Do you have the proper skilled and trained workforce for your construction projects? If you take on public-works projects in California, you may not be in compliance with new changes in the law.
Signed by Governor Jerry Brown in his last legislative session, AB 3018 dramatically increased the penalties for non-compliance with the existing skilled and trained workforce requirements in California. The new penalties include civil fines by the labor commissioner of up to $10,000 per month per non-compliant contractor, disqualification from bidding on future public-works contracts, and withholding of payment for delinquent contractors.
Who Needs to Comply
Existing California law (Public Contracts Code section 2600, et seq.) authorizes a public entity to require a bidder, contractor, or other entity to use a skilled and trained workforce to complete a contract or project, and requires that any commitment to use a skilled and trained workforce be included in an enforceable agreement that meets specified requirements discussed below.
Existing law requires all public-works contracts “relating to school facilities” and “design-build contracts” to comply with the aforementioned requirements. For other types of public-works contracts, if the contracting party is not listed on the bid as a contractor or subcontractor, and its total contract price is less than or equal to 0.5 percent of the prime contract, then it is not required to comply with the skilled-workforce percentages.
In addition, the contractor or subcontractor need not meet the requirements if, during the calendar month, it employs skilled journeypersons to perform fewer than 10 hours of work on the contract or project.
If the contract price exceeds 0.5 percent of the prime contract, and the contracting party is not required to be listed on the bid or proposal, then Labor Code section 1722.1 defines who is treated as a “contractor” and “subcontractor” as, “[A] contractor, subcontractor, licensee, officer, agent, or representative thereof, acting in that capacity, when working on public works pursuant to this article and Article 2.” Article 2 generally requires certain subcontractors who work on public-works projects to register with the labor commissioner.
Finally, if the contract price exceeds 0.5 percent of the prime contract and is required to be listed on the bid or proposal, then existing law generally requires these entities to comply with the skilled and trained workforce requirements.
There is not likely to be further clarification on which entities will be treated as “contractors” and “subcontractors” for the skilled and trained workforce requirements until the labor commissioner provides specifics once issues start to arise.
What Is a Skilled or
Contracts requiring skilled and trained workforces can be satisfied by:
- Employing the requisite percentage of apprenticeship graduates on a qualifying project; or
- Staffing apprenticeship graduates to meet the requisite percentage of hours on a qualifying project.
For the first option, the increasing apprenticeship graduation requirements for a public-works workforce are as follows: For 2017, 30 percent of the workforce must be graduates of an apprenticeship program for the applicable occupation; for 2018, the number increases to 40 percent; then 50 percent for 2019; and 60 percent for 2020.
Alternatively, the second option is satisfied if the percentage of hours performed by skilled journeypersons who meet the graduation requirement is at least equal to the required graduation percentage.
The apprenticeship graduation requirements can be satisfied by a union or merit-shop program, including those provided by the Associated General Contractors and Associated Builders & Contractors. These programs can be used by journeypersons who have not graduated from an approved apprenticeship program in order to test up or out of a traditional apprenticeship program. The programs still require the journeyperson to participate in, at minimum, a six-month apprenticeship program in order to receive certification for the trade.
Demonstrating Compliance and Penalties for Non-Compliance
Existing California law requires a successful bidder subject to the skilled and trained workforce requirements to provide monthly reports demonstrating compliance to the public agency or other awarding body.
AB 3018 provides that, as of Jan. 1, 2019, the public agency or other awarding body must forward a copy of the monthly report to the labor commissioner for issuance of a civil wage and penalty assessment, and a copy of the plan, if any, to achieve substantial compliance with skilled and trained workforce requirements.
AB 3018 grants the labor commissioner authority to investigate suspected violations of the skilled and trained workforce requirements and impose civil penalties up to $10,000 per month per non-compliant contractor. If violations are found to be willful, the contractor or subcontractor may be temporarily disqualified from bidding on public-works projects. Prior to AB 3018, enforcement of the skilled and trained workforce requirements was left to the awarding bodies with no specified penalties.
AB 3018 also empowers the public agency or awarding body, as well as the prime contractor, to withhold up to 150 percent of the value of the monthly billing for a non-compliant subcontractor that fails to timely submit the required information or does not demonstrate compliance.
Non-compliant prime contractors and subcontractors are subject to additional and onerous reporting requirements to the labor commissioner, including declarations as to the accuracy of the information provided, under penalty of perjury. Maintaining compliance with the skilled and trained workforce requirements will likely result in increased labor costs for contractors bidding on public-works contracts. Given the limited number of apprenticeship graduates in the journeyperson workforce, competition for those candidates with the required experience is expected to increase, putting additional upward pressure on labor costs. This is in addition to the already-limited number of qualified workers in the construction industry. In addition, increased penalties and enforcement for non-compliance will require additional investment into reporting and compliance work.
With the passage of AB 3018, contractors should invest additional resources into staffing and hiring decisions before submitting bids and proposals on public-works contracts requiring a skilled and trained workforce. Additional preparation well prior to submission of bids, including retaining qualified legal counsel in advance of preparing the bid, should ensure that contractors maintain compliance throughout the life of a project without being subject to the penalties and fines outlined in this article.