BILL ANALYSIS
Bill No: AB
2390
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 2390 Author: Buchanan
As Amended: June 23, 2010
Hearing Date: June 29, 2010
Consultant: Art Terzakis
SUBJECT
Public Contracts
DESCRIPTION
AB 2390 requires contractors and subcontractors to possess
and provide proof of valid workers' compensation insurance
when submitting a bid for a public works construction
project. Specifically, this measure:
1. Modifies an existing provision of the Public Contract
Code that requires public entities, the University of
California and the California State University to specify
for inclusion in any plans and notice prepared for a
public project the classification of the contractor's
license, which a contractor is required to possess "at
the time a contract is awarded" and instead, requires the
contractor to possess that license "at the time the
contractor makes a bid or offer to perform the work."
2. Also, adds a new provision that requires the contractor
to possess current workers' compensation at the time the
contractor makes a bid or offer to perform the work.
3. Makes it explicit that items #1 & #2 referenced above
shall not apply to a contractor that submits a bid or
offer as a joint venture (joint bids by two or more
licensees issued separate licenses).
4. Adds a new provision to the Subletting and
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Subcontracting Fair Practices Act that requires the
contractor whose bid was accepted to provide to the
awarding authority, within 5 business days of the notice
of the award, each subcontractor's name and business
location, the current valid license number issued by the
State of California and proof of current workers'
compensation insurance of each subcontractor that was
listed in the contractor's bid
5. Stipulates that a subcontractor not listed by the
contractor who is subsequently contracted to perform
work, shall, prior to commencing work, provide the
awarding authority with its name, business location,
current contractor's license number issued by the State
of California, and proof of current workers' compensation
insurance.
EXISTING LAW
Existing law 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 a contract is awarded.
Existing law provides that it is unlawful for any two or
more licensees, each of whom has been issued a license to
act separately in the capacity of a contractor within this
state, to be awarded a contract jointly or otherwise act as
a contractor without first having secured a joint venture
license. Existing law provides that if a combination of
licensees submit a bid for the performance of work for
which a joint venture license is required, a failure to
obtain that license shall not prevent the imposition of any
penalty as specified for the failure of a contractor who
submits a bid to enter into a contract pursuant to the bid.
Existing law, the Subletting and Subcontracting Fair
Practices Act, requires the entity taking bids for public
works to specify that any person making a bid or offer set
forth 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 a subcontractor
who, under subcontract to the prime contractor,
specifically fabricates and installs a portion of the work
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according to specifications, in an 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.
Existing law 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.
BACKGROUND
Purpose of AB 2390: According to the author's office,
there are many examples of contractors working without
workers' compensation insurance or not enough coverage.
Most of these cases are only discovered after an accident
has occurred or during an enforcement action. The
Department of Insurance estimates that there is over $11.5
billion in workers' compensation fraud annually. The
author's office states that this measure is simply intended
to move up the timing that a company must declare that they
have workers' compensation, from when they start work to
when a contractor bids for work.
Currently, the law requires all employers to carry workers'
compensation insurance, even if they have only one employee
or a temporary employee. This allows employees to receive
covered medical treatment for on-the-job injuries or
illnesses. Workers' compensation insurance provides six
basic benefits: medical care, temporary disability
benefits, permanent disability benefits, supplemental job
displacement benefits, vocational rehabilitation, and death
benefits.
Insurance carriers charge employers premiums to provide
workers' compensation insurance that factor in the
company's industry classification, history of work-related
injuries, and payroll history.
Contractors must submit proof of their workers'
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compensation insurance coverage in the form of a
Certificate of Workers' Compensation Insurance or
Certification of Self-Insurance, along with their license
number and specified information, to the Contractors State
License Board (CSLB). CSLB must receive this proof of
coverage within 90 days of the contractor hiring an
employee. If a contractor does not have employees, he or
she can fill out an Exemption from Workers' Compensation.
Current law requires contractors to have workers'
compensation insurance when a project breaks ground (after
a project has been awarded). This measure would require
contractors and subcontractors to have workers'
compensation insurance when bidding on a project. In 2009,
CSLB received 38 complaints against licensees related to
workers' compensation violations.
Proponents of this measure cite numerous cases of workers'
compensation fraud involving public works contracts and
emphasize this measure will give the public and the
contracting entity a chance to find fraud before precious
public dollars are spent. Proponents acknowledge that this
measure will very likely not put an end to workers'
compensation fraud however they believe it will provide
more security to awarding agencies by giving them a better
view of a contractor's experience as well as providing
enforcement agencies more information on contractor's that
are bidding on public works.
Staff Comments: This measure may conflict with an existing
provision of the Business & Professions Code and perhaps
create a disadvantage to contractors who have no employees
(sole proprietor). For example Section 7125(a) of the
Business & Professions Code provides that the CSLB shall
require as a condition precedent to the issuance,
reinstatement, reactivation renewal, or continued
maintenance of a license, that the applicant or licensee
have on file at all times a current and Valid Certificate
of Workers' Compensation Insurance or Certification of
Self-Insurance. Section 7125(b) of the Business and
Professions Code provides that workers' compensation
insurance does not apply to an applicant or licensee who
meets both of the following conditions: (1) has no
employees, provided proper certification is filed with the
CSLB and (2) does not hold a C-39 license (roofing
license).
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PRIOR/RELATED LEGISLATION
SB 1254 (Leno) 2009-10 Session. Among other things,
authorizes the Contractors State License Board to issue a
stop order to any licensed or unlicensed contractor who has
failed to secure workers' compensation insurance coverage
for his or her employees. (Pending in Assembly
Appropriations)
SUPPORT: As of June 25, 2010:
California State Council of Laborers (sponsor)
Associated General Contractors
Association of California State Supervisors
California Applicants' Attorneys Association
California Chapters of the National Electrical Contractors
Association
California Legislative Conference of the Plumbing, Heating
and Piping Industry
California State Employees Association
CSEA Retirees, Inc.
California State Pipe Trades Council
California State University Employees Union
Northern California Carpenters Regional Council
State Association of Electrical Workers
State Building and Construction Trades Council
Western States Council of Sheet Metal Workers
OPPOSE: None on file as of June 25, 2010
FISCAL COMMITTEE: Senate Appropriations Committee
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