BILL ANALYSIS
AB 1853
Page 1
ASSEMBLY THIRD READING
AB 1853 (Huffman)
As Amended May 28, 2010
Majority vote
BUSINESS & PROFESSIONS 7-4 APPROPRIATIONS 12-5
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|Ayes:|Hayashi, Eng, Hernandez, |Ayes:|Fuentes, Ammiano, |
| |Hill, Ma, | |Bradford, |
| |Nava, Ruskin | |Charles Calderon, Coto, |
| | | |Davis, Monning, Ruskin, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Emmerson, Conway, Niello, |Nays:|Conway, Harkey, Miller, |
| |Smyth | |Nielsen, Norby |
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SUMMARY : Requires public entities bidding out public works
contracts to provide a 2% bid preference to qualifying bidders
who provide credible health care coverage for employees.
Specifically, this bill :
1)Requires a state agency to provide a 2% bid preference to the
lowest responsible bidder that spent and who's subcontractors
spent provide credible health care coverage to California
employees for employees in the year prior to the bid
submission, or for an employee's entire duration of employment
that is at least three months long, but less than a year.
2)Allows a bidder to claim an employee health care coverage bid
preference by submitting separate statements from the bidder
and subcontractors certifying qualification, and requires the
Department of General Services (DGS) to work with the
Department of Industrial Relations to develop a form for this
purpose.
3)Requires a winning bidder to continue to provide credible
health care coverage for employees for at least one year
following a bid acceptance.
4)Establishes penalties of a minimum amount of $2,500 and a
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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
health care if they fail to provide employee health care for
at least one year following a bid acceptance.
5)Removes a bidder from liability for a subcontractor's failure
to provide credible health care coverage for employees for at
least one year following a bid acceptance, and:
a) Grants a winning bidder that is denied the employee
health care coverage bid preference for this reason, 14
days to substitute a new subcontractor that is entitled to
the bid preference; and,
b) Requires the original subcontractor to be liable to the
winning bidder for any reasonable increase in the cost of a
new contract.
6)Defines "credible health care coverage" to mean any group
policy, contract, or program that is written or administered
by a disability insurer, health care service plan, fraternal
benefits society, self-insured employer plan, or any other
entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not
designated to supplement other private or governmental plans.
7)Defines "state agency" as a department, division, board,
bureau, commission, or agency of the executive branch of
government.
8)Becomes operative on January 1, 2012.
9)Sunsets the provisions of this bill on January 1, 2017.
10)Makes legislative findings and declarations.
EXISTING LAW :
1)Defines public works contracts as any construction,
alteration, demolition, installation or repair work done under
contract and paid for in whole or in part from public funds.
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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
(DIR).
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 : According to the Assembly Appropriations
Committee:
1)The bill would increase state contract costs in two ways:
first, to the extent state contracts are awarded to other than
the lowest bidder due to the 2% preference provided to those
bidders who meet the bill's requirements; second, to the
extent the bill dissuades some non-complying subcontractors
from submitting bids to prime contractors that are seeking the
bid preference, bids submitted to the state could be higher
due to reduced competition among subcontractors. The cost
impacts are unknown, but given the state's large annual volume
of public works contracts ($2.2 billion in 2007-08 according
to DGS), costs would probably be at least in the millions of
dollars between various bond funds, special funds and the
General Fund.
2)To the extent the bill results in more contractors and
subcontractors providing or maintaining health insurance for
their employees who might otherwise qualify for assistance
under state and/or local publicly-funded health care programs,
there will be cost savings in these programs.
3)Federal health reform, the Patient Protection and Affordable
Care Act (PL-111-148), may reduce the fiscal impacts of this
bill over time. Federal health reform is expected to increase
health coverage substantially via premium subsidies for
low-income workers, a mandate for individuals to carry health
coverage, an expansion of Medi-Cal, and underwriting reforms
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in the private health insurance market. Estimates indicate
several million Californians will gain access to health
coverage by 2015.
COMMENTS : 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 health
care costs due to the increase of individuals requiring
subsidized health care."
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 DIR. 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,
"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
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Foundation cites that employers generally cite high premiums and
few employees as reasons for not providing employee health care.
The Center on Policy Initiatives (CPI) issued a report in March
2009 entitled, "Construction: Working without a Healthcare Net."
The survey estimated that there are 1.3 million construction
workers in California and that 356,000 construction workers (or
27%) did not have any health insurance for the entire year.
While the construction industry represents 7.3% of the state
workforce, it accounts for 15% of the chronically uninsured.
CPI's survey also found that 35% of construction industry
workers received employer-funded health insurance, compared to
50% of workers across all industries. CPI concluded that
construction workers often forego doctor visits, which leads to
undiagnosed health problems and costlier emergency room bills.
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301
FN: 0004732