BILL ANALYSIS Ó SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS Senator Tony Mendoza, Chair 2015 - 2016 Regular Bill No: AB 219 Hearing Date: June 24, 2015 ----------------------------------------------------------------- |Author: |Daly | |-----------+-----------------------------------------------------| |Version: |June 1, 2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Deanna Ping | | | | ----------------------------------------------------------------- Subject: Public works: concrete delivery. KEY ISSUE Should the Legislature expand the definition of public works to include the hauling and delivery of ready-mixed concrete to carry out a public works contract? 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. (Labor Code §1771) 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 AB 219 (Daly) Page 2 of ? 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) 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. (Labor Code §1720.3) Provides that "hauling of refuse" includes, but is not limited to hauling soil, sand, gravel, rocks, concrete, asphalt, excavation materials, and construction debris. (Labor Code §1720.3) Provides that the contractor to whom the contract is awarded, and any subcontractor under him, shall pay not less than the prevailing wage to wall workers employed in the execution of the contract. (Labor Code §1774) This Bill expands the definition of "public works" to include the hauling and delivery of ready-mixed concrete, as specified. Specifically, this bill: 1)Expands the definition of "public works" to include the hauling and delivery of ready-mixed concrete to carry out a public works contract, with respect to contracts involving any state agency or any political subdivision of the state. 2)Provides that "ready-mixed concrete" means concrete that is manufactured in a factory or batching plant, according to a set recipe, and then delivered in a liquefied state by mixer truck for immediate incorporation into a project. AB 219 (Daly) Page 3 of ? 3)Provides that the "hauling and delivery of ready-mixed concrete to carry out a public works contract" means the job duties for a ready mix driver that are used by the Department of Industrial Relations (DIR) under existing law, and includes receiving the concrete at the factory or batching plant and the return trip to the factory or batching plant. 4)Provides that the applicable prevailing wage rate shall be the current prevailing wage rate as determined for the geographic area in which the factory or batching plant is located. 5)Provides that the entity hauling or delivering ready-mixed concrete to carry out a public works contract shall enter into a written subcontract agreement with the party that engaged the entity to supply the ready-mixed concrete. The written agreement shall require compliance with specified requirements of existing law. 6)Requires the entity hauling or delivering ready-mixed concrete to carry out a public works contract to submit a certified copy of the payroll records to the party that engaged the entity and to the general contractor within three working days after the employee has been paid, accompanied by a written time record certified by each driver. 7)Provides that this bill does not apply to contracts advertised for bid or awarded prior to the effective date of this bill. 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 AB 219 (Daly) Page 4 of ? 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 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. Delivery of Ready Mix Concrete and Other Cases Under current law and longstanding legal and Department of Industrial Relations precedent, the employees of subcontractors who haul material to public work sites must be paid prevailing wage. Employees of bona fide material suppliers are excluded from prevailing wage requirements. A 1999 decision of the Department of Industrial Relations (DIR) addressed the issue of whether the state's prevailing wage laws applied to the delivery of ready-mix concrete to public works job sites. Alameda Corridor Project: A&A Ready Mix Concrete and Robertson's Ready Mix Concrete (Public Works Case No. 99-037). DIR relied on a California Court of Appeals decision to set forth the general test for determining whether the work was subject to the payment of prevailing wages. O.G. Sansome v. California Department of Transportation, (1976) 55 Cal. App. 3d 434. DIR noted that the Court in Sansome applied the AB 219 (Daly) Page 5 of ? following test: "The Court set forth three principal criteria for the determination of material supplier. First, a material supplier must be in the business of selling supplies to the general public. Second, the plant from which the material is obtained must not be established specially for the particular contract. Third, the plant may not be located at the site of the work." Applying these three criteria to the case at hand, DIR determined that the concrete entities involved were material suppliers and not subcontractors. The opinion also stated that the Legislature failed to pass a version of AB 302 that designated concrete mix on-hauling a public work however, it also noted "that such action does not reflect a legislative intent to preclude the payment of prevailing wages to concrete mix delivery drivers." In a 2008 decision by DIR, it was determined that the off-hauling of demolition debris and materials whether performed by the on-site demolition contractor's employees or by an independent trucking company is subject to prevailing wage requirements. In addition, DIR determined that the on-hauling of material for backfill performed by the on-site demolition contractor's employees is also subject to prevailing wage requirements. Friendly Inn Senior Center (City of Morgan Hill), (Public Works Case No. 2008-027). 3. Need for this bill? California recognizes the work of ready-mix drivers as skilled construction work and has published prevailing wage determinations which contractors are required to use in two cases. Currently, the delivery of ready-mixed concrete for incorporation into a public works construction project is 'covered work' under prevailing wage when the product is delivered by a driver hired by the contractor to deliver the product or when the product is manufactured at a 'dedicated' plant (one that is established solely for that particular public workers project). The author notes that exempted from prevailing wage are deliveries by 'material men,' who are essentially drivers that are employed directly by the manufacturer, operating trucks owned by that manufacturer. The author argues that there is no physical distinction between AB 219 (Daly) Page 6 of ? the work performed by ready-mix drivers employed by contractors and drivers employed by manufacturers. AB 219 provides that the delivery of ready-mixed concrete is covered work in all public works circumstances. The work would be covered regardless of who owns the truck delivering the product, and regardless of whether the driver is operated by an independent trucking company or by the manufacturer of the concrete. According to the author, AB 219 closes a loophole in current law by requiring the application of prevailing wage to deliveries of all ready-mix concrete to public works projects. 4. Proponent Arguments : Proponents state that this bill will expand the prevailing wage to drivers delivering ready-mix concrete to public works projects, regardless of whether the delivery drivers are employed by material suppliers or project contractors. Proponents argue that ready-mix concrete is a precise mixture or set recipe that is customized for construction sites and which is transported from a dedicated batch location or from a manufacturing facility. They contend that under current law, the delivery of ready-mixed concrete for a public works project is covered under the prevailing wage if either of the following occurs: 1) The product is delivered by a driver hired by the on-site general contractor or a subcontractor; or 2) the product is manufactured at a "dedicated" plant (i.e. one that is established solely for the public works project). Proponents state that under the current material supplier exemption to the prevailing wage law, delivery drivers hired by a material supplier are exempted from the prevailing wage. However, they argue that there is no physical distinction between the work performed by ready-mix drivers employed by contractors and ready-mix drivers employed by manufacturers, as the product and work is identical. They contend that expanding the prevailing wage to all ready-mix drivers serving public works, this bill would create a more fair application of the Labor Code that does not depend on who owns the truck delivering the ready-mix or whether the driver is employed by an onsite contractor or a cement manufacturer. They argue that this bill is about uniformity and a fair application of the prevailing wage law to deliveries of ready-mix and not about AB 219 (Daly) Page 7 of ? expanding prevailing wage to all material drivers. Lastly, proponents outline the various amendments taken to address the concerns of opposition including: limiting the bill to ready-mix only to remove concern about expansion to other materials, adding a subcontract requirement that general contractors need to allow access to certified payroll records to ensure the ready-mix companies are liable for noncompliance and protect general contractors from penalties, providing certainty on the prevailing wage rate that applies (the location of the plant site), defining the scope of work as defined by DIR, applying the provisions to future projects only, and specifying that the bill only applies to a public works contract - addressing concerns regarding public/private developments. 5. Opponent Arguments : Opponents argue that AB 621 unfairly targets ready-mix concrete and express three general arguments against this bill. First, opponents contend that it ignored longstanding distinctions in labor law between a driver and a construction worker. They argue that ready-mix concrete is delivered to construction sites by drivers, whose training and duties pertain to driving. They contend that the spreading, vibrating, testing and finishing of the concrete is done by trained construction workers and drivers do not participate in on-site construction work, nor do they work alongside the construction workers. Second, opponents argue that this bill is inconsistent with the contract between a supplier and a contractor. They note that ready mix concrete is a finished product, delivered to the site in an unfinished state pursuant to a purchase order. They contend that ready mix concrete delivered to the jobsite is essentially the same as material delivered to the site such as paint, lumber or steel. Opponents contend that, under the Uniform Commercial Code, as adopted by California, the delivery of materials is treated differently than construction as material suppliers are only responsible for delivery of material to a project site. They argue that once the product is delivered, it becomes the responsibility of the contractor, a separate legal entity. AB 219 (Daly) Page 8 of ? Finally, opponents argue that this bill contravenes longstanding and well-established legal precedent that material suppliers are not subject to prevailing wage law. They note that DIR has specifically addressed the question of whether the prevailing wage applies in such cases. They argue that the bill also potentially sets off a "chain reaction" by targeting a single delivered product. Opponents ask if delivered concrete is subject to prevailing wage law, what is the legal footing and rationale for excluding the delivery of lumber, steel, paint, welding materials, fuel and other supplies? In addition, opponents argue that this bill imposes significant new liability and administrative burdens on prime contractors since, under California law, prime contractors are jointly and severally liable for the payment of prevailing wages by all subcontractors on a public work project. This bill would expand that liability to include the payment of prevailing wages by a material supplier providing ready-mixed concrete to a public works construction jobsite. Opponents assert that prime contractors cannot practically monitor prevailing wage compliance by material suppliers as they can with jobsite contractors because ready-mixed concrete drivers spend the overwhelming majority of their time off the jobsite on public roads or at the permanent plant to be loaded with the ready-mixed concrete, often in service to other projects. Moreover, opponents argue that this bill presents considerable challenges in maintaining and monitoring certified payroll reports. Opponents also argue that AB 219 will cause the state to incur significant enforcement costs for the DLSE and lastly, will impose significant new material supply costs on public construction and could negatively impact new construction jobs. 6. Prior Legislation : AB 302 (Floyd), Chapter 220, Statutes of 1999, added local governmental agencies within the requirement to pay prevailing wages on public works projects for the removal of refuse from the construction site. SB 975 (Alarcón), Chapter 938, Statutes of 2001, declared legislative intent that projects financed through Industrial Development Bonds issued by the California Infrastructure and AB 219 (Daly) Page 9 of ? 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." AB 1598 (Buchanan), Chapter 810, Statutes of 2012, defined "installation," for the purpose of public works projects, to include the assembly and disassembly of freestanding and affixed modular office systems SUPPORT State Building and Construction Trades Council (Co-Sponsor) Alameda Building Trades Council American Federation of State, County and Municipal Employees, AFL-CIO California Labor Federation, AFL-CIO California Professional Firefighters California State Council of Laborers California Teamsters Public Affairs Council Contra Costa Building Trades Council Fresno, Madera, Tulare & Kings Building Trades Council Humboldt/Del Norte Building Trades Council Imperial Building Trades Council Kern, Inyo & Mono Building Trades Council Los Angeles/Orange Building Trades Council Marin Building Trades Council Mid Valley Building Trades Council Monterey/Santa Cruz Building Trades Council Napa/Solano Building Trades Council Northeastern, Shasta, Trinity, Lassen & Tehama Building Trades Council Sacramento/Sierra Building Trades Council San Bernardino/Riverside Building Trades Council San Diego Building Trades Council San Francisco Building Trades Council San Joaquin, Calaveras & Alpine Building Trades Council San Mateo Building Trades Council Santa Clara/San Benito Building Trades Council Sonoma, Mendocino & Lake Building Trades Council Stanislaus, Merced & Mariposa Building Trades Council Tri-Counties Building Trades Council AB 219 (Daly) Page 10 of ? OPPOSITION 711 Materials Inc. Associated Builders and Contractors of California Associated General Contractors of California Associated Ready Mixed Concrete Assured Aggregates Company Inc Bender Ready Mix BoDean Company Calaveras Materials California Asphalt Pavement Association California Chamber of Commerce California Concrete Contractor Association's California Construction and Industrial Materials Association California Trucking Association CalPortland Company Casraic Brick CEMEX Desert Water Agency Don Chappin Company El Dorado Irrigation District GCU Trucking George Reed Inc Granite Construction Co. Granitrock Hansen Brothers Enterprises Hanson Hanson HEIDELBERG cement Group Hazard Construction Holliday Rock Co. Howard Jarvis Taxpayers Association Knife River Construction Livingston's Concrete Service Inc. Mathews Readymix LLC National Ready Mixed Concrete Company Northgate Ready Mix P.W. Gillibrand Co. Plumbing-Heating-Cooling Contractors Association of California Puente Ready Mix Inc. Remedy Concrete, Asphalt & Aggregate Southwest Concrete Pavement Association Spragues' Ready Mix Superior Ready Mix Concrete Syar Concrete LLC Teichert Materials AB 219 (Daly) Page 11 of ? United Contractors United States Pumice Company Vulcan Materials Co. Western Electrical Contractors Association -- END --