BILL ANALYSIS �
AB 987
Page 1
Date of Hearing: January 4, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 987 (Grove) - As Amended: January 4, 2012
SUBJECT : Public works: prevailing wages.
SUMMARY : Makes various changes to existing law related to the
payment of prevailing wages on public works projects, including
repealing various provisions of current law. Specifically, this
bill :
1)Raises the threshold on public works projects exempt from
prevailing wage requirements from $1,000 to $100,000.
2)Provides that specified public works and prevailing wage
requirements shall not apply to contracts for which the state
or any political subdivision pays a cumulative amount of less
than 50 percent of the total payment under the contract.
3)Exempts from prevailing wage requirements any school district
construction, reconstruction or rehabilitation projects except
as required by federal law.
4)Limits the application of prevailing wage law applicable to
specified irrigation, utility, reclamation, improvement
district, street, sewer and other improvement work, by
requiring that such projects be paid for in whole or in part
with public funds in order to be covered (current law does not
have a public funds requirement for these types of projects).
5)Revises various provisions of public works law to apply only
to work done "in the execution of a contract."
6)Revises provisions of existing law related to the
applicability of the law to private residential projects and
works on private development projects required as part of
regulatory approval of a project, as specified.
7)Revives exemptions for specified residential and low-income
housing projects that (under current law) apply only to
projects before December 31, 2003.
8)Eliminates the requirement in existing law that projects
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financed under the Bergeson-Peace Infrastructure and Economic
Development Bank Act comply with prevailing wage laws.
9)Provides that "public works" does not include work performed
during the design and preconstruction phases of construction.
10)Deletes provisions of current law that specify that "public
works" includes the hauling of refuse from a public works site
to an outside disposal location.
11)Eliminates the sunset date on an exemption for specified
volunteers, volunteer coordinators and conservation corps
members.
12)Provides that the requirement to pay prevailing wages does
not apply to fabrication or prefabrication work that is done
at permanent offsite facilities of contractors.
13)Provides that the requirement to pay prevailing wages does
not apply to a public work project of a local agency that
adopts a resolution or ordinance that provides that prevailing
wage requirements shall apply to any public work of that local
agency only if required by a state or federal grant.
14)Provides that workers employed on a hospital seismic
retrofitting project are not required to be paid prevailing
wages.
15)Specifies that workers must be employed "directly at the
sight of the work" to be deemed to be employed upon a public
work.
16)Extends the contract threshold for certain apprentice
requirements on public works projects from contracts of
$30,000 to contracts of $100,000 or more.
17)Makes other related and conforming changes.
FISCAL EFFECT : Unknown
COMMENTS : This bill seeks to makes various changes to existing
law related to the payment of prevailing wages on public works
projects, including repealing various provisions of current law.
A Brief History of State and Federal Prevailing Wage Law
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State prevailing wage laws vary from state to state, but do
share a common history that actually predates federal prevailing
wage law. Many of these state laws were enacted as part of
general reform efforts to improve working conditions at the end
of the 19th and the beginning of the 20th centuries. Between
1891 and 1923, seven states adopted prevailing wage laws that
required payment of specified hourly wages on government
construction projects. The State of Kansas enacted the first
prevailing wage law in 1891.
Eighteen additional states and the federal government adopted
prevailing wage laws during the Great Depression of the 1930s
amidst concern that acceptance of the low bid, a common
requirement of government contracting for public projects when
government had become the major purchaser of construction, would
operate to reduce the wages paid to workers on those projects to
a level that would disrupt the local economy.
California's prevailing was law was enacted in 1931.
In general, the proponents of prevailing wage legislation wanted
to prevent the government from using its purchasing power to
undermine the wages of its citizens. It was believed that the
government should set an example, by paying the wages prevailing
in a locality for each occupation hired by government
contractors to build public projects. Thus, prevailing wage
laws are generally meant to ensure that wages commonly paid to
construction workers in a particular region will determine the
minimum wage paid to the same type of workers employed on
publicly funded construction projects.
Most public construction projects contracted for or by the
federal government or the District of Columbia are covered by
the federal prevailing wage law, the Davis-Bacon Act (Act),
while 33 states have prevailing wage laws, often referred to as
"little Davis-Bacon Acts," that encompass projects financed by
states and their political subdivisions.
The federal Davis-Bacon Act was enacted by Congress in 1931.
The Act requires workers employed under public construction
contracts of the federal government in excess of $2,000 to be
paid a minimum wage that the United States Department of Labor
determines to be prevailing for corresponding classes of
workers. In addition, sixty separate federal laws currently
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specify the payment of Davis- Bacon wages for work prescribed.
The federal government also has two additional prevailing wage
laws - the Walsh-Healy Public Contracts Act of 1935 (which
covers federal contractors in manufacturing and supply
industries), and the O'Hara-McNamara Services Act of 1965 (which
covers service contracts).
The United States Supreme Court has stated the public policy
underlying the Davis-
Bacon Act as one of:
"protecting local wage standards by preventing contractors
from basing their bids on wages lower than those prevailing
in the area . . . �and] giving local labor and the local
contractor a fair opportunity to participate in this
building program." Universities Research Ass'n. v. Coutu
(1981) 450 U.S. 754, 773-774).
General Background on "Public Works" Under California Law
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."
Over a decade ago, there was much administrative and legislative
action over what constituted the term "paid for in whole or in
part out of public funds." This action culminated in the
enactment of SB 975 (Alarc�n), Chapter # 938, Statutes of 2001,
which codified a definition of "paid for in whole or in part out
of public funds" that included certain payments, transfers,
credits, reductions, waivers and performances of work. At the
time, supporters of SB 975 stated that it established a
definition that conformed to several precedential coverage
decisions made by the Department of Industrial Relations (DIR).
These coverage decisions defined payment by land, reimbursement
plans, installation, grants, waiver of fees, and other types of
public subsidy as public funds for purposes of prevailing wage
law. According to the sponsors, SB 975 was intended to remove
ambiguity regarding the definition of public subsidy of
development projects.
SB 975 also exempted certain affordable housing, residential and
private development projects that met certain criteria.
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Follow-up legislation, SB 972 (Costa), Chapter # 1048, Statutes
of 2002, was intended to clarify the application of SB 975 and
was the result of extensive discussions between the State
Building and Construction Trades Council (sponsor of SB 975),
affordable housing advocates, and the Davis Administration.
Supporters of SB 972 contended that the original legislation had
unintended consequences for self-help housing and housing
rehabilitation projects. As a result of that compromise, SB 972
exempted from public works requirements the construction or
rehabilitation of privately-owned residential projects that met
certain criteria.
Why It Matters: "Prevailing Wage"
The determination of whether a project is deemed to constitute a
"public work" is important because the Labor Code requires
(except for projects of $1,000 or less) that the "prevailing
wage" to be paid to all workers employed on public works
projects.
Specific Changes Proposed By This Bill
This bill seeks to makes various changes to existing law related
to the payment of prevailing wages on public works projects,
including repealing various provisions of current law.
Among other things, this bill proposes to do the following:
Raise the threshold on public works projects exempt from
prevailing wage requirements from $1,000 to $100,000.
Provide that specified public works and prevailing wage
requirements shall not apply to contracts for which the state
or any political subdivision pays a cumulative amount of less
than 50 percent of the total payment under the contract.
Exempt from prevailing wage requirements any school district
construction, reconstruction or rehabilitation projects except
as required by federal law.
Limit the application of prevailing wage law applicable to
specified irrigation, utility, reclamation, improvement
district, street, sewer and other improvement work, by
requiring that such projects be paid for in whole or in part
with public funds in order to be covered (current law does not
have a public funds requirement for these types of projects).
Revise various provisions of public works law to apply only to
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work done "in the execution of a contract."
Revise provisions of existing law related to the applicability
of the law to private residential projects and works on
private development projects required as part of regulatory
approval of a project, as specified.
Revive exemptions for specified residential and low-income
housing projects that (under current law) apply only to
projects before December 31, 2003.
Eliminate the requirement in existing law that projects
financed under the Bergeson-Peace Infrastructure and Economic
Development Bank Act comply with prevailing wage laws.
Provide that "public works" does not include work performed
during the design and preconstruction phases of construction.
Delete provisions of current law that specify that "public
works" includes the hauling of refuse from a public works site
to an outside disposal location.
Eliminate the sunset date on an exemption for specified
volunteers, volunteer coordinators and conservation corps
members.
Provide that the requirement to pay prevailing wages does not
apply to fabrication or prefabrication work that is done at
permanent offsite facilities of contractors.
Provide that the requirement to pay prevailing wages does not
apply to a public work project of a local agency that adopts a
resolution or ordinance that provides that prevailing wage
requirements shall apply to any public work of that local
agency only if required by a state or federal grant.
Provide that workers employed on a hospital seismic
retrofitting project are not required to be paid prevailing
wages.
Specify that workers must be employed "directly at the sight
of the work" to be deemed to be employed upon a public work.
Extend the contract threshold for certain apprentice
requirements on public works projects from contracts of
$30,000 to contracts of $100,000 or more.
Some of the more significant of these proposals are discussed in
more detail below:
Response to Recent Azusa Decision?
Although the background information provided by the author does
not specifically mention it, it appears that several of the
provisions of this bill are brought forward in response to a
recent significant decision of a California appellate court in
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Azusa Land Partners v. Department of Industrial Relations.
Therefore, a very brief discussion of that case and its holding
may be useful here.
At issue in that case was a mixed use project comprised of over
1,200 residential homes and 50,000 square feet of commercial
space. The developer entered into an agreement with the City of
Azusa (as a condition of regulatory approval of the project) to
construct certain public improvements, including school, rail,
sanitation, road, bridge and utility construction work. The
City established a Community Facilities District under the
Mello-Roos Act to issue bonds to reimburse the developer for a
portion of cost of the public improvements.
DIR concluded that the entire project constituted a public work
because it was funded "in whole or in part" with public funds.
However, citing an exception under Labor Code Section 1720(c),
DIR determined that no more public funds were contributed than
required to pay the cost of the public infrastructure projects.
Therefore, prevailing wages only had to be paid for the
construction of the public improvements.
The Second District Court of Appeal upheld DIR's interpretation
of the prevailing wage law in the case. The first part of the
decision related to whether the overall master-planned
development at issue in the case was a "public work" under Labor
Code Section 1720 because it was "paid for in whole or in part"
out of public funds. The Court held that the prevailing wage
law (as it existed prior to, but especially so after SB 975 of
2001 which codified "paid for in whole or in part" out of public
funds) applied to the "overall scheme of improvement." Thus,
the entire project at issue was a "public work" under Section
1720. The second main part of the decision dealt with, despite
the fact that the entire project was a "public work," whether a
specified exemption in 1720(c)(2) limited the obligation to pay
prevailing wages only to specified "public improvement work"
that was part of the overall project.
The Azusa decision has generated significant discussion in the
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public works arena, particularly among the developer community.
Those stakeholders who support the Court's finding in Azusa
contend that the Court rightly interpreted longstanding
interpretation that a project is a public work if it is paid for
in whole or in part out of public funds. Otherwise (as the
argument goes) a legal fiction could be developed on paper to
split a project into multiple smaller projects and designate the
"public funding" only for one small subset of the overall
project (thereby limiting the payment of prevailing wages).
However, many industry observers strongly disagree with the
Azusa decision and feel that it was an unwarranted expansion of
prevailing wage law into otherwise private projects. They most
object to what they call the Court's "development-wide" approach
to determining whether a given project is a "public work."
Thus, in light of this, it appears that several provisions of
this bill are intended to address issues raised in the Azusa
decision. First, this bill recasts various provisions of
existing law to focus on work done "in execution of a contract"
instead of the project itself. This could be seen as an attempt
to overturn the Azusa Court's "development-wide" approach
discussed above. Second, this bill provides that the
requirements do not apply where the public funds amount to less
than 50 percent of the total payment under contract. This too
may be seen as a response to Azusa by attempting to limit
application of the law only to projects where a "majority" of
the financing is paid with public funds. Finally, this bill
recasts the exemption in Labor Code Section 1720(c) (which was
at issue in the Azusa case) to reference this new definition of
"paid for in whole or in part out of public funds."
"Public Works" Threshold
Under current law, prevailing wages are required to be paid to
all workers employed on public works projects. Existing law
excludes projects of less than $1,000 from this requirement.
This bill proposes to increase this threshold to $100,000.
Local Agency Opt-Out Requirements
This bill authorizes the governing body of a local agency to
adopt, by an affirmative vote of a majority of its members, a
resolution or ordinance providing that the prevailing wage
requirements shall apply to any public work of the local agency
only if required by a state or federal grant.
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Exemption for School Construction Work
Under current law, "public works" are defined as construction,
alteration, demolition, installation or repair work paid for in
whole or in part out of public funds. A significant portion of
public works construction work consists of school construction
and modernization work.
This bill provides that the governing board of a school district
is not required to comply with prevailing wage requirements with
regard to the construction, reconstruction or rehabilitation of
school facilities, except to the extent required by federal law.
AB 1018 (Nakanishi) of 2003 would have exempted school facility
new construction or modernization projects from any requirement
to pay local prevailing wages. AB 1018 failed passage in this
Committee.
Refuse Hauling
Since 1976, the Labor Code has defined "public works" to include
the hauling of refuse to an outside disposal facility with
respect to public works contracts involving any state agency,
including the California State University and the University of
California. In 1999, SB 302 (Floyd) added contracts involving
cities, counties, and other political subdivisions of the state
to this requirement.
Last year, AB 514 (R. Hern�ndez) clarified what materials from
the worksite are included in the definition of "hauling of
refuse." AB 514 was signed by the Governor and enacted into
law.
AB 1140 (Cox) of 2003 attempted to repeal the provision of law
that defines public works to include the hauling of refuse.
That bill failed passage in this Committee. Like AB 1140, this
bill proposes to eliminate this provision of law.
Offsite Fabrication
This bill provides that the requirement to pay prevailing wages
does not apply to fabrication or prefabrication work that is
done at permanent offsite facilities of contractors. This bill
also specifies that workers must be employed "directly at the
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sight of the work" to be deemed to be employed upon a public
work.
The issue of prevailing wage law and the offsite fabrication of
work has been a controversial subject in recent years. Labor
unions and others have expressed concern that unscrupulous
contractors have begun to perform certain fabrication and
prefabrication work away from the work site in an effort to
evade the requirements of California's prevailing wage law.
According to such allegations, some contractors were performing
the bulk of fabrication work offsite, where employees were not
paid prevailing wages. The fabricated work would then be
brought to the actual work site and installed, with workers
receiving prevailing wages only for that final stage in the
process.
On March 4, 2003, the DIR issued two precedential public works
coverage determinations addressing whether employees engaged in
certain offsite fabrication in conjunction with construction
projects are deemed to be employed upon public works. Cuesta
College (PW Case #2000-027); City of San Jose/SJSU Joint Library
Project (PW Case #2002-064). In two lengthy analyses, DIR
concluded that California's prevailing wage law does not limit
coverage to the site of the public works project. Moreover, DIR
noted that one of the purposes of the prevailing wage law is to
"protect employees from substandard wages that might be paid if
contractors could recruit labor from distant cheap-labor areas"
(citation omitted).
Both of the coverage determinations were administratively
appealed. In addition, various legal actions were filed
challenging the determinations. On April 16, 2003, the Acting
Director of DIR announced that, until the resolution of the
administrative appeals, the implementation of the public works
coverage test enunciated in those determinations regarding
offsite fabrication work would be stayed.
In a subsequent case, DIR determined that certain offsite
fabrication work performed in the permanent shop of an on-site
heating, ventilating and air conditioning subcontractor was done
in the execution of a contract for public work and was therefore
subject to prevailing wage law requirements. Russ Will
Mechanical, Inc. , (PW Case # 2007-008). However, the
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subcontractor filed a notice of administrative appeal, which DIR
granted and ordered the determination reversed. A labor
organization subsequently brought a legal action wherein the
trial court vacated the decision and ordered DIR to reconsider.
DIR did not appeal the trial court decision, but the
subcontractor did. The matter is currently pending on appeal in
the California First District Court of Appeal.
AB 1310 (Dutton) of 2003 and AB 1995 (Cox) of 2004 both
attempted (as this bill does) to exempt offsite fabrication work
from the requirements of prevailing wage law. Both of those
measures failed passage in this Committee.
Hospital Seismic Retrofitting Projects
In 1994, after the Northridge earthquake damaged 12 hospitals,
the legislature passed SB 1953 (Alquist), Chapter # 740,
Statutes of 1994, which required that the most vulnerable
hospital buildings be retrofitted by 2008. Although many of the
seismically-unsafe hospitals have had the deadline extended,
some hospitals continue to argue that they are not able to
afford the costs of seismic retrofitting.
AB 549 (Adams) of 2007 proposed to exclude any hospital seismic
retrofitting project from the prevailing wage requirements of
current law. Proponents of that bill argued that this bill was
necessary for hospitals to meet California's seismic
retrofitting requirements by helping to lower the cost of the
retrofitting projects. Opponents, however, argued that that
hospital construction requires some of the most highly skilled
construction workers in the industry and that lowering the wage
standards to lower construction costs would be "penny wise and
pound-foolish." AB 549 failed passage in this Committee.
This bill provides that workers employed on a hospital seismic
retrofitting project are not required to be paid prevailing
wages
ARGUMENTS IN SUPPORT :
This bill is sponsored by the Associated Builders and
Contractors of California. The author writes the following in
support of this measure:
"�This bill] restores an honest definition of a 'public
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work' by clarifying when construction is actually being
done on a public work and by repealing provisions of law
added during the administration of Governor Gray Davis that
distorted the definition of 'public work.' It increases a
project cost threshold for prevailing wage that was set in
1931 and remains in place today. It gives local
governments the right to establish their own prevailing
wage policies for local projects?
?The State of California needs to encourage economic growth
and job creation by eliminating the government requirement
that contractors pay inflated and inaccurate state-mandated
construction wage rates on private projects that are not
truly public works. In addition, local governments should
have the right to establish their own prevailing wage rates
that more accurately reflect local market conditions?
?�This bill] would establish a more reasonable state
definition of 'public work' for the purposes of
state-mandated construction wage rates, thus limiting the
coverage of these mandates to legitimate government
projects. The bill relieves regulatory burdens for small
businesses and governments by increasing the cost threshold
for prevailing wage coverage from $1,000 to $100,000. It
achieves consistency in state law by setting the cost
threshold for apprenticeship mandates at $100,000. It
repeals laws signed by Governor Gray Davis that expanded
the definition of public works, thus extending
state-mandated prevailing wage coverage to numerous kinds
of privately-built projects, including affordable housing
and certain other private developments. It repeals laws
signed by Governor Gray Davis that expanded state-mandated
prevailing wage coverage to occupations in which workers do
not actually build or fix structures for taxpayers, such as
land surveying, inspection services, refuse hauling, and
off-site manufacturing and fabrication work. It
incorporates several bills introduced in the legislature
since 1993 that would have exempted certain kinds of
sensitive construction projects from state-mandated
prevailing wage coverage: school construction, seismic
retrofitting of hospitals, and volunteer work. Finally, it
gives local governments the ability to establish their own
prevailing wage policies for public works exclusively
funded by local taxpayers."
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ARGUMENTS IN OPPOSITION :
Writing in opposition to this bill, the State Building and
Construction Trades Council of California states the following:
"Prevailing wage has helped establish and preserve our
nation's middle class by ensuring skilled construction
workers on public works projects earn a fair wage to
provide for themselves and their families, as well as
dignity and respect for their work?
?California's building and constructions trades unions have
fought many legislative, regulatory, and electoral battles
to strengthen and protect our state's prevailing wage law?
?The payment of prevailing wage ensures fair competition by
leveling the playing field for signatory contractors -
offering the employer and the general public a construction
product at a reduced cost by minimizing workplace injuries
due to a highly skilled and trained workforce, on-time
project delivery, and higher quality construction that
results in decreased maintenance costs after project
completion?
?�S]tates and cities that have abolished or weakened their
prevailing wage laws have experienced a tripling of cost
overruns on public works projects, significant increases in
construction injuries, steep declines in apprenticeship
training, and a depression of local and statewide wages."
Similarly, the California Labor Federation, AFL-CIO states the
following:
"�This bill] would exempt a laundry list of current school
construction work from prevailing wage laws. It would cut
prevailing wage from various residential projects and
triple a dollar threshold at which prevailing wage applies.
These exemptions would only hurt school construction
projects. Prevailing wage guarantees projects come in on
time and on budget. Countless studies and reams of
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evidence confirm that weakened prevailing wage standards
result in inadequate training programs, longer foreman
hours, shoddier work that requires more maintenance and,
inevitably, cost overruns. These overruns and late
completions end up costing tax payers more in the long-run.
�This bill] would not benefit workers, communities or
students. Our children deserve to go to schools that were
built by skilled professionals under the highest quality
standards and for a fair cost."
REGISTERED SUPPORT / OPPOSITION :
Support
Associated Builders and Contractors of California
Opposition
California Labor Federation, AFL-CIO
California Sheet Metal and Air Conditional Contractors' National
Association
California State Pipe Trades Council
California Teamsters Public Affairs Council
California-Nevada Conference of Operating Engineers
Coalition of California Utility Employees
International Brotherhood of Electrical Workers
International Union of Elevator Constructors
State Building and Construction Trades Council of California
Western States Council of Sheet Metal Workers
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091