BILL ANALYSIS �
AB 1741
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Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1741 (Frazier) - As Amended: April 7, 2014
Policy Committee: LaborVote:7-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill authorizes contractors and/or subcontractors who have
received a wage and penalty assessment under public works law,
as an alternative to becoming automatically liable for
liquidated damages in specified circumstances, to deposit the
full amount of the assessment in the form of a bond with the
Department of Industrial Relations (DIR). Current law only
allows for this payment to be in the form of cash.
Specifically, this bill:
1)Requires the bond to be issued by a surety company admitted to
do business in this state and in a form acceptable to the
director of DIR.
2)Requires the director of DIR to prescribe the requirements for
a bond.
3)Makes related and conforming changes.
FISCAL EFFECT
Potential increased costs to the Division of Labor Standards
Enforcement (DSLE) if the implementation of the bill leads to
more Civil Wage and Penalty Assessment (CWPA) appeals.
DIR estimates increased costs in the range of $600,000 to
$900,000 related to the processing of appeals.
COMMENTS
Purpose . Current law that allows a contractor to avoid liability
for liquidated damages if they post the full amount of the
assessment with DIR in an escrow account while a CWPA appeal is
AB 1741
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pending. The implementing legislation (SB 1352 of 2008) at one
point authorized payment in the form of "cash, a letter of
credit, a payment bond, or negotiable securities". However,
that language was amended out of the bill prior to enactment.
On March 30, 2009, the Chief Deputy Director of DIR issued a
memorandum in which he stated that, in lieu of a cash deposit, a
contractor may post a payment bond with DIR as long as the bond
satisfied specified criteria. Given the legislative history and
ultimate enactment of SB 1352, it was not clear if DIR had the
authority to accept this form of payment. In 2013, when DIR
revised its' Public Works Manual, it deleted the prior
references to payment to DIR in the form of a bond.
The author is seeking legislative clarity to allow surety bonds
as an acceptable means of collateral as a cash equivalent for
these types of disputes. According to the author, DIR's decision
to no longer accept a surety bond has created financial hardship
for contractors. The Associated General Contractors, sponsors
of the bill, note that in the construction industry, cash flow
is extremely important in keeping employees paid and projects
going. In instances where a contractor has been fully
exonerated, it is often difficult to receive reimbursement from
the state in a timely manner.
Analysis Prepared by : Misty Feusahrens / APPR. / (916)
319-2081