BILL ANALYSIS
AB 26
Page 1
Date of Hearing: March 17, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 26 (Hernandez) - As Introduced: December 1, 2008
SUBJECT : Public Contracts: bid preferences: employee health
care expenditures.
SUMMARY : Requires public entities bidding out public works
contracts to provide a 2% bid preference to qualifying bidders
who spend at least 6.5% of aggregated Social Security wages on
employee health care. Specifically, this bill :
1)Requires a state agency to provide a 2% bid preference to the
lowest bidder or lowest responsible bidder that spent at least
6.5% of aggregated Social Security wages paid to California
employees on employee health care in the year prior to the
submission of the bid, or for the entire duration employment
for an individual working for at least three months but
employed for less than a year.
2)Requires a winning bidder to continue to spend at least 6.5%
of aggregated Social Security wages paid to California
employees on employee health care for at least one year
following the acceptance of a bid.
3)Establishes penalties of a minimum amount of $2,500 and a
maximum amount of $25,000 against contractors who falsify
information on their bids, and a fine equal to twice the cost
that the bidder, or subcontractor, would have incurred for
healthcare if they fail to provide employee health care for at
least one year following the acceptance of a bid.
4)Defines "aggregate California employee health care
expenditures" as all amounts paid by the bidder, or
subcontractor, to the bidder's, or subcontractor's, employees
in California or to a third party on behalf of the bidder's,
or subcontractor's, employees in California, for the purpose
of providing health care services to employees or reimbursing
the cost of those services for the employees.
EXISTING LAW
1)Defines public works contracts as any construction,
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alteration, demolition, installation or repair work done under
contract and paid for in whole or in part from public funds.
2)Requires, with certain exceptions, public contracts to be
awarded to the lowest or lowest responsible bidder.
3)Requires all employees who work on public works projects with
a budget of $1,000 or more to be paid the general prevailing
wage as determined by the Department of Industrial Relations.
4)Allows local agencies to provide up to a 5% bid preference to
bidders who are small businesses, or create a bid preference
to contractors that achieve subcontractor participation goal.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "In
recent years, the Legislature has explored a variety of policy
proposals to extend or increase health coverage to workers in
the state that are either underinsured or uninsured. The main
driver behind the legislative measures was the decline of
employer-provided health insurance, as well as the increase in
state-based healthcare costs due to the increase of individuals
requiring subsidized healthcare."
Background. The federal government enacted the Davis-Bacon Act
in 1931 and established prevailing wage to halt the importation
of cheap unskilled labor that undermined the local wage base for
skilled construction workers. Soon afterwards, states followed
suit and enacted their own prevailing wage laws. Today, all
public works construction projects in California paid for with
public tax dollars are required to pay the state's prevailing
wage set by the Department of Industrial Relations. Generally,
the prevailing wage is based on the regional modal rate for each
construction job classification (such as electrician, plumber,
sheet metal worker, iron worker, etc.) The prevailing wages of
construction workers include cash payments for holidays,
vacations, and sick leaves because of the propensity for high
unemployment and short periods of work. As a result, employers
have little incentive to train or provide employees with health
benefits or pensions.
The Senate Office of Research issued a report in 1996 entitled,
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"Potential Economic Impact: Proposals Department of Industrial
Relations to Alter Methodology Relating to Prevailing Wages."
The report discusses the inherently dangerous, cyclical, and
intermittent nature of construction work reduces incentives to
work in the industry. The intermittent nature also makes
full-time employment prohibitive and can result in construction
workers falling under state poverty guidelines, placing
additional burdens on public health care programs and increasing
costs to taxpayers. The effect is that the state government
ends up paying more for these employees, who may be uninsured,
or who lack adequate coverage. Offering health benefits would
stabilize the fluctuating market by offering incentives to
workers to remain in the industry despite the intermittent
nature of the employment. A study by the California Healthcare
Foundation cites that employers generally cite high premiums and
few employees as reasons for not providing employee health care.
Support. The sponsor, the State Building and Construction
Trades Council of California, writes, "Recent studies
demonstrate that workers in the private sector are experiencing
an increased likelihood of being dropped from employer
healthcare coverage. According to the California Healthcare
Foundation's Employer Health Benefits Survey, premiums increased
8.3% in 2007, outpacing a 6.1% rise in premiums nationally, and
since 2002, premiums in California have increased 86.3% compared
to 78.5% nationally. Additionally, California has the highest
proportion of uninsured and lowest rate of employer sponsored
healthcare coverage in the nation. Moreover, due to the ever
rising cost of healthcare, working families with incomes of more
than $50,000 a year now make up a third of the uninsured
population." Therefore, providing incentives for bidders to
provide health care benefits may ultimately save the state more
money than initial up-front contract cost.
"The State and its local governments incur substantial direct
and indirect expenses when employers do not contribute for
healthcare expenses. As the Legislature continues tackling the
onerous task of resolving the budget deficit, which has included
significant reductions to healthcare programs for the most
vulnerable, it makes economic sense for state agencies to offer
a bid preference to construction contractors that have an
established practice of paying for employee healthcare expenses
for California's construction workforce."
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Oppose . According to the Associated General Contractors, "Prime
contractors normally solicit bids from subcontractors and
material suppliers and those bids are usually delivered to the
prime contractor just before the prime bid is due to the public
agency. If the preference is to be claimed, you are asking a
prime contractor to verify additional qualifying documentation
before listing a subcontractor on a bid. If a subcontractor who
is listed is determined to not be properly certified for public
works, the prime contractor under this bill is then denied the
preference and must proceed through a cumbersome substitution
process to find another qualified subcontractor which often
results in increased costs on the project. Failure to be able
to substitute a "qualified" subcontractor would result in the
bidding contractor losing the bid preference and possibly no
longer qualifying as the low bidder - raising complications for
both the contractor and all his other subcontractors as well as
the public agency who now may be subject to a bid protest if
they had already awarded the contract."
Prior Legislation:
AB 396 (Hernandez) of 2008 would require public entities bidding
out public works contracts to the lowest responsible bidder to
provide a 2.5% employee health care expenditure bid preference
to qualifying contractors who spend at least 6.5% of aggregated
Social Security wages on employee health care. This bill was
held in the Senate Appropriations Committee. According to the
author's office, this bill has been modified to reduce costs.
AB 8 (N??ez) of 2007 required that employers expend an amount at
least equal to 7.5% of the total Social Security wages of all
employees on employee health care, or pay a fee into the Managed
Risk Medical Insurance Board. This bill was vetoed.
REGISTERED SUPPORT / OPPOSITION :
Support
State Building and Construction Trades Council of California
(sponsor)
American Federation of State, County and Municipal Employees
(AFSCME)
California Association of Sheet Metal and Air Conditioning
Contractors' National Association
National Electrical Contractors Association
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California Legislative Conference of the Plumbing, Heating and
Piping Industry
Opposition
Associated General Contractors
National Federation of Independent Business
California State University
California Chamber of Commerce
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301