California law has long required employers to pay the prevailing wage rate during the construction, alteration, demolition, installation or repair of public facilities and on private projects receiving public funds. However, private nonprofit hospitals using bonds to fund construction haven’t fallen under the same umbrella. Similarly, prevailing wage was only required for those performing on-site construction work, and suppliers delivering materials to the project were exempt.
With the adoption of AB 219 and AB 852 two bills sponsored by the State Building and Construction Trades Council, the Legislature has changed those long-standing distinctions between public and private works, and when prevailing wages are required.
Prevailing Wage for Ready-Mixed Concrete Hauling
Under AB 219, sponsored by the State Building and Construction Trades Council, starting on July 1, 2016, the hauling of ready-mixed concrete to a public works project will be subject to prevailing wage. Although the concrete supplier has simply agreed to sell a product to the project, the supplier will be treated as a subcontractor, and will now be subject to all of the regulatory burdens and exposure to liability, including fines, penalties, and reporting requirements, of California’s prevailing wage laws. Because California law holds prime contractors jointly and severally liable for the payment of prevailing wages by subcontractors, it will also expand their regulatory burdens and exposure to liability relating to wages paid by their suppliers.
While the primary purpose may have been to ease the unionization of drivers hauling ready-mixed concrete, this bill will have a very significant impact on state and local budgets. For example, Caltrans estimates that AB 219 will increase its costs by up to $42 million annually, plus an additional $1 million related to monitoring compliance. It is also expected to have untold effects on other state and local entities that use concrete in construction, including the troubled High Speed Rail Authority, Department of Water Resources, Department of Corrections, and California’s school systems.
Prevailing Wage for Certain Private, Nonprofit Hospital Construction
The legislature made a similar change under AB 852, another bill sponsored by the State Building and Construction Trades Council, to reclassify certain types of private nonprofit hospital construction as “public works” requiring the payment of prevailing wage. Under California law, public and private projects paid in whole or in part out of public funds, including the receipt of financial support such as cash payments, rents, fee waivers, or loans, are deemed “public works.” Hospital construction is occasionally financed through “conduit bonds” issued by the state or local government, but the hospital is solely responsible for the payment of the debt service on the bonds and for maintaining the tax-exempt status of the bonds. Although no public funds flow to the hospital using conduit bond financing, at the behest of the State Building and Construction Trades Council, AB 852 reclassified conduit bonds as a type of public subsidy which constitutes payment “in whole or in part out of public funds,” rendering private nonprofit hospital construction using conduit bonds “public works” requiring payment of prevailing wages.
While AB 852 will have a minimal impact on the State’s finances, it will have a great impact upon the cost of private nonprofit hospital construction, including the construction and retrofit of hospitals to comply with the State’s heightened seismic standards for acute care facilities. The general public may ask why this bill was necessary.
AB 852 must be viewed within the larger context of the battles over the use of Project Labor Agreements on public and private projects. These agreements, which increase project costs upwards of 20%, typically require the use of union signatory contractors, use of only union workers, and payment into union trust funds as conditions of working on the project. For many years, private nonprofit hospital construction has been a target of the State Building and Construction Trades Council for Project Labor Agreements, and a key point of opposition has been the often dramatic increase in costs resulting from such agreements. Because the State Building and Construction Trades Council worked through the Legislature to legally mandate the payment of prevailing wages on private nonprofit hospital projects, hospital boards exercising their fiduciary duties can no longer can reject Project Labor Agreements based upon the increased labor costs a Project Labor Agreement will cause. The ultimate effect of AB 852 is to make it easier to pressure public nonprofit hospitals to adopt Project Labor Agreements as the financial concerns over much of the increased cost of construction from the restrictive agreements has been taken off the table.
For a look at the backstory of AB 852 and 825, visit Steve’s blog, Labor Law Today.
