BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 1939 (Daly)
As Amended June 2, 2014
Hearing Date: June 10, 2014
Fiscal: No
Urgency: No
TMW
SUBJECT
Public Works: Prevailing Wages: Contractor's Costs
DESCRIPTION
This bill would authorize a contractor on a private works
project to bring an action to recover from the hiring party that
the contractor directly contracts with the difference between
the wages actually paid to an employee and the increased wages
that were required to be paid to an employee, in addition to any
penalties or other sums required to be paid, and costs and
attorney's fees, because the project was subsequently deemed to
be a public work subject to prevailing wage requirements.
BACKGROUND
Existing law generally requires a worker on a public works
project to be paid not less than the prevailing wage as
determined by the Director of Industrial Relations (DIR).
Typically, a contractor or subcontractor will be notified by the
DIR of the failure to comply with that requirement, and the
contractor or subcontractor is responsible for payment of the
difference between the wages paid to workers and the prevailing
wage rate. SB 966 (Alarcon, Ch. 804, Stats. 2003) authorized a
contractor to bring an action to recover from the body awarding
the contract for a public work any increased costs incurred by
the contractor, including labor cost increases and penalties, if
the body awarding the contract knew the project was a public
work but failed to disclose that information to the contractor
or subcontractor.
Similarly, this bill would authorize the contractor to bring an
(more)
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action to recover costs associated with a prevailing wage
violation from the hiring party that failed to disclose to the
contractor that the project was a public work.
CHANGES TO EXISTING LAW
Existing law requires, for public works projects of more than
$1,000, all workers employed on the project to be paid not less
than the general prevailing rate of per diem wages for work of a
similar character in the locality in which the public work is
performed, and not less than the general prevailing rate of per
diem wages for holiday and overtime work fixed. (Lab. Code Sec.
1771.)
Existing law requires the Department of Industrial Relations
(DIR) to monitor and enforce compliance with applicable
prevailing wage requirements for any public works project.
(Lab. Code Sec. 1771.3(a)(1).)
Existing law requires a public works contractor to whom the
contract is awarded, and any subcontractor under him, to pay not
less than the specified prevailing rates of wages to all workmen
employed in the execution of the contract. (Lab. Code Sec.
1774.)
Existing law requires the contractor and any subcontractor under
the contractor to, as a penalty to the state or political
subdivision on whose behalf the contract is made or awarded,
forfeit not more than $200 for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
rates as determined by the director for the work or craft in
which the worker is employed for any public work done under the
contract by the contractor or by any subcontractor under the
contractor. (Lab. Code Sec. 1775(a)(1).)
Existing law requires the difference between the prevailing wage
rates and the amount paid to each worker for each calendar day
or portion thereof for which each worker was paid less than the
prevailing wage rate to be paid to each worker by the contractor
or subcontractor. (Lab. Code Sec. 1775(a)(2)(E).)
Existing law provides that if a worker employed by a
subcontractor on a public works project is not paid the general
prevailing rate of per diem wages by the subcontractor, the
prime contractor of the project is not liable for any penalties
unless the prime contractor had knowledge of that failure of the
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subcontractor to pay the specified prevailing rate of wages to
those workers or unless the prime contractor fails to comply
specified requirements. (Lab. Code Sec. 1775(b).)
Existing law authorizes a contractor to bring an action in a
court of competent jurisdiction to recover from the body
awarding a contract for a public work or otherwise undertaking
any public work any increased costs incurred by the contractor
as a result of any decision by the body, the DIR, or a court
that classifies, after the time at which the body accepts the
contractor's bid or awards the contractor a contract in
circumstances where no bid is solicited, the work covered by the
bid or contract as a public work, if that body, before the bid
opening or awarding of the contract, failed to identify as a
public work in the bid specification or in the contract
documents that portion of the work that the decision classifies
as a public work. (Lab. Code Sec. 1781(a)(1).)
Existing law limits liability of the body awarding a contract
for a public work for recovery of increased costs if all of the
following conditions are met:
the contractor did not directly submit a bid to, or directly
contract with, that body;
the body stated in the contract, agreement, ordinance, or
other written arrangement by which it undertook the public
work that the work was a public work and obligated the party
with whom the body makes its written arrangement to cause the
work to be performed as a public work;
the body fulfilled all of its duties, if any, under the Civil
Code or any other provision of law pertaining to the body
providing and maintaining bonds to secure the payment of
contractors, including the payment of wages to workers
performing the work; and
if a contractor did not directly submit a bid to, or directly
contract with a body awarding a contract for, or otherwise
undertaking a public work, the liability of that body in an
action commenced by the contractor, who has made a good faith
attempt to collect that portion of the judgment against a
surety bond, guarantee, or some other form of assurance, is
limited to that portion of a judgment, obtained by that
contractor against the body that solicited the contractor's
bid or awarded the contract to the contractor, that the
contractor is unable to satisfy. (Lab. Code Sec. 1781(a)(2).)
Existing law provides that "awarding body" does not include the
Department of General Services, the Department of
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Transportation, or the Department of Water Resources, and
"increased costs" includes, but is not limited, to labor cost
increases required to be paid to workers who perform or
performed work on the public work and penalties for which the
contractor is liable. (Lab. Code Sec. 1781(c).)
Existing law authorizes a contractor to bring an action in a
court of competent jurisdiction to recover from an awarding body
the difference between the wages actually paid to an employee
and the wages that were required to be paid to an employee, any
penalties required to be paid, and costs and attorney's fees
related to this action, if either of the following is true:
the awarding body previously affirmatively represented to the
contractor in writing, in the call for bids, or otherwise,
that the work to be covered by the bid or contract was not a
public work; or
the awarding body received actual written notice from the DIR
that the work to be covered by the bid or contract is a public
work, and failed to disclose that information to the
contractor before the bid opening or awarding of the contract.
(Lab. Code Sec. 1726(c).)
Existing law , before making payments to the contractor of money
due under a contract for public work, requires the awarding body
to withhold and retain therefrom all amounts required to satisfy
any civil wage and penalty assessment issued by the Labor
Commissioner, and amounts required to satisfy a civil wage and
penalty assessment shall not be disbursed by the awarding body
until receipt of a final order that is no longer subject to
judicial review. (Lab. Code Sec. 1727(a).)
Existing law provides that, if the awarding body has not
retained sufficient money under the contract to satisfy a civil
wage and penalty assessment based on a subcontractor's
violations, the contractor shall, upon the request of the Labor
Commissioner, withhold sufficient money due the subcontractor
under the contract to satisfy the assessment and transfer the
money to the awarding body, and these amounts shall not be
disbursed by the awarding body until receipt of a final order
that is no longer subject to judicial review. (Lab. Code Sec.
1727(b).)
Existing law authorizes any contractor to withhold from any
subcontractor under him sufficient sums to cover any penalties
withheld from him by the awarding body on account of the
subcontractor's failure to comply with the terms of this
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chapter, and if payment has already been made to the
subcontractor the contractor may recover from him the amount of
the penalty or forfeiture in a suit at law. (Lab. Code Sec.
1729.)
Existing law provides that if the Labor Commissioner determines
after an investigation that there has been a violation of this
chapter, the Labor Commissioner shall with reasonable promptness
issue a civil wage and penalty assessment to the contractor or
subcontractor, or both, and interest will accrue on all due and
unpaid wages from the date the wages were due and payable until
the wages are paid. (Lab. Code Sec. 1741.)
Existing law provides that the contractor and subcontractor
shall be jointly and severally liable for all amounts due
pursuant to a final order or a judgment thereon, and the Labor
Commissioner shall first exhaust all reasonable remedies to
collect the amount due from the subcontractor before pursuing
the claim against the contractor. (Lab. Code Sec. 1743(a).)
Existing law defines "awarding body" or "body awarding the
contract" to mean department, board, authority, officer or agent
awarding a contract for public work. (Lab. Code Sec. 1722.)
Existing law defines "contractor" and "subcontractor" to include
a contractor, subcontractor, licensee, officer, agent, or
representative thereof, acting in that capacity, when working on
public works. (Lab. Code Sec. 1722.1.)
This bill would authorize a contractor to bring an action in a
court of competent jurisdiction to recover from the hiring party
that the contractor directly contracts with any increased costs,
including, but not limited to, the difference between the wages
actually paid to an employee and the wages that were required to
be paid to an employee, any penalties or other sums required to
be paid, and costs and attorney's fees for the action incurred
by the contractor as a result of any decision by the DIR, the
Labor and Workforce Development Agency, or a court that
classifies, after the time at which the contracting party
accepts the contractor's bid, awards the contractor a contract
under circumstances when no bid is solicited, or otherwise
allows construction by the contractor to proceed, the work
covered by the project, or any portion thereof, as a public
work, unless either of the following is true:
the owner or developer or its agent expressly advised the
contractor that the work to be covered by the contract would
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be a public work or is otherwise subject to the payment of
prevailing wages; or
the hiring party expressly advised the contractor that the
work subject to the contract would be a public work or is
otherwise subject to the payment of prevailing wages.
This bill would require, in order to be entitled to recovery of
increased costs, the contractor to notify the hiring party and
the owner or developer within 30 days after receipt of the
notice of a decision by the DIR or the Labor and Workforce
Development Agency, or the initiation of any action in a court
alleging, that the work covered by the project, or any portion
thereof, is a public work.
This bill would provide that a contractor is not required to
list any prevailing wage or apprenticeship standard violations
on a prequalification questionnaire that are the direct result
of the failure of the owner or developer or its agent, or a
contractor, hiring party to notify the contractor that the
project, or any portion thereof, was a public work.
This bill would not apply to private residential projects built
on private property unless the project is built pursuant to an
agreement with a state agency, redevelopment agency, or local
public housing authority.
This bill would not apply if the conduct of the contractor
caused the project to be a public work or if the contractor has
actual knowledge that the work is a public work.
This bill would define "hiring party" to mean the party that has
a direct contract for services provided by the contractor who is
seeking recovery of a prevailing wage deficiency on a private
works project that was subsequently determined by the DIR or the
Labor and Workforce Development Agency, or the initiation of any
action in a court alleging, that the work covered by the
project, or any portion thereof, to be a public work.
This bill would allow a contractor to only seek recovery from
the hiring party with whom the contractor has a direct contract.
This bill would define "contractor" to mean a person or entity
licensed by the Contractors' State License Board that has a
direct contract with the hiring party to provide services on
private property or for the benefit of a private owner or
developer.
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COMMENT
1. Stated need for the bill
The author writes:
Current law is silent on whether private developers should
notify contractors of their intentions to use taxpayer dollars
on construction project[s]. Developers have no legal
obligation to inform contractors if they utilized tax
subsidies. The lack of a notification requirement can leave
contractors unaware of whether a particular construction
project requires prevailing wages. This can in turn put
workers at risk of being incorrectly compensated until some
sort of enforcement or legal action is taken.
Under AB 1939, should a developer fail to inform a contractor
of a prevailing wage mandate, the developer will then be
required to reimburse the contractor for unpaid wages,
including legal fees and penalties levied by the Department of
Industrial Relations (DIR). Contractors would in turn be
required to reimburse subcontractors.
Additionally, contractors who fail to inform subcontractors
that a particular project is subject to prevailing wages will
be held liable for unpaid wages, along with legal fees and
associated penalties levied by the DIR.
2. Recovery of prevailing wage deficiencies from hiring party
This bill would authorize a contractor to recover the difference
between the wages actually paid to an employee and the wages
that were required to be paid to an employee, any penalties or
other sums required to be paid, and costs and attorney's fees
incurred by the contractor, because a private works project for
which the contractor was hired by the hiring party to provide
services was subsequently determined to be a public work.
California's prevailing wage law (PWL) requires the prevailing
wage (set by the DIR) to be paid to all workers employed on a
public work. (Lab. Code Sec. 1771.)
The author states that this bill was prompted by a recent
appellate court decision and subsequent prevailing wage
collection by the DIR from a prime contractor in connection with
a construction project that was deemed to be a public work. In
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Hensel Phelps Construction Co. v. San Diego Unified Port Dist.
(2011) 197 Cal.App.4th 1020, 1034, the court determined that,
even though a lease between the San Diego Unified Port District
(Port District) and One Park Boulevard, LLC (OPB) was merely a
ground lease and not a construction project contract, the OPB's
hotel construction project was a public work subject to the
payment of prevailing wages because a rent credit provided in
OPB's lease with the Port District was intended to subsidize
construction of the hotel project. Accordingly, the court held
that the rent credit in the lease qualified as a reduction and
waiver of rent within the meaning of the definition of "public
work" in the PWL. (Id. at pp. 1040-41.) After the court's
decision, the prime contractor on the hotel project, Hensel
Phelps Construction Company, negotiated with the DIR the amount
of wages due to the 2,051 workers on that project, amounting to
more than $8 million, and Hensel Phelps was also required to pay
an additional $400,000 to the Labor Commissioner as
reimbursement for investigative costs. (Cal. Dept. of
Industrial Relations, News Release No. 13-30, Labor Commissioner
Collects Over $8 Million in Wages for Public Works Job at Hilton
Hotel in San Diego (June 17, 2013).)
The sponsors of this bill argue that existing law provides for
public agency liability if it fails to include in a request for
proposal that a construction project is subject to prevailing
wages, yet existing law requires no such notice by private
owners or developers when public subsidies trigger a prevailing
wage requirement. This bill would require the owner or
developer to reimburse the contractor for unpaid wages, sums
incurred pursuant to the Labor Code and attorney's fees
associated with the owner's or developer's failure to provide
direction to the contractor. In this way, the sponsors assert
that this bill would ensure timely payment of prevailing wages
and reduce DIR enforcement actions. As already provided under
existing law, the party responsible for providing notice of a
public work and attendant prevailing wage requirements is liable
for prevailing wage deficiencies if the contractor does not pay
the prevailing wage required. This bill would further that
policy by requiring the owner or developer of the project to be
liable for the prevailing wage deficiencies if the owner or
developer does not notify the contractor of the prevailing wage
requirement.
Staff notes that this bill was recently amended to clarify that
the contractor may bring an action to recover the prevailing
wage deficiencies only against the hiring party with whom the
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contractor has a direct contract to provide services on a
private works project that is subsequently deemed to be a public
work. This clarification is necessary to authorize actions only
against the party that has the most information about the public
work determination (the party that hired the contractor) and to
avoid other contractor or subcontractors, who arguably would
have even less information because they do not have a direct
contract with the owner or developer, from being liable for the
prevailing wage deficiencies.
Support : Air Conditioning Trade Association; American Fence
Association - California Chapter; Associated Builders and
Contractors - San Diego Chapter; California Concrete Contractors
Association; California Fence Contractors' Association;
California Professional Association of Specialty Contractors;
Flasher Barricade Association; Marin Builders Association;
Plumbing-Heating-Cooling Contractors Association of California;
Western Electrical Contractors Association
Opposition : None Known
HISTORY
Source : Associated General Contractors; Construction Employers'
Association
Related Pending Legislation : None Known
Prior Legislation : SB 966 (Alarcon, Ch. 804, Stats. 2003) See
Background.
Prior Vote :
Assembly Floor (Ayes 75, Noes 0)
Assembly Committee on Judiciary (Ayes 10, Noes 0)
Assembly Committee on Labor and Employment (Ayes 6, Noes 0)
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