140
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Date of Hearing: April 10, 2013
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 1140 (Daly) - As Amended: March 19, 2013
SUBJECT : Public works: prevailing wages.
SUMMARY : Provides that changes made to prevailing wage rates
apply on their effective date to any contract that is awarded or
for which notice to bidders is published on or after January 1,
2014. Specifically, this bill :
1)Provides that if during any semiannual period the Department
of Industrial Relations (DIR) determines that there has been a
change in any prevailing wage rate, the determination shall
apply on its effective date to any contract that is awarded or
for which notice to bidders is published on or after January
1, 2014.
2)Provides that specified parties may, within 20 days after
publication of a new determination, file with DIR a petition
to review the determination on the grounds that the rate has
not been determined in accordance with existing law. The
petition shall be filed with the awarding body within two days
thereafter.
3)Provides that, upon filing of such a petition, DIR shall
initiate an investigation or hold a hearing.
4)Provides that within 20 days after the filing of such a
petition (or within a longer period agreed to by all
interested parties), DIR shall make a determination that shall
be final.
EXISTING LAW :
1)Provides that if during any quarterly period DIR determines
that there has been a change in any prevailing wage rate, it
shall make the change available to the awarding body and the
determination shall be final.
2)Provides that this determination shall not be effective as to
any contract for which notice to bidders has been published.
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FISCAL EFFECT : Unknown
COMMENTS : Existing law generally requires the payment of
prevailing wages on public works projects. This bill addresses
the question of what prevailing wage rate applies when there has
been a change in the wage rate during the course of a public
works project.
General Background on "Public Works" Under California Law
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." This action 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).
These coverage decisions defined payment by land, reimbursement
plans, installation, grants, waiver of fees, and other types of
public subsidy as public funds for purposes of prevailing wage
law. According to the sponsors, SB 975 was intended to remove
ambiguity regarding the definition of public subsidy of
development projects.
SB 975 also exempted certain affordable housing, residential and
private development projects that met certain criteria.
Follow-up legislation, SB 972 (Costa), Chapter # 1048, Statutes
of 2002, was intended to clarify the application of SB 975 and
was the result of extensive discussions between the State
Building and Construction Trades Council (sponsor of SB 975),
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affordable housing advocates, and the Davis Administration.
Supporters of SB 972 contended that the original legislation had
unintended consequences for self-help housing and housing
rehabilitation projects. As a result of that compromise, SB 972
exempted from public works requirements the construction or
rehabilitation of privately-owned residential projects that met
certain criteria.
Why It Matters: "Prevailing Wage"
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
projects.
What is "Prevailing?": How The Prevailing Wage is Determined
California uses the "modal rate" in determining prevailing wage
rate for use on public works projects.
The California Labor Code requires the Director of the
Department of Industrial Relations (DIR) to consider the
applicable wage rates established by collective bargaining
agreements and the rates that may have been determined for
federal public works projects. Where the rates do not
constitute the rates actually prevailing in a local area, the
Director is required to consider further data from the labor
organizations and employers or employer associations concerned.
Existing law requires the Director to use the methodology set
forth in Labor Code Section 1773.9 in determining the prevailing
wage rate. That methodology defines the prevailing wage as the
hourly wage rate being paid to a majority of workers in a
particular craft within a given locality. If no single rate is
being paid to a majority of the workers, then the single rate
being paid to the greatest number of workers is the prevailing
rate. This is known as the "modal rate."
The prevailing wage is deemed to include employer payments for
health and welfare, pension, vacation, travel, subsistence pay,
apprenticeship or other training programs, worker protection and
assistance programs or committees, as directed, and
administrative fees, as required for industry advancement and
collective bargaining agreements, and similar purposes.
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The Epic Battle Over the "Modal Rate"
The "modal rate" has a long history in California, which
culminated in an epic administrative, legal and legislative
battle in the late 1990s.
The California regulation first implementing the modal rate was
adopted in 1956. However, on five separate occasions between
1983 and 1990, DIR considered changing the methodology for the
determining the prevailing wage rate to use an "average wage
rate" when no single rate is the majority rate paid to workers.
Each time DIR decided not to move forward with changing the
methodology.
Then, beginning in 1995, DIR attempted to implement regulatory
changes to the process, proposing to eliminate, among other
things, the modal rate and replace it with a weighted average.
In 1996-97, Governor Wilson's proposed budget for DIR requested
an augmentation of $1.26 million and 20 staff positions to
implement a revised methodology. This proposal was rejected by
the Budget Conference Committee.
In 1997, the Legislature passed Assembly Concurrent Resolution
17 (Lockyer). Among other things, ACR 17 declared that the
modal rate was the methodology that had been recognized for the
previous forty years, was the only methodology recognized by
law, and condemned DIR for attempting to implement a regulation
which contradicted the law it was supposed to enforce.
The proposed regulatory changes, and the funding of DIR
activities related to implementation of the revised methodology,
were also subject to litigation. On May 9, 1997, the First
District Court of Appeal held that DIR had exceeded its
authority by spending funds that had been specifically denied by
the Legislature. That same day, a Sacramento Superior Court
judge issued a restraining order in a separate lawsuit seeking
to prevent DIR from implementing its new regulations on the
prevailing wage methodology. Three weeks later, the same court
ruled that the modal rate method of determining prevailing wages
could not be changed without legislative approval.
All of this action culminated with the enactment of SB 16
(Burton) of 1999 which codified the modal rate methodology in
the Labor Code.
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What Happens When the Prevailing Wage Rate Changes During the
Course of a Project? - The Single and Double Asterisk Rules
As discussed above, prevailing wage rates are determined by DIR.
With respect to changes in the prevailing wage rate, Labor Code
Section 1773.6 states, in pertinent part:
"If during any quarterly period the Director of Industrial
Relations shall determine that there has been a change in
any prevailing rate of per diem wages in any locality he
shall make such change available to the awarding body and
his determination shall be final. Such determination by the
Director of Industrial Relations shall not be effective as
to any contract for which the notice to bidders has been
published." (Emphasis provided).
However, the Labor Code specifically addresses "predetermined"
increases in the prevailing wage rate. Generally these
increases are "predetermined" because they reflect increases
contained in the applicable collective bargaining agreement(s)
and are known at the time the initial determination is made.
Specifically, Labor Code Section 1773.9(c) provides:
"If the director determines that the general prevailing
rate of per diem wages is the rate established by a
collective bargaining agreement, and that the collective
bargaining agreement contains definite and predetermined
changes during its term that will affect the rate adopted,
the director shall incorporate those changes into the
determination."
DIR has dealt with this issue by developing what is referred to
as the "single and double asterisk rule." When DIR publishes
prevailing wage rate determinations, the rates are generally
followed by either a single or a double asterisk. DIR's
regulations explain the operation of the rule as follows:
"Prevailing wage determinations with a single asterisk (*)
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after the expiration date which are in effect on the date
of advertisement for bids remain in effect for the life of
the project. Prevailing wage determinations with double
asterisks (**) after the expiration date indicate that the
basic hourly wage rate, overtime and holiday pay rates, and
employer payments to be paid for work performed after this
date have been predetermined. If work is to extend past
this date, the new rate must be paid and should be
incorporated in contracts entered into now. The contractor
should contact the Prevailing Wage Unit, DLSR, or the
awarding body to obtain predetermined wage changes. All
determinations that do not have double asterisks (**) after
the expiration date remain in effect for the life of the
project." (8 Cal. Code Reg. § 16204(b)).
The "double asterisk" rule was also targeted for elimination in
the Wilson Administration regulatory actions in the mid-1990s
discussed above. That regulatory proposal was also rejected by
the Sacramento Superior Court decision issued in 1997.
ARGUMENTS IN SUPPORT :
This bill is sponsored by the State Building and Construction
Trades Council of California. The sponsor contends that, under
current law, the prevailing wage determination applicable to a
construction project is the determination in effect when the
project is first advertised for bid. There is sometimes a long
lag between when a project is advertised for bid and when
construction starts, and some construction projects involve work
extending for a multi-year period. The lag between when a
project is advertised for bid and when work is actually
performed leads to situations in which the prevailing wage
determination does not reflect the actual prevailing wage for
the craft and locality.
The sponsor notes that wage rates tend to increase over time to
reflect increases in the cost of living, and employer costs for
pension and health care have been increasing by a higher
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percentage. Thus, the prevailing wage determination in effect
when a project was advertised for bid in 2008 will not reflect
the true prevailing wage rate when construction is being
performed in 2013. This lag places unionized contractors at a
disadvantage in bidding for public work, because they are bound
to pay the wages and make the benefits contributions required by
the current collective bargaining agreement (CBA).
Current law tries to deal with the "lag" problem by providing
that, when a prevailing wage determination is based on a CBA
rate, and the CBA provides for future changes in wages and
benefits, the prevailing wage determination incorporates those
"predetermined changes" and makes them binding on contractors.
However, the sponsor argues that this is only a partial solution
to the "lag" problem because most CBAs last for only three
years, and prevailing wage determinations may be issued toward
the end of the CBA on which they are based.
The sponsor argues that this bill would solve the "lag" problem
by providing that the semi-annual prevailing wage determinations
issued by DIR become effective as to all public works projects.
Contractors bidding on projects can estimate future changes in
prevailing wage rates just as they estimate future changes in
the cost of materials. The sponsor states that unionized
contractors already do this because they must anticipate future
changes in CBA wage rates.
ARGUMENTS IN OPPOSITION :
Writing in opposition to this bill, the California Association
of Sanitation Agencies argues that "this change to current law
will interrupt the pace of public works projects, especially in
localities where prevailing wages change multiple times over the
course of a project. This bill will essentially guarantee
multiple change orders on large projects and will postpone the
pace of these projects - at the cost to our ratepayers."
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation, AFL-CIO
State Building and Construction Trades Council of California
(sponsor)
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Opposition
California Association of Sanitation Agencies
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091