BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 219 (Daly) - Public works:  concrete delivery
          
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          |Version: June 1, 2015           |Policy Vote: L. & I.R. 4 - 1    |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: July 6, 2015      |Consultant: Robert Ingenito     |
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          This bill meets the criteria for referral to the Suspense File.







          Bill  
          Summary: AB 219 would expand the definition of public works to  
          include the hauling and delivery of ready-mixed concrete to  
          carry out a public works contract.


          Fiscal  
          Impact:

           The California Department of Transportation (CalTrans)  
            estimates that this bill would result in increased costs of  
            $32 million to $54 million (special funds), which includes  
            impacts to materials costs, compliance and administration (see  
            Staff Comments). 








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           The Department of Industrial Relations (DIR) would incur  
            first-year costs of $127,000 and $119,000 in the out-years  
            (special funds) monitor and enforce the bill's prevailing wage  
            requirements for non-CalTrans projects. To the extent that DIR  
            issues additional fines, special funds revenues would  
            increase. The magnitude is unknown.  

           While the bill would impact CalTrans disproportionately at the  
            state level, it could also potentially result in increased  
            administrative, materials and compliance costs to other  
            departments that use ready-mix concrete, including the High  
            Speed Rail Authority, the Department of Water Resources, the  
            Department of Corrections and Rehabilitation, the Department  
            of General Services, and the three segments of higher  
            education (the University of California, California State  
            University, and the California Community Colleges). The  
            magnitudes are unknown.


          



          Background:  Current law requires that prevailing wage rates, as determined  
          by DIR, be paid to all workers employed on a "public works"  
          projects.  The prevailing wage rate is the basic hourly rate  
          paid on 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. Current law  
          requires that the "prevailing wage" to be paid to all workers  
          employed on public works projects. Projects valued at $1,000 are  
          exempted from the requirement. 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."  
          Under current law and DIR precedent, the employees of  
          subcontractors who haul material to public work sites must be  
          paid prevailing wage. Conversely, employees of bona fide  
          material suppliers are excluded from prevailing wage  
          requirements. A 1999 DIR decision, Alameda Corridor Project: A&A  
          Ready Mix Concrete and Robertson's Ready Mix Concrete (Public  
          Works Case No. 99-037), addressed the issue of whether the  
          state's prevailing wage laws applied to the delivery of  
          ready-mix concrete to public works job sites.








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          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, comprised of three  
          criteria: (1) a material supplier must be in the business of  
          selling supplies to the general public, (2) the plant from which  
          the material is obtained must not be established specially for  
          the particular contract, and (3) plant may not be located at the  
          site of the work.


          Applying these three criteria, DIR determined in Public Works  
          Case No. 99-037 that the concrete entities involved were  
          material suppliers and not subcontractors. The opinion also  
          stated that the Legislature failed to pass legislation  
          designating 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 2008, DIR 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.    




          Proposed Law:  
           This bill would expand the definition of "public works" to  
          include the hauling and delivery of ready-mixed concrete, as  
          specified.  Specifically, this bill would do all of the  
          following:
                 Expand 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.










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                 Provide 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.


                 Provide 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 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.


                 Provide 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.


                 Provide 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.


                 Require 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.


                 Provide that this bill does not apply to contracts  
               advertised for bid or awarded prior to the effective date  
               of this bill.


          Related Legislation:  AB 852 (Burke, 2015) would define "public  
          work" for purposes of prevailing wage law to also mean any  








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          construction, alteration, demolition, installation, or repair  
          work done under private contract on a general acute care  
          hospital when the project is paid for in whole or in part with  
          the proceeds of conduit revenue bonds issued by a public agency.  
          A project for a rural general acute care hospital with a maximum  
          of 76 beds would be exempt from this requirement. This bill is  
          scheduled to be heard in this Committee on July 6th. 




          Staff  
          Comments: Caltrans indicates that it currently has 652 ongoing  
          construction contracts valued at $10.6 billion, and uses 4.6  
          million cubic yards of concrete annually. 
          CalTrans' fiscal estimates of this bill employs a myriad of  
          interacting assumptions. First, it estimates the average hourly  
          rate for ready-mixed drivers is currently $16 per hour. Based on  
          its research, the department estimates that this bill would  
          cause the wage rate to rise to a range of $42.06 per hour to  
          $53.37 per hour. The department then combines this assumption  
          with others, specifically (1) the average amount of concrete  
          carried per truck (8 to 10 yards), and (2) that each delivery  
          job will take, on average, two hours. Putting all of these  
          assumptions together, CalTrans estimates that the bill would  
          result in an increase in materials (concrete) costs in the range  
          of $27.6 million to $49.4 million annually. 


          Caltrans' Division of Construction has an approved labor  
          compliance program that performs the responsibilities for  
          enforcement of prevailing wages in lieu of DIR. Caltrans  
          indicates that this bill would increase support costs both for  
          (1) inspection of the hauling activities, and (2) enforcement of  
          prevailing wage requirements under the department's labor  
          compliance program's operations. Caltrans' estimates an average  
          of one additional hour per week per contract.  Assuming an  
          average of 250 contracts for 52 weeks per year, this would  
          require an additional 7.4 PYs and about $1.1 million ongoing.


          Finally, CalTrans would need additional staff to administer  
          projects and accept concrete delivery on site.  Assuming an  
          average of 1,000 cubic yards of concrete are placed per 8-hour  








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          day, it would take 4,600 days to lay the 4.6 million cubic yards  
          Caltrans averages in a year.  This would require an additional  
          21 PYs at approximately $3.15 million ongoing.


          State construction costs are often paid for using General  
          Obligation (GO) Bonds. Because this measure would increase the  
          costs for projects that use ready-mix concrete, the GO bond  
          issuances would likely need to be upsized, leading to higher  
          debt-service payments. The magnitude is unknown.




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