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PRESS RELEASE

Daily Pacific Builder

“UNIONS 2002” EDITION

CEA Has Forged Legislative Partnership with Unions

By Terence J. Street, CEA Legislative Committee Chairman President, Roebbelen Contracting, Inc.

August 26, 2002

In the mid-90’s, when the public works prevailing wage system was being threatened at both the state and federal levels, CEA established its Building Industry Legislative Program at the urging of the Carpenters union. Since that time CEA has successfully sponsored and passed five bills for the betterment of the public and private unionized construction industry:

Public Works Legislation

During CEA’s first year in the legislative arena, CEA was successful in sponsoring SB 1328 (Senator James Brulte) (Prevailing Wage Violations) aimed at protecting general contractors from being held liable and penalized when subcontractors commit prevailing wage violations. Effective January 1, 1998, SB 1328 mandated that a prime contractor is not responsible for penalties due if a worker on a public works project is not paid the general prevailing per diem wages by the subcontractor, unless the prime contractor had knowledge of the wage violation or failed to perform certain duties specified in the bill. In the event a subcontractor is unable to pay its employees, the contractor will ultimately be held liable for wages; however, the Division of Labor Standards Enforcement (DLSE) will be required to exhaust all reasonable remedies to collect prevailing wage underpayments from the subcontractor before pursuing the claim for wages against the prime contractor. This measure also required the DLSE to notify the prime contractor on a public works project within 15 days from the date the DLSE receives a complaint against a subcontractor for alleged failure to pay workers the correct prevailing wage rates.

This law also made the subcontractor responsible to pay applicable penalties for its violations of Section 1776 of the Labor Code, specifying public works certified payroll requirements as well as its violations of Section 1813, addressing overtime.

An important by-product of our efforts to build consensus on this bill was the productive working relationship CEA forged legislatively that year with key labor organizations. We conducted numerous “negotiating sessions,” working closely with labor organizations, various subcontractor groups and various governmental agencies to gain widespread support for the measure.

This year CEA sponsored Assembly Bill 1448 (Assemblyman Ken Maddox) that was signed by Governor Davis on April 23, 2002 and will become law, effective January 1, 2003. This bill eliminates the December 31, 2002 “sunset” provisions contained in Labor Code Sections 1776 (certified payroll) and 1813 (overtime) adopted in SB 1328.

During negotiations with the Building Trades in 2000, CEA was successful in negotiating with the Building Trades several key related provisions in AB 1646. First, AB 1646 eliminated the December 31, 2002 “sunset” provision for Section 1775 (the most critical portion of the SB 1328), providing that a contractor may not be held liable for penalties for a subcontractor violation of prevailing wage laws if certain steps are taken. In addition, AB 1646 eliminated the application of Labor Code Section 203.5 for any demand made by the State for wages related to prevailing wage violations. Historically, contractors who disagreed with prevailing wage claims by the State have faced added assessments of up to thirty times the amounts due for wages and public works penalties, pursuant to 203.5. With the elimination of this section, contractors will have the ability to challenge exaggerated or inflated claims without excessive penalties.

“Owner Security” Legislation

CEA-sponsored Assembly Bill 1534 (Assemblyman John Longville) (Owner Security) became law on January 1, 2002. AB 1534 provides a significant level of financial protection for general contractors, subcontractors and construction workers in the event of a construction project owner default. Owners of construction projects with a contract value over $5 million (and over $1 million in some cases) are required to provide security in the form of a payment bond, an irrevocable letter of credit, or a construction security account to be used in the case of default. The provisions of this bill do not apply to the construction of single family residences and any specified associated fixed works, public works projects, housing developments eligible for a density bonus as specified, certain publicly-traded companies and qualified private companies as specified.

CEA sponsored AB 1534 to ensure the continued well-being of the California construction industry. The 1997 California Supreme Court’s Clarke vs. Safeco “pay-if-paid” ruling placed general contractors in serious financial jeopardy by requiring them to act as guarantors of a construction owner’s financial obligations. The owner security requirements provided for in AB 1534 ensure that the party who benefits from the work performed, the owner, has sufficient funding to satisfy its payment obligations.

Earlier this year, in order to encourage compliance with this new law, CEA promulgated a "toolbox" of form documents for each of the three types of owner security provided for in the new law. Electronic versions of these "toolbox" documents along with a brief explanation of each have been posted to CEA’s website (www.cea-ca.org). These documents include sample provisions to be included in a construction contract providing for the owner to deliver a payment bond or letter of credit to the contractor as security or for the owner and contractor to establish a construction security escrow account as a means of providing security; a sample of a letter of credit that satisfies the requirements of the CEA suggested contract language; and a sample form of Escrow Agreement designed to work with the CEA suggested contract language. These forms were designed to be "middle of the road," attempting to balance the legitimate interests of both owners and contractors.

Other CEA Sponsored Legislation

Another CEA-sponsored bill during our inaugural legislative year was AB 1537 (Assemblyman Mike Machado) (School Construction Inspectors) which focused on ensuring that school inspectors are qualified. Effective January 1, 1998, the new law required the Department of General Services to provide training on an ongoing basis to school construction inspectors and required inspectors to demonstrate their competency by passing a thorough written examination. Inspectors must also be re-certified through the use of a written examination every three years. This measure also ensured that the school construction inspector is solely responsible to the governing board of the construction project for employment purposes and the Department of General Services for enforcement purposes.

Another bill sponsored by CEA, AB 1314 (Assemblyman Anthony Pescetti) (Public Works – Design Liability), passed out of the legislature and was signed into law by Governor Davis. Effective January 1, 2000, AB 1314 specifies that local public entities may not hold contractors responsible for the completeness and accuracy of architectural and engineering plans and specifications on public works projects, except on clearly designated design build projects. CEA sponsored AB 1314 in response to trends by public agencies to utilize contract provisions to transfer design liability from architects to general contractors. These contract provisions run counter to the long-standing division of responsibilities on construction projects which was formally recognized by the U.S. Supreme Court in The United States v. Spearin, 248 U.S. 132 (1918).

Appreciation for Working Relationship with Construction Unions

A key factor behind the success of CEA’s legislative program is our willingness to work with organized labor to help improve the unionized construction industry as a whole. While it is not always possible to reach consensus on every legislative proposal, we have been successful in working with labor to address items of interest to our respective organizations. Establishing this type of cooperative relationship between labor and management is especially crucial during economic downturns. By working together with labor, the CEA believes that we can effectively strengthen and solidify the unionized construction industry in California even in these tough economic times.