BILL ANALYSIS
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|Hearing Date:June 21, 2010 |Bill No:AB |
| |2390 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 2390Author:Buchanan
As Amended:April 28, 2010 Fiscal:Yes
SUBJECT: Public works projects: bidding practices: licenses and
worker's compensation insurance.
SUMMARY: Requires contractors and subcontractors to possess and
provide proof of valid workers compensation insurance at the time of
making a bid or offer to perform work.
Existing law:
1) Requires a public entity, the University of California and the
California State University to specify the classification of the
contractor's license that a contractor must possess at the time of
the contract, or when they make a bid or offer to perform the work.
The specification must be included in any plans prepared for a
public project and in any notice inviting bids required.
2) Requires under the Subletting and Subcontracting Fair Practices Act
for the entity taking bids for public works to specify that any
person making a bid or offer to provide:
a) The name and location of the place of business of each
subcontractor, who will perform the work or labor or render
service to the prime contractor; or
b) For a subcontractor who, under subcontract to the prime
contractor, specifically fabricates and installs work according
to specifications, and in the amount in excess of one-half of 1%
of the prime contractor's total bid, or in the case of bids or
offers for the construction of streets or highways, including
bridges, in an amount in excess of one-half of 1% of the prime
contractor's total bid or $10,000, whichever is greater, to also
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provide their name and location of the place of business.
3) Specifies, except as otherwise provided, that the board shall
require as a condition precedent to the issuance, reinstatement,
reactivation, renewal, or continued maintenance of a license, that
the applicant or license have on file at all times a current and
valid Certificate of Workers' Compensation Insurance or
Certification of Self-Insurance, as specified.
4) Provides that failure of a licensed contractor to obtain or
maintain workers' compensation insurance coverage, if required
under the Contractors' State License Law, shall result in the
automatic suspension of the license by operation of law. The
suspension shall be effective on the earlier of the date that the
workers' compensation insurance coverage lapses or the date that
workers' compensation coverage is required to be obtained.
This bill:
1) Requires the contractor to possess current valid workers'
compensation insurance at the time the contractor makes a bid or
offer to perform the work.
2) Requires the person making a bid or offer to perform work to set
forth, business, location, current valid license number issued by
the State of California, and current, valid workers' compensation
insurance of each subcontractor who will perform work, labor or
render service to the prime contractor in or about the construction
of the work or improvement.
FISCAL EFFECT: According to the Assembly Committee on Appropriations
analysis, dated May 19, 2010, cost for state agencies to require and
receive the additional information from contractors at the time of bid
should be minor. The Analysis states that if a low-bidder was to
submit erroneous or incomplete information regarding subcontractors,
resulting in a contract being awarded to the next lowest bidder or
being re-bid, costs would increase.
COMMENTS:
1. Purpose. The California State Council of Laborers is the Sponsor
of this bill. According to the Author, currently there are no
requirements for a contractor to provide a valid license and
workers' compensation insurance numbers at the time the contractor
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makes a bid or offer for a public work's contract. The Author
states that this bill seeks to require contractors and
subcontractors to provide their license and workers' compensation
insurance numbers at the time of the bid to ensure contractors
provide for workers' compensation insurance. According to the
Author, "Unfortunately, in today's tough economic environment, too
many contractors are bidding on jobs in areas where they have no
prior experience and too many are bidding without a current
contractor's license or workers' compensation insurance. Public
agencies must typically take the low bid and if contractors without
a valid license or workers' compensation win the bid, they then
scramble to update their license and/or workers' compensation
coverage. If the bid is not based on realistic data, change orders
and delays in construction follow, leading to increased costs for
the projects and the public agencies."
2. Background. According to information provided by the Author, there
are many examples of contractors working without workers'
compensation insurance. Regrettably, most of these cases are only
discovered after an accident has occurred or during an enforcement
action. The following are two cases of workers' compensation fraud
involving public works.
In March 2010, Attorney General Brown filed suit against Country
Builders for cheating its workers out of wages and falsifying
payroll records, thereby shortchanging the state's workers'
compensation fund. Country Builders' public works contracts
included senior housing in Berkeley, student housing for CSU East
Bay and UC Berkeley and family apartments in San Jose, San Pablo
and Oakland.
Between May 2003 to May 2007, NBC General Contractors was awarded
at least 27 public works projects in Alameda, Contra Costa, San
Mateo, San Francisco and Marin counties for awarding agencies,
including Mount Diablo Unified School District, County of Alameda,
City of Daly City, Oakland Unified School District, Peralta
Community College District and Fremont Unified School District. An
investigation by the state's Department of Insurance revealed that
the company made intentional and material misrepresentations to
their workers' compensation insurance carrier to misclassify the
type of work their employees were performing, as well as falsely
reporting the hourly wage of more than 70 employees, saving them a
significant amount in workers' compensation premiums.
If a contractor does not have workers' compensation insurance at
the time he or she is placing the bid, he or she may not include
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the full cost of acquiring insurance in their bid. This could
provide a financial incentive not to obtain workers' compensation
insurance, putting both the workers and the public entity at risk.
When these violations involve public works contracts, the public
becomes responsible for any delays and additional costs due to
non-licensed contractors or the failure to provide workers'
compensation insurance. If a worker is injured on the job and the
contractor does not have workers' compensation insurance, the
public entity could potentially be financially liable, adding
additional, unexpected costs to the project.
3. Related Legislation. AB 2305 (Knight), also before the Committee
at today's hearing, extends the sunset date, from January 1, 2011
to January 1, 2014, of the law requiring a roofing contractor to
obtain and maintain workers' compensation insurance, even if he or
she has no employees, and extends the parallel sunset date
requiring the Department of Insurance to report on this effect.
4. Arguments in Support. The Sponsor, California State Council of
Laborers, writes in support, noting that "there are too many
examples of contractors working without workers' compensation
insurance or not enough coverage." The California Department of
Insurance estimates that there is over $11.5 billion in workers'
compensation fraud annually. While this measure may not end
workers' compensation fraud, it will provide more security to
awarding agencies by giving them a better view of a contractor's
experiences and give enforcement agencies more information on who
is bidding on public works."
The California Applicant's Attorneys Association (CAAA) also argues
that this bill will help protect employees in the construction and
roofing industries by assuring that they will have access to
workers' compensation benefits if they are injured while employed
on a public works project.
NOTE : Double-referral to Governmental Organization Committee
(second.)
SUPPORT AND OPPOSITION:
Support:
California State Council of Laborers (Sponsor)
Association of California State Supervisors (ACSS)
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California Applicants' Attorneys Association
California State Employees Association (CSEA)
California State Pipe Trades Council
CSEA Retirees, Inc.
Northern California Carpenters
State Association of Electrical Workers
State Building Construction Trades Council, AFL-CIO
Western States Council of Sheet Metal Workers
Opposition:
None on file as of June 15, 2010
Consultant:Antoinnae Comeaux