BILL ANALYSIS �
AB 1939
Page 1
Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1939 (Daly) - As Amended: April 24, 2014
PROPOSED CONSENT
SUBJECT : PUBLIC WORKS: CONTRACTOR COSTS
KEY ISSUE : SHOULD CONTRACTORS HAVE ADDITIONAL REMEDIES FOR COST
RECOVERY WHEN A PROJECT IS DEEMED TO BE A PUBLIC WORK?
SYNOPSIS
This is a non-controversial bill to extend an existing principle
regarding the recovery of increased costs when a project is
deemed to be a public work. Under existing law, contractors are
generally required to pay prevailing wages to workers on public
works projects. However, situations sometimes arise in which
the contractor was not informed that the project would be a
public works project, or a subsequent administrative or court
decision classifies the project, or a portion of the project, as
a public works project. In such a situation, the contractor may
be responsible for the payment of the difference between the
prevailing wages and the wages actually paid, and associated
penalties and other sums. This bill proposes to establish
similar remedies for a contractor to recover increased costs
from the party it directly contracts with (such as a private
developer) under similar circumstances.
SUMMARY : Authorizes a contractor to bring an action against a
party (such as a developer) to recover increased costs as a
result of a subsequent decision that classifies a project, or
any portion thereof, as a public work, as specified.
Specifically, this bill :
1)Authorizes a contractor to bring an action to recover from the
party it directly contracts with, any specified increased
costs as a result of any decision by the Department of
Industrial Relations, the Labor and Workforce Development
Agency, or a court that classifies, after the time at which
the contracting party accepts the contractor's bid, awards the
contractor a contract under circumstances where no bid is
solicited, or otherwise allows construction by the contractor
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to proceed, the work covered by the project, or any portion
thereof, as a public work.
2)Provides that this authorization does not apply if either of
the following is true:
a) The developer of a construction project or its agent
expressly advised the contractor that the work to be
covered by the contract would be a public work.
b) A contractor on the developer's construction project
expressly advised the contractor that the work subject to
the contract would be a public work.
3)Specifies that, in order to be entitled to the recovery of
increased costs, the contractor shall notify the developer
within 30 days after receipt of the notice of a decision by
the Department of Industrial Relations or the Labor and
Workforce Development Agency, or the initiation of any action
in a court alleging, that the work covered by the project, or
any portion thereof, is a public work.
4)Provides that a contractor is not required to list any
prevailing wages or apprenticeship standard violations on a
prequalification questionnaire that are the direct result of
the failure of the developer of a construction project or its
agent, or a contractor, to notify contractors that the
project, or any portion thereof, should have been a public
work.
5)Provides that these provisions do not apply to private
residential projects built on private property unless the
project is built pursuant to an agreement with a state agency,
redevelopment agency, or local public housing authority.
6)Provides that these provisions do not apply if the conduct of
the contractor caused the project to be a "public work," or if
the contractor has actual knowledge that the work is a public
work.
EXISTING LAW generally requires the payment of prevailing wages
to workers employed on public works projects of greater than
$1,000. (Labor Code section 1781.)
FISCAL EFFECT : As currently in print this bill is keyed
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non-fiscal.
COMMENTS : Under existing law, contractors are generally
required to pay prevailing wages to workers on "public works"
projects. However, situations sometimes arise in which the
contractor was not informed that the project would be a "public
works" project, or a subsequent administrative or court decision
classifies the project, or a portion of the project, as a public
works project. In such a situation, the contractor may be
responsible for the payment of the difference between the
prevailing wages and the wages actually paid, and associated
penalties and other sums.
Existing law already provides remedies to contractors to recover
such increased costs on contracts awarded by an "awarding body"
(generally a public agency) under certain circumstances. For
example, existing law already authorizes a contractor to bring
an action to recover from an awarding body specified increased
costs if either the awarding body previously affirmatively
represented to the contractor that the work to be covered by the
bid or contract was not a "public work" or the awarding body
received actual written notice from the Department of Industrial
Relations that the work to be covered by the bid or contract is
a "public work" and failed to disclose that information to the
contractor.
In addition, current law authorizes a contractor to bring an
action to recover from an awarding body specified increased
costs incurred by the contractor as a result of a decision of
the awarding body, the Department of Industrial Relations, or a
court that classifies the work as a "public work," if that body,
before the bid opening or awarding of the contract, failed to
identify the project as a "public work" in the bid specification
or in the contract documents that portion of the work that the
decision classifies as a "public work."
This bill proposes to establish similar remedies for a
contractor to recover increased costs from the party it directly
contracts with (such as a private developer) under similar
circumstances.
ARGUMENTS IN SUPPORT : This bill is jointly sponsored by the
Associated General Contractors (AGC) and the Construction
Employers' Association (CEA). They argue that, because
developers have no legal obligation to inform contractors if
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they took public subsidies, contractors have no way of knowing
if prevailing wages are required. This means that workers may
not receive the correct wages until and if an enforcement action
or legal action is taken. Additionally, the contractor and
subcontractors may be subject to prevailing wage penalties,
liquidated damages and legal fees, simply because they were not
informed that the developer took a public subsidy that triggered
a prevailing wage requirement.
The sponsors point to a recent case involving Hensel Phelps
Construction Company and the Hilton San Diego Bayfront Hotel as
highlighting the need for this bill. According to the sponsors,
Hensel Phelps (the prime contractor) asked the San Diego Port
District and the hotel developer in writing if the project
involved the use of public funds and if prevailing wages would
be required to be paid. The sponsors allege that the contractor
was told that the project would not be a public works project.
However, subsequently the Department of Industrial Relations
(DIR) determined that the project was a public work due to a
$46.5 million rent credit provided by the San Diego Port
District. As the prime contractor, Hensel Phelps was liable for
the payment of prevailing wages and associated penalties and
costs, ultimately paying over $8 million in a payment plan with
DIR. The contractor is reportedly engaged in litigation at this
time to recover increased costs from the San Diego Port
District.
Therefore, in order to address this situation in future cases,
the sponsors state that this bill provides that if a developer
fails to inform a contractor that prevailing wages are required
and it is subsequently determined that prevailing wages are
required, the owner or developer must reimburse the contractor
for unpaid wages, sums incurred pursuant to the Labor Code and
attorney's fees associated with their failure to provide
direction to the contractor. If an owner or developer does
inform a contractor that prevailing wages are required, and the
contractor fails to inform subcontractors about the prevailing
wage requirement, the contractor then will be liable for unpaid
wages, sums incurred pursuant to the Labor Code and attorney's
fees associated with their failure to provide direction to the
subcontractors.
The sponsors conclude that this bill will ensure the timely
payment of prevailing wages and reduce enforcement actions by
the Department of Industrial Relations.
AB 1939
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REGISTERED SUPPORT / OPPOSITION :
Support
Air Conditioning Trade Association
Associated Builders and Contractors - San Diego Chapter
Associated General Contractors of California (co-sponsor)
California Professional Association of Specialty Contractors
Construction Employers' Association (co-sponsor)
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association
Opposition
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334