New Law Brings Changes To Monitoring And Enforcement Of Prevailing Wage Compliance For Public Works Contracts

In an effort to address California’s budget crisis the California Legislature adopted and Governor Schwarzenegger signed into law Senate Bill 9 (SBX2-9). The goal of SBX2-9 is to provide government agencies who are involved in public works construction projects with substantial savings and to improve prevailing wage enforcement for such projects.

Prior to the passage of SBX2-9, California law required school districts, transit districts, cities, counties, and other government entities to either operate a labor compliance program (“LCP”) or contract with a third-party LCP to enforce prevailing wage requirements on certain bond-funded or design-build public works projects. In 2007, a report prepared by the Legislative Analyst’s Office found LCPs were costly and ineffective in recovering back wages and penalties. In response, a search for alternatives to the LCP system was launched and that search ultimately led to the new system implemented by SBX2-9.

Under the new system, government entities who undertake public works projects will pay a fee to the Department of Industrial Relations (“DIR”) for the enforcement of prevailing wage obligations. The DIR will determine the amount of fees to be paid and the fees will be deposited into the newly created State Public Works Enforcement Fund (“Fund”).

SBX2-9 establishes the Fund as a special fund in the State Treasury and specifically provides that the funds deposited “shall not be used or borrowed for any other purpose.” The DIR, subject to approval by the Director or Finance, is charged with the responsibility of determining and assessing a fee “on any awarding body using funds derived from any bond issued by the state to fund public works projects, in an amount not to exceed one-fourth of 1 percent of the bond proceeds.” (Emphasis added.)

The new system will not go into effect until after the DIR promulgates a regulatory and fee structure. For contracts awarded prior to the time when DIR adopts the new fee and regulatory schedule, government entities must continue to establish a LCP program or contract with a third-party to operate an LCP. According to a special notice concerning SBX2-9 issued by the DIR on April 17, 2009, the DIR anticipates completing the regulation and fee structure in early 2010. The DIR has assured it intends to give plenty of advance notice before the effective date of the new system. The new fee and monitoring system will only apply to those public works contracts that are awarded after the effective date of the regulatory and fee system.

SBX2-9 amends portions of the Education Code, Labor Code, Public Contract Code, and Government Code which require government agencies that are undertaking public works projects to operate an LCP or contract with a third-party to perform this service. After the DIR puts the new regulations and fee schedule in place, these agencies will be required to pay the applicable fee into the Fund.

Pursuant to the provisions of SBX2-9, the DIR may waive the fee if the awarding agency or government entity “has previously been granted approval by the director to initiate and operate a labor compliance program on the awarding body’s projects, and requests to continue to operate that labor compliance program in lieu of labor compliance by the [DIR].” The fee will not be waived if the awarding body “contracts with a third party to initiate and enforce labor compliance programs on the awarding body’s projects.” According to the DIR, this means from a practical standpoint “that bond funds will no longer be available to pay for the use of third party LCP.”

SBX2-9 also adds Section 8007 to the Water Code which provides the definition for “public works” for the purpose of the provisions of this bill includes “[a] capital improvement project undertaken by a charter city to extend that city’s water, sewer, or storm drain system or similar system to a disadvantage community in an unincorporated area” but does not include” any subsequent project to construct, expand, reconstruct, install, or repair such systems” within the city’s boundaries.


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Mona G. Ebrahimi, Bruce A. Scheidt, Laura Izon Powell, David W. Tyra or Diana D. Halpenny | 916.321.4500