Existing law defines a skilled and trained workforce to mean a workforce that meets certain conditions for when a public entity is required by statute or regulation to obtain an enforceable commitment that a bidder, contractor, or other entity will use a skilled and trained workforce to complete a contract or project. Existing law also authorizes a public entity to require that a bidder, contractor, or other entity use a skilled and trained workforce to complete a contract or project.

This bill would revise the definition of a skilled and trained workforce to exclude from the conditions work performed on or after specified dates, in certain occupations.

Existing law defines a skilled and trained workforce to mean a workforce that meets certain conditions for when a public entity is required by statute or regulation to obtain an enforceable commitment that a bidder, contractor, or other entity will use a skilled and trained workforce to complete a contract or project. Existing law also authorizes a public entity to require that a bidder, contractor, or other entity use a skilled and trained workforce to complete a contract or project.

This bill would revise the definition of a skilled and trained workforce to exclude from the conditions work performed on or after specified dates, in certain occupations.

Existing law defines a skilled and trained workforce to mean a workforce that meets certain conditions for when a public entity is required by statute or regulation to obtain an enforceable commitment that a bidder, contractor, or other entity will use a skilled and trained workforce to complete a contract or project. Existing law also authorizes a public entity to require that a bidder, contractor, or other entity use a skilled and trained workforce to complete a contract or project.

This bill would revise the definition of a skilled and trained workforce to exclude from the conditions work performed on or after January 1, 2018, specified dates, in specified certain occupations.

Existing law requires that, except as specified, not less than the general prevailing rate of per diem wages, determined by the Director of Industrial Relations, be paid to workers employed on public works projects. Existing law defines public works to include, among other things, construction, alteration, demolition, installation, or repair work done under contract and paid for, in whole or in part, out of public funds, but exempts from that definition, among other projects, an otherwise private development project if the state or political subdivision provides, directly or indirectly, a public subsidy to the private development project that is de minimis in the context of the project.

This bill would provide that a public subsidy is de minimis if it is both less than $275,000, and less than 2% of the total project cost. The bill would specify that those provisions do not apply to a project that was advertised for bid, or a contract that was awarded, before July 1, 2018.

 UNFINISHED BUSINESS 

Bill No: SB 418

Author: Hernandez (D)

Amended: 6/28/17

Vote: 21

PRIOR SENATE VOTES NOT RELEVANT

SENATE LABOR & IND. REL. COMMITTEE: 5-0, 8/30/17 (Pursuant to Senate Rule 29.10)

AYES: Bradford, Stone, Atkins, Jackson, Mitchell

ASSEMBLY FLOOR: 75-0, 8/24/17 - See last page for vote

SUBJECT: Public contracts: skilled and trained workforce

SOURCE: State Building and Construction Trades Council

DIGEST:

This bill revises the existing definition of “skilled and trained workforce” to specify that on or after January 1, 2018, the 40, 50 and 60 percentage graduation rate of skilled journeypersons required for work in specified contracts shall not apply to work performed in the following occupations: acoustical installer, bricklayer, carpenter, cement mason, drywall installer or lather, marble mason, finisher, or setter, modular furniture or systems installer, operating engineer, pile driver, plasterer, roofer or waterproofer, stone mason, surveyor, teamster, terrazzo worker or finisher, and tile layer, setter, or finisher.

Assembly Amendments

gut and amend this bill’s original subject matter dealing with de minimis costs on public works projects and replace it with the issue of public contracts and the utilization of a skilled and trained workforce.

ANALYSIS:

Existing law:

1. Authorizes a public entity to require that a bidder, contractor, or other entity use a skilled and trained workforce to complete a specified contract or project within an apprenticeable occupation in the building and construction trades, as specified. (Health and Safety Code §25536.7, Education Code §17250.25 and §17407.5, Public Contract Code §10191, §22164, §20119-20119.7, and §20155-20155.9)
2. Defines an “apprenticeable occupation” as one for which the Chief of the Division of Apprenticeship Standards (DAS) has approved an apprenticeship program in the building and construction trades, as specified. (Public Contract Code §20119.1, §20155.2, §2601 and Labor Code §3075, among others).
3. Defines a “skilled journeyperson” as a worker who either:
   1. Graduated from an apprenticeship program for the applicable occupation that was approved by the chief or located outside California and approved for federal purposes pursuant to federal apprenticeship regulations.
   2. Has at least as many hours of on-the-job experience in the applicable occupation as would be required to graduate from an apprenticeship program, as specified.
4. Defines a “skilled and trained workforce” as a workforce that meets specified conditions, including the following, among others (Public Contract Code §2601):
   1. All the workers performing work in an apprenticeable occupation in the building and construction trades are either skilled journeypersons or apprentices registered in an apprenticeship program approved by the chief of DAS.
   2. For work performed on or after January 1, 2017, at least 30 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

For work performed on or after January 1, 2018, at least 40 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

For work performed on or after January 1, 2019, at least 50 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

For work performed on or after January 1, 2020, at least 60 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

This bill revises the definition of “skilled and trained workforce” to specify that on or after January 1, 2018, the 40, 50 and 60 percentage graduation rate of skilled journeypersons required for work in specified contracts shall not apply to work performed in the following occupations: acoustical installer, bricklayer, carpenter, cement mason, drywall installer or lather, marble mason, finisher, or setter, modular furniture or systems installer, operating engineer, pile driver, plasterer, roofer or waterproofer, stone mason, surveyor, teamster, terrazzo worker or finisher, and tile layer, setter, or finisher.

Background

California’s Apprenticeship System. State‐registered apprenticeship is a unique and important component of California’s workforce development system. Apprenticeship is a system of learning while earning, and "learning by doing." It combines training on the job with related and supplemental instruction at school. Apprenticeship programs are administered by DAS, within the Department of Industrial Relations (DIR). DAS annually awards completion certificates to the graduates of the 611 currently active apprenticeship programs in more than 500 occupations. According to the DAS apprentice statistics for the quarter ending on December 31, 2016, there were 74,441 active apprentices of whom 4,997 were new registrations and reinstatements. Of note, of the total number of active apprentices, 4,683 are women (6.3%), 63 percent are represented by minorities and 4,893 are veteran apprentices.

Skilled and Trained Workforce. Under the Public Contract Code, a “skilled and trained workforce” is defined as a workforce where all the workers performing work in an apprenticeable occupation in the building and construction trades are either skilled journeypersons or apprentices registered in an apprenticeship program approved by the chief. A skilled journeyperson is defined as a worker who either graduated from an apprenticeship program for the applicable occupation that was approved by DAS or located outside California and approved for federal purposes pursuant to the apprenticeship regulations adopted by the federal Secretary of Labor, or has at least as many hours of on-the-job experience in the applicable occupation as would be required to graduate from an apprenticeship program for the applicable occupation that is approved by DAS.

Existing law requires that not less than the general prevailing wage rate of per diem wages, as determined by the Director of DIR, be paid to all workers employed on a “public works” project costing more than $1,000. The prevailing wage rate is the basic hourly rate paid on public works projects to a majority of workers engaged in a particular craft, classification or type of work within the locality and in the nearest labor market area. Existing law defines "public works" as construction, alteration, demolition, installation or repair work done under contract and "paid for in whole or in part out of public funds." (Labor Code §1720)

Comments

Author statement. According to the author, this bill eases compliance with the skilled and trained workforce requirements for contractors and public agencies on public works projects using alternative delivery methods by excluding certain crafts from the percentage increases specified in the Public Contract Code. Further, under the amendments, no apprenticeship graduation percentage requirement will apply to work performed in the occupation of teamster.

Additionally, the author states that the apprenticeship graduation requirement of 30 percent (rather than the progressively increasing graduation percentage requirements scheduled to begin on January 1, 2018) will continue to apply to work performed after January 1, 2018, in certain listed occupations. In all other apprenticeable occupations, the graduation percentages will increase from 30 percent to 40 percent on January 1, 2018, to 50 percent on January 1, 2019, and to 60 percent on January 1, 2020.

According to the author, maintaining the 30 percent graduation percentage requirement for certain listed occupations will allow newly hired/recruited apprentices the opportunity to finish their training in order to qualify as "skilled and trained" workers. In addition, the author states that the building trades unions have ramped up their organizing activities to attract more workers into their apprenticeship programs to get trained, but also so they qualify for projects where skilled and trained workers are needed. That organizing activity has targeted all groups of prospective apprentices including among others, veterans, women, disadvantaged youth, and the formerly incarcerated. The author also notes that the number of apprentices in state approved apprenticeship programs now stands over 70,000 and since 2013 the number of active apprentices has grown by over 15,000. The joint labor/management apprenticeship system continues to graduate apprentices and is working to meet the increasing demand for skilled workers.

Related/Prior Legislation

SB 693 (Hueso, Chapter 774, Statutes of 2016), among other things, consolidated the skilled and trained workforce requirements of various provisions of existing law, related to alternative construction delivery methods, and defined the terms of these requirements.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Assembly Appropriations Committee, there are no additional state costs associated with this bill.

SUPPORT: (Verified 8/29/17)

State Building and Construction Trades Council (source)

Air Conditioning Sheet Metal Association

Air Conditioning & Refrigeration Contractors Association

Bricklayers & Allied Craft Workers

California District Council of Ironworkers

California District Council of Roofers/Waterproofers

California Labor Federation, AFL-CIO

California Legislative Conference of the Plumbing, Heating and Piping Industry

California Pipe Trades Council

California State Association of Electrical Workers

California State Council of Laborers

California Teamsters Public Affairs Council

California/Nevada Conference of Operating Engineers

Finishing Contractors Association of Southern California

International Union of Elevator Constructors

International Union of Painters & Allied Crafts

National Electrical Contractors Association, California Chapters

Northern California Allied Trades

State Conference of Plasterers & Cement Masons

United Contractors

Wall and Ceiling Alliance

Western States Council of Sheet Metal Workers

OPPOSITION: (Verified 8/29/17)

None received

ARGUMENTS IN SUPPORT: According to the bill’s sponsor, the State Building and Construction Trades Council, current law applying to the design-build, best-value and lease-leaseback delivery methods requires contractors and sub-contractors at every tier to employ a "skilled and trained workforce" defined as journeypersons who have graduated from state-approved apprenticeship programs. They require the percentages of a skilled and trained workforce to be: 30% in 2017, 40% in 2018, 50% in 2019, 60% in 2020. These requirements ensure that a high level of competency will be required of the workers who actually build these projects, which in turn results in the public agencies and taxpayers receiving the highest quality of construction and hiring of graduates of regional apprenticeship programs/California residents.

The sponsor argues that SB 418 will ease compliance with those requirements by maintaining the skilled and trained workforce graduation percentage requirement at 30% for the listed construction crafts after January 1, 2018, rather than increasing the percentage to 40%, 50%, and 60%. The change, they argue, allows apprentices currently receiving training in state-approved programs to finish their training and become qualified workers. Additionally, they note that union apprenticeship programs are accepting many new apprentices to meet the needs of the economy and the industry.

ASSEMBLY FLOOR: 75-0, 8/24/17

AYES: Acosta, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Calderon, Cervantes, Chau, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Aguiar-Curry, Travis Allen, Choi, Harper

Prepared by: Alma Perez-Schwab / L. & I.R. / (916) 651-1556

8/30/17 14:24:00

**** END ****

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Steven Bradford, Chair

2017 - 2018 Regular

Bill No: SB 418 Hearing Date: August 30, 2017

Subject: Public contracts: skilled and trained workforce

KEY ISSUE

Should the Legislature delay an incremental percentage increase to 40%, 50% and 60% for the hiring of a “skilled and trained workforce” on certain public contracts to allow more time for the graduation of apprentices?

ANALYSIS

Existing law:

1. Authorizes a public entity to require that a bidder, contractor, or other entity use a skilled and trained workforce to complete a specified contract or project within an apprenticeable occupation in the building and construction trades, as specified. (Health and Safety Code §25536.7, Education Code §17250.25 and §17407.5, Public Contract Code §10191, §22164, §20119-20119.7, and §20155-20155.9)
2. Defines an “apprenticeable occupation” as one for which the Chief of the Division of Apprenticeship Standards (DAS) has approved an apprenticeship program in the building and construction trades, as specified. (Public Contract Code §20119.1, §20155.2, §2601 and Labor Code §3075, among others).
3. Defines a “skilled journeyperson” as a worker who either:
   1. Graduated from an apprenticeship program for the applicable occupation that was approved by the chief or located outside California and approved for federal purposes pursuant to federal apprenticeship regulations.
   2. Has at least as many hours of on-the-job experience in the applicable occupation as would be required to graduate from an apprenticeship program, as specified.
4. Defines a “skilled and trained workforce” as a workforce that meets specified conditions, including the following, among others (Public Contract Code §2601).
   1. All the workers performing work in an apprenticeable occupation in the building and construction trades are either skilled journeypersons or apprentices registered in an apprenticeship program approved by the chief of DAS.
   2. (A) For work performed on or after January 1, 2017, at least 30 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

(B) For work performed on or after January 1, 2018, at least 40 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

(C) For work performed on or after January 1, 2019, at least 50 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

(D) For work performed on or after January 1, 2020, at least 60 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

This bill:

1. Revises the definition of “skilled and trained workforce” to specify that on or after January 1, 2018, the 40, 50 and 60 percentage graduation rate of skilled journeypersons required for work in specified contracts shall not apply to work performed in the following occupations: acoustical installer, bricklayer, carpenter, cement mason, drywall installer or lather, marble mason, finisher, or setter, modular furniture or systems installer, operating engineer, pile driver, plasterer, roofer or waterproofer, stone mason, surveyor, teamster, terrazzo worker or finisher, and tile layer, setter, or finisher.

COMMENTS

1. Background on California’s Apprenticeship System:

State‐registered apprenticeship is a unique and important component of California’s workforce development system. Apprenticeship is a system of learning while earning, and "learning by doing." It combines training on the job with related and supplemental instruction at school. Apprenticeship programs are administered by the Division of Apprenticeship Standards (DAS), within the Department of Industrial Relations (DIR), with the primary responsibilities of promoting and developing apprenticeship training programs, the improvement of working conditions for apprentices, and the advancement of subsequent employment opportunities for apprentices. DAS monitors apprentice wages, hours, working conditions, learning of skills, length of training, and required supplemental classroom instruction resulting in a healthy rate of program graduations for all apprentices, including women and ethnic minorities. Through these efforts, the retiring skilled workforce is replenished with new skilled workers to keep California’s economic engine running strong.

DAS annually awards completion certificates to the graduates of the 611 currently active apprenticeship programs in more than 500 occupations. According to the DAS, apprentice statistics for the quarter ending on December 31, 2016, there were 74,441 active apprentices of whom 4,997 were new registrations and reinstatements. Of note, of the total number of active apprentices, 4,683 are women (6.3%), 63 percent are represented by minorities and 4,893 are veteran apprentices.

2. Background on Skilled and Trained Workforce:

Under the Public Contract Code, a “skilled and trained workforce” is defined as a workforce where all the workers performing work in an apprenticeable occupation in the building and construction trades are either skilled journeypersons or apprentices registered in an apprenticeship program approved by the chief. Apprenticeable occupation means an occupation for which the Chief of the Division of Apprenticeship Standards (DAS) has approved an apprenticeship program pursuant to Labor Code §3075.

A skilled journeyperson is defined as a worker who either graduated from an apprenticeship program for the applicable occupation that was approved by DAS or located outside California and approved for federal purposes pursuant to the apprenticeship regulations adopted by the federal Secretary of Labor, or has at least as many hours of on-the-job experience in the applicable occupation as would be required to graduate from an apprenticeship program for the applicable occupation that is approved by DAS.

Existing law requires that not less than the general prevailing wage rate of per diem wages, as determined by the director of the Department of Industrial Relations (DIR), be paid to all workers employed on a “public works” project costing more than $1,000. The prevailing wage rate is the basic hourly rate paid on public works projects to a majority of workers engaged in a particular craft, classification or type of work within the locality and in the nearest labor market area. Existing law defines "public works" as construction, alteration, demolition, installation or repair work done under contract and "paid for in whole or in part out of public funds." (Labor Code §1720)

3. Author statement:

According to the author, this bill eases compliance with the skilled and trained workforce requirements for contractors and public agencies on public works projects using alternative delivery methods by excluding certain crafts from the percentage increases specified in the Public Contract Code. Further, under the amendments, no apprenticeship graduation percentage requirement will apply to work performed in the occupation of teamster.

Additionally, the author states that the apprenticeship graduation requirement of 30 percent (rather than the progressively increasing graduation percentage requirements scheduled to begin on January 1, 2018) will continue to apply to work performed after January 1, 2018 in certain listed occupations. In all other apprenticeable occupations, the graduation percentages will increase from 30 percent to 40 percent on January 1, 2018, to 50 percent on January 1, 2019, and to 60 percent on January 1, 2020.

According to the author, maintaining the 30 percent graduation percentage requirement for certain listed occupations will allow newly hired/recruited apprentices the opportunity to finish their training in order to qualify as "skilled and trained" workers. In addition, the author states that the building trades unions have ramped up their organizing activities to attract more workers into their apprenticeship programs to get trained, but also so they qualify for projects where skilled and trained workers are needed. That organizing activity has targeted all groups of prospective apprentices including among others, veterans, women, disadvantaged youth, and the formerly incarcerated. The author also notes that the number of apprentices in state approved apprenticeship programs now stands over 70,000 and since 2013 the number of active apprentices has grown by over 15,000. The joint labor/management apprenticeship system continues to graduate apprentices and is working to meet the increasing demand for skilled workers.

4. Proponent Arguments:

According to the sponsors of the measure, the State Building and Construction Trades Council, current law applying to the design-build, best-value and lease-leaseback delivery methods requires contractors and sub-contractors at every tier to employ a "skilled and trained workforce" defined as journeypersons who have graduated from state-approved apprenticeship programs. They require the percentages of a skilled and trained workforce to be: 30% in 2017, 40% in 2018, 50% in 2019, 60% in 2020. These requirements ensure that a high level of competency will be required of the workers who actually build these projects, which in turn results in the public agencies and taxpayers receiving the highest quality of construction and hiring of graduates of regional apprenticeship programs/California residents.

The sponsors argue that SB 418 will ease compliance with those requirements by maintaining the skilled and trained workforce graduation percentage requirement at 30% for the listed construction crafts after January 1, 2018, rather than increasing the percentage to 40%, 50%, and 60%. The change, they argue, allows apprentices currently receiving training in state-approved programs to finish their training and become qualified workers. Additionally, they note that union apprenticeship programs are accepting many new apprentices to meet the needs of the economy and the industry.

5. Opponent Arguments:

None received.

6. Support if Amended:

A coalition letter from the Western Electrical Contractors Association (WECA), Plumbing-Heating-Cooling Contractors Association of California (CAPHCC), the California Chapters of American Fire Sprinkler Association (AFSA), Independent Roofing Contractors of California, Inc., and the San Diego, Southern California and Central California chapters of Associated Builders and Contractors, write in support of Senate Bill 418 if it is amended. They are seeking amendments that would expand on the crafts that have caps on graduation requirements which they believe reflect that state certified journey persons are “skilled and trained,” and grant relief to rural cities, counties and other public agencies who are struggling to find local contractors who can qualify with local workers.

7. Prior Legislation:

SB 693 (Hueso), Chapter 774, Statutes of 2016: Among other things, SB 693 consolidated the skilled and trained workforce requirements of various provisions of existing law, related to alternative construction delivery methods, and defined the terms of these requirements.

SUPPORT

State Building and Construction Trades Council (Sponsor)

Air Conditioning Sheet Metal Association

Air Conditioning & Refrigeration Contractors Association

Bricklayers & Allied Craft Workers

CA District Council of Roofers/Waterproofers

California District Council of Ironworkers

California Labor Federation, AFL-CIO

California Legislative Conference of the Plumbing, Heating and Piping Industry

California Pipe Trades Council

California State Association of Electrical Workers

California State Council of Laborers

California Teamsters Public Affairs Council

California/Nevada Conference of Operating Engineers

Finishing Contractors Association of Southern California

International Union of Elevator Constructors

International Union of Painters & Allied Crafts

National Electrical Contractors Association, California Chapters

Northern California Allied Trades

State Conference of Plasterers & Cement Masons

United Contractors

Wall and Ceiling Alliance

Western States Council of Sheet Metal Workers

OPPOSITION

None received

SUPPORT IF AMENDED

American Fire Sprinkler Association, California Chapters

Associated Builders and Contractors, San Diego, Southern and Central California Chapters

Independent Roofing Contractors of California, Inc.

Plumbing-Heating-Cooling Contractors Association of California

Western Electrical Contractors Association

-- END --

SENATE THIRD READING

STR Bill Id:SB 418

Author:(Hernandez)

As Amended Ver:June 28, 2017

Majority vote

SENATE VOTE: 27-10

SUMMARY: Revises the definition of "skilled and trained workforce" to exclude, from certain conditions, the work performed by specified occupations. Specifically, this bill:

1. Excludes work performed by teamsters from the requirement that, beginning on January 1, 2017, at least 30% of skilled journeypersons employed to perform work on a project are graduates of an apprenticeship program, as defined.
2. Excludes work performed by other specified occupations from the requirement that, beginning on January 1, 2018, at least 40% of skilled journeypersons are graduates from an apprenticeship program, as defined and excludes these same occupations from subsequent years' increases in that percentage. Excluded occupations include: acoustical installer, bricklayer, carpenter, cement mason, drywall installer or lather, marble mason, finisher, or setter, modular furniture or systems installer, operating engineer, pile driver, plasterer, roofer or waterproofer, stone mason, surveyor, teamster, terrazzo worker or finisher, and tile layer, setter, or finisher.

FISCAL EFFECT: According to the Assembly Appropriations Committee, no additional state costs.

COMMENTS: The author asserts that, this bill eases compliance with the skilled and trained workforce requirements for contractors and public agencies on public works projects using alternative delivery methods by excluding certain crafts from the percentage increases specified in the Public Contract Code. The technical change also allows newly hired/recruited apprentices the opportunity to finish their training in order to qualify as "skilled and trained" workers. The author points out that, in addition, the building trades unions have ramped up their organizing activities to attract more workers into their apprenticeship programs to get trained, but also so they qualify for projects where skilled and trained workers are needed. That organizing activity has targeted all groups of prospective apprentices including among others, veterans, women, disadvantaged youth, and the formerly incarcerated. The author also points out the number of apprentices in state approved apprenticeship programs now stands over 70,000 and since 2013 the number of active apprentices has grown by over 15,000. The joint labor/management apprenticeship system continues to graduate apprentices and is working to meet the increasing demand for skilled workers.

Arguments in Support

The State Building and Construction Trades Council is the sponsor of this measure and writes in support, "Current law applying to the design-build, best-value and lease-leaseback delivery methods requires contractors and sub-contractors at every tier to employ a "skilled and trained workforce" defined as journeypersons who have graduated from state-approved apprenticeship programs. They require the percentages of a skilled and trained workforce to be: 20% in 2016, 30% in 2017, 40% in 2018, 50% in 2019, 60% in 2020. These requirements ensure that a high level of competency will be required of the workers who actually build these projects, which in turn results in the public agencies and taxpayers receiving the highest quality of construction and hiring of graduates of regional apprenticeship programs/California residents. SB 418 will ease compliance with those requirements by maintaining the skilled and trained workforce percentage at 30 for the listed construction crafts. The change also allows apprentices currently receiving training in state-approved programs to finish their training and become qualified workers. Union apprenticeship programs are accepting many new apprentices to meet the needs of the economy and the industry."

The Air Conditioning Sheet Metal Association, the Air-conditioning & Refrigeration Contractors Association, the California Chapters of the National Electrical Contractors Association, the California Legislative Conference of the Plumbing, Heating and Piping Industry, the Finishing Contractors Association of Southern California, the Northern California Allied Trades, the United Contractors and the Wall and Ceiling Alliance write in support, "The skilled and trained workforce requirement ensures that public agencies receive the highest quality construction project possible, by requiring that a high percentage of the workers who are actually constructing their projects have graduated from a state approved apprenticeship program. This policy encourages the future development of skilled construction workers and provides an incentive for state funded apprenticeship programs to graduate apprentices. SB 418 builds on this successful program, by allowing a few building crafts additional time to best develop their apprenticeship programs to meet the rising needs of the industry for skilled and trained workers."

The California Professional Association of Specialty Contractors (CALPASC) supports if amended and writes, "CALPASC members understand the intent of this bill, to exclude crafts from the requirement to comply with Section 2601 of the Public Contract Code. CALPASC believes that the list is incomplete. Many other crafts should be added to the excluded crafts. These include the plumbing, painting, electrical, and many other crafts. CALPASC believes that there should not be a division between certain crafts for the protection of this bill. The bill should be amended to include all these other crafts."

Arguments in Opposition

None on file.

Analysis Prepared by: Taylor Jackson / L. & E. / 916-319-2091 FN: 0001298

Date of Hearing: July 19, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 418

Author:(Hernandez) – As Amended Ver:June 28, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill revises the definition of “skilled and trained workforce” in the Public Contract Code to exclude, from certain conditions, the work performed by specified occupations. Specifically, this bill:

1. Excludes work performed by teamsters from the requirement that, beginning on January 1, 2017, at least 30% of skilled journeypersons employed to perform work on a project are graduates of an apprenticeship program, as defined.
2. Excludes work performed by other specified occupations from the requirement that, beginning on January 1, 2018, at least 40% of skilled journeypersons are graduates from an apprenticeship program, as defined and excludes these same occupations from subsequent years’ increases in that percentage. Excluded occupations include: acoustical installer, bricklayer, carpenter, cement mason, drywall installer or lather, marble mason, finisher, or setter, modular furniture or systems installer, operating engineer, pile driver, plasterer, roofer or waterproofer, stone mason, surveyor, teamster, terrazzo worker or finisher, and tile layer, setter, or finisher.

FISCAL EFFECT:

No additional state costs.

COMMENTS:

1. Background. Existing law authorizes a public entity to require that a bidder, contractor, or other entity use a “skilled and trained workforce” to complete a contractor or project. Projects with this requirement must have those individuals who are performing work in an apprenticeable occupation be either skilled journeypersons or apprentices registered in an apprenticeship program. Moreover, state law also requires that a share of the skilled journeypersons working on the contract must be graduates from a state-approved apprenticeship program. That share increases from 30% in 2017 to 50% by 2020. Thus, over time these affected contracts will have a greater share of workers coming from state-approved apprenticeship programs.
2. Alternative project delivery methods. The design-build, lease-leaseback, and “best value” procurement methods require the use of a skilled and trained workforce for certain public works projects. These methods differ from the traditional “design-bid-build” procurement method, and these methods are designed to better involve builders into the design phase. Various statutes have promoted these methods and put in place a skilled workforce requirement for projects utilizing them. Recent bills include SB 693 (Hueso), Chapter 774, Statutes of 2016, which consolidated skilled and trained workforce requirements for these types of projects, and SB 785 (Wolk), Chapter 785, Statutes of 2014, which provided for a general authorization for the design-build method to be utilized by the Department of General Services, Department of Corrections, cities, counties, special districts, and transit districts.
3. Purpose. According to supporters, SB 418 will ease compliance for contractors and public agencies and allow for the further development of apprenticeship programs. This bill will ease the requirements for a skilled and trained workforce by halting the rising share of skilled journeypersons that must come from apprenticeship programs for some occupations.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: July 5, 2017

ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT

Tony Thurmond, Chair

SBPCA Bill Id:SB 418

Author:(Hernandez) – As Amended Ver:June 28, 2017

SENATE VOTE: 27-10

SUBJECT: Public contracts: skilled and trained workforce

SUMMARY: Revises the definition of a skilled and trained workforce, to exclude from certain conditions work performed on or after January 1, 2018 in the following occupations: acoustical installer, bricklayer, carpenter, cement mason, drywall installer or lather, marble mason, finisher, or setter, modular furniture or systems installer, operating engineer, pile driver, plasterer, roofer or waterproofer, stone mason, surveyor, teamster, terrazzo worker or finisher, and tile layer, setter, or finisher. Additionally, specifies that this requirement shall not apply to work performed in the occupation of teamster.

EXISTING LAW:

1. Defines a “skilled and trained workforce” to mean a workforce that meets certain conditions for when a public entity is required by statute or regulation to obtain an enforceable commitment that a bidder, contractor, or other entity will use a skilled and trained workforce to complete a contract or project.
2. Authorizes a public entity to require that a bidder, contractor, or other entity use a skilled and trained workforce to complete a contract or project.
3. Provides that to meet the definition of a “skilled and trained workforce”, a workforce shall meet certain provisions, as specified.
   1. All the workers performing work in an apprenticeable occupation in the building and construction trades are either skilled journeypersons or apprentices registered in an apprenticeship program approved by the chief.
   2. For work performed on or after January 1, 2017, at least 30 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation. 
   3. For work performed on or after January 1, 2018, at least 40 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.
   4. For work performed on or after January 1, 2019, at least 50 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation. 
   5. For work performed on or after January 1, 2020, at least 60 percent of the skilled journeypersons employed to perform work on the contract or project by every contractor and each of its subcontractors at every tier are graduates of an apprenticeship program for the applicable occupation.

FISCAL EFFECT: Unknown

COMMENTS: The author asserts that, this bill eases compliance with the skilled and trained workforce requirements for contractors and public agencies on public works projects using alternative delivery methods by excluding certain crafts from the percentage increases specified in the Public Contract Code. The technical change also allows newly hired/recruited apprentices the opportunity to finish their training in order to qualify as "skilled and trained" workers.

The author points out that, in addition, the building trades unions have ramped up their organizing activities to attract more workers into their apprenticeship programs to get trained, but also so they qualify for projects where skilled and trained workers are needed. That organizing activity has targeted all groups of prospective apprentices including among others, veterans, women, disadvantaged youth, and the formerly incarcerated.  The author also points out
the number of apprentices in state approved apprenticeship programs now stands over 70,000 and since 2013 the number of active apprentices has grown by over 15,000. The joint labor/management apprenticeship system continues to graduate apprentices and is working to meet the increasing demand for skilled workers. 

Background on Skilled and Trained Workforce

Under the public contract code skilled and trained workforce means a workforce where all the workers performing work in an apprenticeable occupation in the building and construction trades are either skilled journeypersons or apprentices registered in an apprenticeship program approved by the chief. Apprenticeable occupation means an occupation for which the Chief of the Division of Apprenticeship Standards (DAS) of the Department of Industrial Relations (DIR) had approved an apprenticeship program.

A skilled journeyperson is defined as a worker who either graduated from an apprenticeship program for the applicable occupation that was approved by DAS or located outside California and approved for federal purposes pursuant to the apprenticeship regulations adopted by the federal Secretary of Labor, or has at least as many hours of on-the-job experience in the applicable occupation as would be required to graduate from an apprenticeship program for the applicable occupation that is approved by DAS.

Workers on public works projects must be paid the general prevailing rate of per diem as determined by the Director of DIR. Existing law defines public works to include, construction, alteration, demolition, or repair work done under contract and paid for, in whole or in part, out of public funds.

Arguments in Support

The State Building and Construction Trades Council is the sponsor of this measure and writes in support, “This bill makes technical changes to the skilled and trained workforce requirements in the Public Contract Code that will ease compliance for contractors and public agencies on public works projects using alternative delivery methods by excluding certain crafts from the percentage increases specified in the Public Contract Code. Current law applying to the design-build, best-value and lease-leaseback delivery methods requires contractors and sub-contractors at every tier to employ a “skilled and trained workforce” defined as journeypersons who have graduated from state-approved apprenticeship programs. They require the percentages of a skilled and trained workforce to be: 20% in 2016, 30% in 2017, 40% in 2018, 50% in 2019, 60% in 2020. These requirements ensure that a high level of competency will be required of the workers who actually build these projects, which in turn results in the public agencies and taxpayers receiving the highest quality of construction and hiring of graduates of regional apprenticeship programs/California residents.

SB 418 will ease compliance with those requirements by maintaining the skilled and trained workforce percentage at 30 for the listed construction crafts. The change also allows apprentices currently receiving training in state-approved programs to finish their training and become qualified workers. Union apprenticeship programs are accepting many new apprentices to meet the needs of the economy and the industry. Each year, the Building Trades unions invest nearly $100 million into training the next generation of skilled men and women. We are also engaged in pre-apprenticeship partnerships with the state and other local agencies that focus on outreach to veterans, women, disadvantaged youth and the formerly incarcerated, providing a pathway towards a rewarding career in construction. According to the Division of Apprenticeship Standards (DAS), the number of active apprentices in state-approved apprenticeship programs for the first quarter of 2016 now stands at over 70,000, proving our efforts are highly successful. In fact, that number is almost double the number of apprentices from less than 10 years ago.”

The Air Conditioning Sheet Metal Association, the Air-conditioning & Refrigeration Contractors Association, the California Chapters of the National Electrical Contractors Association, the California Legislative Conference of the Plumbing, Heating and Piping Industry, the Finishing Contractors Association of Southern California, the Northern California Allied Trades, the United Contractors and the Wall and Ceiling Alliance write in support, “This measure will assist with the implementation of the state statutes regarding the skilled and trained workforce requirements for public contracts performed under certain alternative delivery methods. The Legislature has passed and the Governor signed various bills involving design-build (DB), lease-leaseback and “best value” procurement, which require the use of a skilled and trained workforce to accomplish these public works projects. In 2014, SB 785 (Wolk) enacted Uniform provision for the Department of General Services, the California Department of Corrections and Rehabilitation, cities, counties and special districts using the design-build method. The skilled and trained workforce requirement ensures that public agencies receive the highest quality construction project possible, by requiring that a high percentage of the workers who are actually constructing their projects have graduated from a state approved apprenticeship program. This policy encourages the future development of skilled construction workers and provides an incentive for state funded apprenticeship programs to graduate apprentices. SB 418 builds on this successful program, by allowing a few building crafts additional time to best develop their apprenticeship programs to meet the rising needs of the industry for skilled and trained workers.”

The California Professional Association of Specialty Contractors (CALPASC) supports if amended and writes, “CALPASC members understand the intent of this bill, to exclude crafts from the requirement to comply with Section 2601 of the Public Contract Code. CALPASC believes that the list is incomplete. Many other crafts should be added to the excluded crafts. These include the plumbing, painting, electrical, and many other crafts. CALPASC believes that there should not be a division between certain crafts for the protection of this bill. The bill should be amended to include all these other crafts.”

Previous Related Legislation

SB 693 (Hueso) Chapter 774, Statutes of 2016 consolidated the skilled and trained workforce requirements of various provisions of existing law, related to alternative construction delivery methods, and defined the terms of these requirements.

REGISTERED SUPPORT / OPPOSITION:

Support

Air Conditioning Sheet Metal Association

Air-Conditioning & Refrigeration Contractors Association

Bricklayers & Allied Craft Workers

CA District Council of Roofers/Waterproofers

California Chapters of the National Electrical Contractors Association

California District Council of Ironworkers

California Labor Federation, AFL-CIO

California Legislative Conference of the Plumbing, Heating and Piping Industry

California Pipe Trades Council

California State Association of Electrical Workers

California State Council of Laborers

California Teamsters Public Affairs Council

California/Nevada Conference of Operating Engineers

Finishing Contractors Association of Southern California

International Union of Elevator Constructors

International Union of Painters & Allied Crafts

Northern California Allied Trades

State Building and Construction Trades Council (sponsor)

State Conference of Plasterers & Cement Masons

United Contractors

Wall and Ceiling Alliance

Western States Council of Sheet Metal Workers

Support if Amended

California Chapters of American Fire Sprinkler Association

California Professional Association of Specialty Contractors

Independent Roofing Contractors of California, Inc.

Plumbing-Heating-Cooling Contractors Association of California

San Diego, So. California and Central California Chapters of Associated Builders & Contractors

Western Electrical Contractors Association

Opposition

None on file.

Analysis Prepared by: Taylor Jackson / L. & E. / 916-319-2091

 THIRD READING  

Bill No: SB 418

Author:

:

Vote:

SENATE LABOR & IND. REL. COMMITTEE: 4-1, 3/22/17

AYES: Bradford, Atkins, Jackson, Mitchell

NOES: Stone

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT:

SOURCE: State Building and Construction Trades Council, AFL-CIO

DIGEST: This bill clarifies that for public works projects to be exempt from prevailing wage requirements de minimis or minor costs paid with the use of public funds, must be both less than $275,000 and less than 2% of the cost of the project.

ANALYSIS:

Existing law:

1. Requires, except as specified, that the general prevailing rate of per diem must be paid to workers employed on public works projects as determined by the Director of Industrial Relations. (Labor Code §1771)
2. Requires all employees who work on public works projects costing $1,000 or more to be paid the general prevailing rate of per diem wages and the general prevailing rate for holiday and overtime work for the specific location where the public work is to be performed. (Labor Code §1771)
3. Specifies that if the state or a political subdivision reimburses a private developer for costs that would normally be borne by the public, or provides directly or indirectly a public subsidy to a private development project that is de minimis in the context of the project, an otherwise private development project shall not be subject to prevailing wage requirements. (Labor Code §1720)
4. Defines “public works” to include, construction, alteration, demolition, or repair work done under contract and paid for, in whole or in part, out of public funds, including, among other things, the following:
5. The payment of money or the equivalent of money by the state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer.
6. The performance of construction work by the state or political subdivision in execution of the project.
7. Fees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be required in the execution of the contract, that are paid, reduced, charged at less than fair market value, waived, or forgiven by the state or political subdivision.
8. Money loaned by the state or political subdivision that is to be repaid on a contingent basis. (Labor Code §1720)

This bill:

1. Defines that a public subsidy is de minimis if it is both less than $275,000 and less than 2% of the total project cost.
2. Specifies that these provisions do not apply to a project that was either advertised for bid, or awarded a contract before July 1, 2018.

Background

Brief background on de minimis. According to most dictionaries, de minimis can be defined as lacking significance or importance: so minor as to merit disregard. In some fields de minimis work is any additional work done after clocking out that once totaled amounts to less than 10 minutes of work. For public works projects, de minimis funds are considered a comparatively small dollar amount or percentage that qualifies as being insignificant to the overall cost of the development project. However, under the Labor Code, the specific de minimis threshold is not currently defined, and as a result, developers are often unsure at what point they are required to pay prevailing wages.

Below are some representative examples of cases provided by the author that highlight the levels of variation in percentage and dollar amount for de minimis rulings under the Department of Industrial Relations.

Prevailing Wage Case 2011-33, Blue Diamond Agricultural Processing Facility - City of Turlock (public funds equaled 1.75 percent of total project cost)

A Blue Diamond processing facility that was being built cost $95.3 million. Blue Diamond received a $1.6 million public subsidy covering payment of pre-planned infrastructure improvements ($437,871) a credit back to cover a “wastewater capacity fee” ($1,019,204), and credit for “public facilities fees” of $207,729.  These amounts were ruled de minimis.

Prevailing Wage Case 2008-010, Sewer Line Construction, City of Corona (public funds equaled 0.4 percent of total project cost)

A private development costing $28.972 million sought and was granted a $123,300 de minimis reimbursement from the City to pay for the sewer line development for the project.

Prevailing Wage Case 2008-037, The Commons at Elk Grove, City of Elk Grove (public funds equaled 1.1 percent of total project cost)

An $18.2 million senior housing project received $202,337 worth of “sewer impact fee” credits that were ruled as de minimis.

Comments

Need for this bill? SB 975 (Alarcon, Chapter 938, Statutes of 2001) specified that when the state or a political subdivision provides a direct or indirect subsidy to a private developer, and the developer agrees to accept those funds, the project in question is not subject to prevailing wage requirements if the costs or subsidy are de minimis in the context of the overall project. However, there is no legal definition under Section 1720 of the Labor Code of what qualifies as de minimis for public works projects.

In recent years, the Department of Industrial Relations (DIR) has interpreted de minimis as anything from tens of thousands of dollars to millions of dollars. Because de minimis can be defined as minimal, and so insignificant that a court may overlook it, the large variance in amounts that qualify as de minimis can create confusion for developers and workers regarding whether or not prevailing wages need to be paid on certain projects. This bill aims to define de minimis to establish a clear dollar amount and percentage of public funds on private projects that would determine when a subsidy is de minimis and not subject to the prevailing wage payment.

Related/Prior Legislation

AB 251 (Levine, 2015) would have defined de minimis as a public subsidy that is both less than $250,000 and less than 2% of the total project cost. In Governor Brown’s veto message he states:

This measure seeks to codify a definition of the term 'de minimis' to determine what level of public subsidy triggers prevailing wage requirements on an otherwise private project.

Longstanding practice has been to view the subsidy in context of the project and use 2% as a general threshold for determinations. There has been no showing that the current practice is unreasonable.

While I remain a staunch supporter of prevailing wages I am concerned that this measure is too restrictive and may have unintended consequences. Two years ago, I cited the same concerns when I returned a similar bill without my signature. This measure does not adequately address those concerns.

AB 302 (Chau, 2013), vetoed by the Governor, would have defined de minimis as a public subsidy that is both less than $25,000 and 1% of a total project cost.

SB 972 (Costa, Chapter 1048, Statutes of 2002) provided exemptions from prevailing wage requirements for public works projects for the construction or rehabilitation of privately-owned residential projects, as specified.

SB 975 (Alarcon, Chapter 938, Statutes of 2001) clarified that all public works projects financed through Industrial Development Bonds must comply with existing laws pertaining to “prevailing wages.”

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 4/4/17)

State Building and Construction Trades Council, AFL-CIO (source)

California Labor Federation, AFL-CIO

OPPOSITION: (Verified 4/4/17)

Associated Builders and Contractors-San Diego Chapter

California Building Industry Association

California Business Properties Association

Western Electrical Contractors Association

ARGUMENTS IN SUPPORT: Proponents of SB 418 argue that because SB 975 of 2001 did not clearly define what amount of public funds qualify under de minimis, workers have not been provided with the prevailing wage on projects that have received substantial public funding. According to the author, DIR has determined de minimis to be amounts from $65,710 to $4.5 million and from 0.5% to 2% of the total project cost. The author and proponents believe that any public subsidy of more than $275,000 is a large enough sum of taxpayer money that it should not qualify as de minimis and that prevailing wages should apply.

Proponents contend that defining de minimis would help clear up any confusion regarding whether prevailing wage should or should not apply on public works projects, and would ensure workers receive fair pay. Proponents state that clearly defining de minimis would allow a developer to accept the public subsidy with a clear understanding of whether or not the prevailing wage applies to the project. As such, proponents argue that regulating de minimis protects both developers and workers under the Labor Code.

Proponents add that previous attempts to clarify de minimis in the Labor Code were vetoed because the subsidy amounts were too restrictive; SB 418 has proposed a substantially-increased dollar amount. Supporters believe that SB 418 is the best way for construction workers, non-union and union workers to receive a fair wage on any development project where substantial public funds are utilized.

ARGUMENTS IN OPPOSITION: Opponents argue that the longstanding practice has been to view the subsidy in the context of the project and use 2% as a general threshold for determinations. They argue that there are a number of occasions where the project applicant does not know, in good faith, that public funds are involved in the project. According to opponents this 2% was specifically mentioned as the benchmark in negotiations regarding SB 975 (Alarcon), Chapter 938, Statutes 2001. Opponents believe that by codifying a standard that establishes de minimis as the lesser of 2% or $275,000 few, if any, projects receiving public subsidies will be found to be exempt from prevailing wage requirements. Therefore, proponents hold that codifying de minimis would only have negative effects on California’s public works operations and would result in few prevailing wage exemptions.

Prepared by:

4/5/17 14:44:45

**** END ****

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Steven Bradford, Chair

2017 - 2018 Regular

Bill No: SB 418 Hearing Date: March 22, 2017

Subject: Public works: public subsidies

KEY ISSUE

Should the Legislature clarify that for public works projects to be exempt from prevailing wage requirements de minimis or minor costs paid with the use of public funds, must be both less than $275,000 and less than 2% of the cost of the project?

ANALYSIS

Existing law:

1. Requires, except as specified, that the general prevailing rate of per diem must be paid to workers employed on public works projects as determined by the Director of Industrial Relations. (Labor Code §1771)
2. Requires all employees who work on public works projects costing $1,000 or more to be paid the general prevailing rate of per diem wages and the general prevailing rate for holiday and overtime work for the specific location where the public work is to be performed. (Labor Code §1771)
3. Specifies that if the state or a political subdivision reimburses a private developer for costs that would normally be borne by the public, or provides directly or indirectly a public subsidy to a private development project that is de minimis in the context of the project, an otherwise private development project shall not be subject to prevailing wage requirements. (Labor Code §1720)
4. Defines “public works” to include, construction, alteration, demolition, or repair work done under contract and paid for, in whole or in part, out of public funds, including among other things the following:
   1. The payment of money or the equivalent of money by the state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer.
   2. The performance of construction work by the state or political subdivision in execution of the project.
   3. Fees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be required in the execution of the contract, that are paid, reduced, charged at less than fair market value, waived, or forgiven by the state or political subdivision.
   4. Money loaned by the state or political subdivision that is to be repaid on a contingent basis. (Labor Code §1720)

This Bill:

1. Would define that a public subsidy is de minimis if it is both less than $275,000 and less than 2% of the total project cost.
2. Would specify that these provisions do not apply to a project that was either advertised for bid, or awarded a contract before July 1, 2018.

COMMENTS

1. Brief Background on de minimis:

According to most dictionaries, de minimis can be defined as lacking significance or importance: so minor as to merit disregard. In some fields de minimis work is any additional work done after clocking out that once totaled amounts to less than 10 minutes of work. For public works projects, de minimis funds are considered a comparatively small dollar amount or percentage that qualifies as being insignificant to the overall cost of the development project. However, under the Labor Code, the specific de minimis threshold is not currently defined, and as a result, developers are often unsure at what point they are required to pay prevailing wages.

Below are some representative examples of cases provided by the author that highlight the levels of variation in percentage and dollar amount for de minimis rulings under the Department of Industrial Relations.

Prevailing Wage Case 2011-33, Blue Diamond Agricultural Processing Facility - City of Turlock (public funds equaled 1.75 percent of total project cost)

A Blue Diamond processing facility that was being built cost $95.3 million. Blue Diamond received a $1.6 million public subsidy covering payment of pre-planned infrastructure improvements ($437,871) a credit back to cover a “wastewater capacity fee” ($1,019,204), and credit for “public facilities fees” of $207,729.  These amounts were ruled de minimis.

Prevailing Wage Case 2008-010, Sewer Line Construction, City of Corona (public funds equaled 0.4 percent of total project cost)

A private development costing $28.972 million sought and was granted a $123,300 de minimis reimbursement from the City to pay for the sewer line development for the project.

Prevailing Wage Case 2008-037, The Commons at Elk Grove, City of Elk Grove (public funds equaled 1.1 percent of total project cost)

An $18.2 million senior housing project received $202,337 worth of “sewer impact fee” credits that were ruled as de minimis.

2. Need for this bill?

SB 975, Chaptered in 2001, specified that when the state or a political subdivision provides a direct or indirect subsidy to a private developer, and the developer agrees to accept those funds, the project in question is not subject to prevailing wage requirements if the costs or subsidy are de minimis in the context of the overall project. However, there is no legal definition under Section 1720 of the Labor Code of what qualifies as de minimis for public works projects.

In recent years, the Department of Industrial Relations (DIR) has interpreted de minimis as anything from tens of thousands of dollars to millions of dollars. Because de minimis can be defined as minimal, and so insignificant that a court may overlook it, the large variance in amounts that qualify as de minimis can create confusion for developers and workers regarding whether or not prevailing wages need to be paid on certain projects. This bill aims to define de minimis to establish a clear dollar amount and percentage of public funds on private projects that would determine when a subsidy is de minimis and not subject to the prevailing wage payment.

3. Proponent Arguments:

Proponents of SB 418 argue that because SB 975 of 2001 did not clearly define what amount of public funds qualify under de minimis, workers have not been provided with the prevailing wage on projects that have received substantial public funding. According to the author, DIR has determined de minimis to be amounts from $65,710 to $4.5 million and from 0.5% to 2% of the total project cost. The author and proponents believe that any public subsidy of more than $275,000 is a large enough sum of taxpayer money that it should not qualify as de minimis and that prevailing wages should apply.

Proponents contend that defining de minimis would help clear up any confusion regarding whether prevailing wage should or should not apply on public works projects, and would ensure workers receive fair pay. Proponents state that clearly defining de minimis would allow a developer to accept the public subsidy with a clear understanding of whether or not the prevailing wage applies to the project. As such, proponents argue that regulating de minimis protects both developers and workers under the Labor Code.

Proponents add that previous attempts to clarify de minimis in the Labor Code were vetoed because the subsidy amounts were too restrictive, SB 418 has proposed a substantially-increased dollar amount. Supporters believe that SB 418 is the best way for construction workers, non-union and union workers to receive a fair wage on any development project where substantial public funds are utilized.

4. Opponent Arguments:

Opponents argue that the longstanding practice has been to view the subsidy in the context of the project and use 2% as a general threshold for determinations. They argue that there are a number of occasions where the project applicant does not know, in good faith, that public funds are involved in the project. According to opponents this 2% was specifically mentioned as the benchmark in negotiations regarding SB 975 (Alarcon), Chapter 938, Statutes 2001.

Opponents believe that by codifying a standard that establishes de minimis as the lesser of 2% or $275,000 few, if any, projects receiving public subsidies will be found to be exempt from prevailing wage requirements. Therefore, proponents hold that codifying de minimis would only have negative effects on California’s public works operations and would result in few prevailing wage exemptions.

5. Prior Legislation:

AB 251 (Levine) of 2015, Vetoed by the Governor, this bill would have defined de minimis as a public subsidy that is both less than $250,000 and less than 2% of the total project cost.

AB 302 (Chau) of 2013, Vetoed by the Governor, this bill would have defined de minimis as a public subsidy that is both less than $25,000 and 1% of a total project cost.

SB 972 (Costa) Chapter 1048, Statutes of 2002, provided exemptions from prevailing wage requirements for public works projects for the construction or rehabilitation of privately-owned residential projects, as specified.

SB 975 (Alarcon), Chapter 938, Statutes of 2001, clarified that all public works projects financed through Industrial Development Bonds (IDBs) must comply with existing laws pertaining to “prevailing wages.”

SUPPORT

State Building and Construction Trades Council (Sponsor)

California Labor Federation, AFL-CIO

OPPOSITION

California Building Industry Association

California Business Properties Association

-- END --