Prevailing Wage…for Material Suppliers???!!!

AAEAAQAAAAAAAAhqAAAAJGQ0MjU3ODA4LWE2YmYtNDU2NC1iNWIwLWYzOWE3MzAwNjRjNALast week, I came back from the American Bar Association Forum on Construction Law Annual Meeting in Nashville, Tennessee.  On my last night there, my wife and I went to the Grand Ole Opry.

One of the featured country artists that night asked the audience, “You know what happens when you play a country music record backwards?  You get your truck back, you get your dog back, you get your wife back…”   Well, after discussing California’s new Labor Code section 1720.9 (which goes into effect on July 1, 2016) with some of my colleagues from around the country, I couldn’t help but wonder if we here in California are headed backwards when it comes to making our prevailing wage law less cumbersome and taxpayer-funded construction projects less expensive.

California law has traditionally drawn a distinction between the performance of on-site construction labor and the supply of construction materials.  AB 219 added new Labor Code section 1720.9, signaling the extension of a legislative trend adding significant complexity, risk and cost for contractors and material suppliers on public works of improvement.

Specifically, AB 219 abrogates and supersedes conflicting case law and a prior (non-precedential) coverage determination by the California Department of Industrial Relations that the delivery of ready-mix concrete to a public job does not constitute a public work subject to prevailing wage laws.  As of July 1, 2016, the hauling and delivery of ready-mix concrete from a commercial plant to a public works job will be subject to California’s prevailing wage law.

The “hauling and delivery of ready-mixed concrete to carry out a public works contract” means the job duties for a ready mixer driver and includes receiving the concrete at the factory or batching plant and the return trip to the factory or batching plant. While AB 219 is specific to concrete suppliers, some believe that this is just the tip of the iceberg and that the co-sponsors of the new law (i.e., The California Teamsters Public Affairs Council, The State Building and Construction Trades Council, The California Labor Federation AFL-CIO) will push for additional legislation that could require prevailing wage for other material suppliers. What logical and legal justification exists for excluding the delivery of steel, lumber, paint, fuel, plumbing supplies, electrical components and even porta-potties?

In the face of vociferous opposition from Associated General Contractors (AGC) and other industry associations, the labor organizations behind AB 219 convinced the legislature and Governor Brown that the new law was merely a logical expansion of prevailing wage law.  Specifically, these advocates argued that concrete delivery was already subject to prevailing wage law if delivered by the project direct contractor or a subcontractor, but just not by a material supplier.

So what’s the big deal and what could possibly go wrong?  Here are some highlights of the new law which apply to all public projects awarded after July 1, 2016:

  • The cost of almost every public construction project in California will increase; in fact, according to the AGC of California: (1) ready-mix producers estimate that the cost of concrete for projects under AB 219 would increase by 30 to 40 percent; (2) state agencies indicated that the fiscal impact of the new law will exceed $35,000,000; and (3) Caltrans estimated $1 million annually in administrative costs to administer the law.
  • Ready-mix haulers and entities that deliver ready-mixed concrete to public works projects will be considered public works contractors under California Labor Code section 1722.1 and must register with the Department of Industrial Relations as set forth in Labor Code section 1725.5.
  • Ready-mix suppliers must develop an accounting and payroll infrastructure capable of processing, submitting and maintaining certified payroll records.
  • Because the material is perishable, a driver’s routine may last just 90 minutes or less (i.e., take load from the plant to the job, wait for truck to be unloaded and return to the plant) and a typical work day will often include deliveries to both public and private works of improvement; therefore, companies must implement a system that can divvy up each driver’s records on an hourly  basis to separate private and public work pay records.
  • Before furnishing concrete to a public works job, a ready-mix supplier must enter into a written agreement with its contractor customers, which specifically requires compliance with prevailing wage law (can a standard credit agreement and subsequent exchange of a written quotation, purchase order and/or invoice ever suffice???).
  • Within three working days after their drivers have been paid for the prevailing wage work, ready-mix suppliers must submit certified payroll records to their contractor customers and each project’s direct contractor (if that’s a different entity), accompanied by a written time record certified by the individual driver(s).
  • As with other subcontractors subject to prevailing wage laws, contractors are ultimately responsible for unpaid prevailing wages and unpaid penalties resulting from improper wage payment or improper certified payroll record submission; as such, public works contractors assume more risk as their ready-mix supply “subcontractors” attempt to abide by these new requirements after July 1, 2016.
  • Without a doubt, California has further complicated its already cumbersome regulatory scheme for public works.  Ready-mix suppliers must now gear up to navigate the complexities California prevailing wage law and contractors should double-check their standard form contracts to ensure they contemplate and properly allocated the new risks imposed by AB 219.

    For additional information and for F.A.Q., see the AB 219 Fact Sheet at http://www.calcima.org/pdf/AB219FactSheet.pdf

     

    For more information about this topic please contact:

    Ng-Chris-web

    Christopher E. Ng, Esq.

    Gibbs Giden Locher Turner Senet & Wittbrodt LLP

    1880 Century Park East 12th Floor

    Los Angeles, CA 90067

     

    email: cng@gibbsgiden.com

    The content contained herein is published online by Gibbs Giden Locher Turner Senet & Wittbrodt LLP (“Gibbs Giden”) for informational purposes only, may not reflect the most current legal developments, verdicts or settlements, and does not constitute legal advice. Do not act on the information contained herein without seeking the advice of licensed counsel.

    Copyright 2016 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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