AB 436 Clarifies Changes To Monitoring And Enforcement Of Prevailing Wage Compliance For Public Works Contracts

What This Means To You

After the effective date of regulations implementing AB 436, school districts awarding a public works contract and funded in whole or in part with state bond funds, will be subject to payment of a fee for prevailing wage compliance monitoring and enforcement by the Department of Industrial Relations, unless a collective bargaining agreement is in place that applies to all contractors for the project, or unless the public agency has received permission from the Department to continue to operate its own labor compliance program. Once the regulations are approved, the Department will conduct training and provide further information about payment of the fees.

AB 436 Becomes Effective January 1, 2012

California law requires that workers on public works projects be paid a prevailing wage as established by the Department of Industrial Relations (“DIR”). A body that awards a contract for a public works project must ensure compliance with this requirement. Prior to 2009, awarding bodies were encouraged to adopt and enforce a DIR-approved labor compliance program (“LCP”) to make sure that they met their obligation to pay a prevailing wage on all of their public works projects. The awarding bodies were required to use approved LCPs to ensure such compliance.

In 2009, the California Legislature adopted and the Governor signed into law Senate Bill 9 (SBX2-9), which implemented a new system pursuant to which government agencies that undertake public works projects would be required to pay a fee to the DIR for compliance monitoring and enforcement of prevailing wage obligations.

The DIR adopted regulations to implement SBX2-9. However, in October 2010, the DIR asked the Office of Administrative Law (“OAL”) to suspend operation of the Compliance Monitoring Unit (“CMU”) and operation of the regulations. According to the DIR, “It was necessary to take this action in order to allow sales of state public works construction bonds to continue while DIR addresses questions raised by another state agency concerning the legality of the CMU for bond-funded projects.” Proposed amendments to the regulations were submitted to the OAL for review on October 28, 2011. Upon approval of the regulations and fees, the new regulations are expected to become effective January 1, 2012.

The California Legislature passed Assembly Bill 436 (“AB 436”) on September 9, 2011, and Governor Brown approved the legislation on September 30, 2011. AB 436 will become effective on January 1, 2012. AB 436 is drafted to address the legal concerns that arose after the passage of SBX2-9. The new law does not alter the scope of public works projects for which prevailing wages must be paid.

Specifically, AB 436 provides that the DIR must monitor and enforce compliance with applicable prevailing wage requirements for any public works project paid for in whole or part out of public funds that are derived from state-issued bonds. Further, the DIR must adopt regulations to implement the requirements of AB 436, and the DIR, with the approval of the State Director of Finance, must determine the rate or rates the DIR “will charge to recover the reasonable and directly related costs of performing the monitoring and enforcement services.” Previously, under SBX2-9, the DIR could charge a flat fee instead of an amount reflecting its actual compliance monitoring and enforcement work on a specific project. Under AB 436, the DIR may not charge more than “one-fourth of 1 percent of the state bond proceeds used for the public works projects.”

Consistent with SBX2-9, AB 436 extends the requirement for fee-based monitoring by the CMU to public works projects funded by any state-issued public works construction project bond (including the Kindergarten University Public Education Facilities Bond Acts of 2002 and 2004), rather than only specified bonds. The obligation to pay the fee will apply to all contracts for public works projects that are awarded on or after January 1, 2012 and that are paid for, in whole or in part, from any state-issued public works bond, except public works projects subject to Public Resources Code section 75075. Fee-based monitoring by the CMU will also not be applicable to contracts for public works projects where (1) the awarding body enters into a collective bargaining agreement that binds all contractors performing work on the project and such agreement provides a mechanism for resolving wage disputes, or (2) the awarding body previously operated an approved LCP for all projects, has not contracted with a third party to operate the LCP, and receives approval from the DIR to continue its existing LCP.


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P. Addison Covert or Constantine C. Baranoff | 916.321.4500