BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
William W. Monning, Chair
Date of Hearing: June 26, 2013 2013-2014 Regular
Session
Consultant: Deanna D. Ping Fiscal:Yes
Urgency: No
Bill No: AB 1140
Author: Daly
As Amended: May 24, 2013
SUBJECT
Public works: prevailing wages
KEY ISSUES
Should the Legislature allow the director of the Department of
Industrial Relations to update a prevailing wage determination
for a project whose initial determination may have lapsed and
for which the semiannual prevailing wage determinations would
bring the projects due wages up to date?
Should the Legislature approve the addition of a review
procedure, modeled after allowed reviews in existing law,
authorizing an entity to seek review of a prevailing wage
determination to ensure the most accurate rate is being paid on
a project?
ANALYSIS
Existing law defines "public works" to include, among other
jobs, 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)
Under existing law , "paid for in whole or in part out of public
funds" means, among other things, the following:
1. The payment of money or the equivalent of money by the
state or political subdivision directly to or on behalf of
the public works contractor, subcontractor, or developer.
2. The performance of construction work by the state or
political subdivision in execution of the project.
3. Fees, costs, rents, insurance or bond premiums, loans,
interest rates, or other obligations that would normally be
required in the execution of the contract, that are paid,
reduced, charged at less than fair market value, waived, or
forgiven by the state or political subdivision.
4. Money loaned by the state or political subdivision that
is to be repaid on a contingent basis.
(Labor Code §1720)
Existing law requires all employees who work on public works
projects costing $1,000 or more to be paid the general
prevailing rate of per diem wages and the general prevailing
rate for holiday and overtime work for the specific location
where the public work is to be performed. (Labor Code §1771)
Existing law requires the Director to use specific methodology
when 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 - known as the "modal rate."
(Labor Code §1773.9)
Existing law states that 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.
(Labor Code §1773.9)
Existing law defines "awarding body" or "body awarding the
contract" as the department, board, authority, officer or agent
awarding a contract for public work. (Labor Code §1722)
Existing law 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. (Labor Code §1773.6)
Existing law provides that this determination shall not be
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Senate Committee on Labor and Industrial Relations
effective as to any contract for which notice to bidders has
been published. (Labor Code §1773.6)
This bill 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.
5)States that a determination issued by the director is
effective 10 days after its issuance. The director shall
include an issue date on the determination. The determination
shall remain in effect until it is modified, rescinded, or
superseded by the director.
COMMENTS
Hearing Date: June 26, 2013 SB 1140
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Senate Committee on Labor and Industrial Relations
1. A Brief History of State and Federal Prevailing Wage Law
State prevailing wage laws vary from state to state, but do
share a common history that predates federal prevailing wage
law. Many of these state laws were enacted as part of
Progressive Era reform efforts to improve working conditions
at the end of the 19th and the beginning of the 20th
centuries. Between 1891 and 1923, seven states adopted
prevailing wage laws that required payment of specified hourly
wages on government construction projects, the state of Kansas
being the first in 1891.
Eighteen additional states (including California in 1931) and
the federal government adopted prevailing wage laws during the
Great Depression of the 1930s amidst concern that acceptance
of the low bid, a common requirement of government contracting
for public projects, would reduce local wages and disrupt the
local economies. This was particularly in the depths of the
Great Depression, where, for some local economies, the
government had become the primary purchaser of construction
products and a significant employer.
In general, the proponents of prevailing wage legislation
wanted to prevent the government from using its purchasing
power to undermine the wages of its citizens. It was believed
that the government should set an example, by paying the wages
prevailing in a locality for each occupation hired by
government contractors to build public projects. Even today,
prevailing wage laws are generally meant to ensure that wages
commonly paid to construction workers in a particular region
will determine the minimum wage paid to the same type of
workers employed on publicly funded construction projects.
2. Need for this bill?
AB 1140 will address 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. Currently, the
Department of Industrial Relations (DIR) issues general
prevailing wage determinations twice a year on February 22 and
August 22. Under current law, if the Director of DIR
determines that there has been a change in the prevailing wage
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rate in any locality, he or she will make the change available
to the awarding bodying. However, the changed wage does not
apply to any contract where the notice to bidders had already
been published. According to the author's office, this can be
problematic because there can be a large gap between when a
project is put for bid and when the construction actually
starts - resulting in workers being paid a wage that does not
match the most current prevailing determination that would be
adjusted for cost of living or increase employer healthcare or
pension costs.
Existing law allows for the Director to account for
"predetermined changes" when a prevailing wage determination
is based on a collective bargaining agreement rate and the
agreement provides for future changes in wages and benefits -
but would not incorporate cost of living adjustments. AB 1140
would address this problem by applying the Director's
semiannual prevailing wage determinations to all existing
public works projects.
2. Proponent Arguments :
According to proponents, sometimes there is a long lag between
when a project is advertised for bid and when construction
starts - which leads to situations in which the prevailing
wage determination does not reflect the actual prevailing wage
for the craft and locality. Proponents argue 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 percentage. They maintain that as
a result, 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. Proponents contend that 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).
Proponents argue that AB 1140 will solve this problem by
providing that, after January 1, 2014, the semi-annual
prevailing wage determinations issued by DIR become effective
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on all public works projects. Proponents contend that
contractors bidding on projects can estimate future changes in
prevailing wage rates just as they estimate future changes in
the cost of materials, using the example of unionized
contractors that already must anticipate future changes in
Collective Bargaining Agreement wage rates.
3. Opponent Arguments :
Opponents believe that AB 1140 unreasonably opens the door to
constant changes in prevailing wage rates by permitting any
interested parties from contractors, awarding bodies, or any
union to petition for updates in prevailing wages at any time
during the year. Opponents contend that if enacted, AB 1140
would impose increases to the prevailing wage rate upon
projects bid, contracted and commenced at the legal prevailing
wage in effect at the time of the bid. Opponents argue that
without accurate estimates of wages and related expenses
agencies would face significant financial uncertainties on
public works projects. Further, opponents argue that AB 1140
would unpredictably increase construction costs after local
agencies have already bonded and budgeted for a project.
Lastly, opponents contend that the changes under AB 1140 would
interrupt the pace of public works projects, especially in
localities where prevailing wages change multiple times over
the course of a project -thereby guaranteeing multiple change
orders on large projects and will postpone the pace of these
projects.
SUPPORT
State Building and Construction Trades Council of California
(sponsor)
California Labor Federation, AFL-CIO
California State Pipes Trade Council
California State Association of Electrical Workers
Southern California Contractors Association
Western States Council of Sheet Metal Workers
Hearing Date: June 26, 2013 SB 1140
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Senate Committee on Labor and Industrial Relations
OPPOSITION
Air Conditioning Trade Association (Unless amended)
Associated Builders and Contractors of California (Unless
amended)
California Association of Sanitation Agencies
California Special Districts Association
Plumbing-Heating-Cooling Contractors Association of California
(Unless amended)
Western Electrical Contractors Association (Unless amended)
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Senate Committee on Labor and Industrial Relations