Article Legal Notes Clare M. Gibson

Prevailing Wage Compliance: What Cities Should Do to Avoid Penalties Under SB 96

Prevailing wage laws have changed again. Because prevailing wage requirements apply to all public works contracts over $1,000, these new requirements will apply to the vast majority of municipal…

Clare M. Gibson is a senior partner with the law firm of Jarvis Fay Doporto & Gibson LLP and can be reached at clare@jarvisfay.com.

In 2014, SB 854 (Chapter 28, Statutes of 2014) created a new system for oversight of prevailing wage compliance by the California Department of Industrial Relations (DIR). It required contractors and subcontractors to register with the DIR in order to bid or contract for public works projects and to submit payroll records directly to the DIR through a new online portal. SB 854 also required cities and other local agencies to notify the DIR online within five days after award of a public works contract.

Now prevailing wage laws have changed again, suddenly and without much notice. SB 96 (Chapter 28, Statutes of 2017) was signed into law on June 27, 2017, as a budget trailer bill and became effective immediately. SB 96 refines and expands SB 854’s requirements and adds significant penalties for local agencies that fail to comply with prevailing wage requirements. Because prevailing wage requirements apply to all public works contracts over $1,000,1 these new requirements will apply to the vast majority of municipal public works projects.2

SB 96 Requirements and Penalties

SB 96 is a complex bill that amended and repealed dozens of statutes, but in terms of prevailing wage compliance, your city should be aware of the following key changes enacted by SB 96:

  • The subcontractor list form submitted by bidders for public works contracts must now include the DIR registration number for each listed subcontractor;3
  • Cities now have up to 30 days, instead of five days, to notify the DIR following award of a public works contract;4
  • Cities that fail to comply with certain prevailing wage requirements are subject to penalties up to $10,000 and potential loss of state funding for a year;5 and
  • Construction contracts under $25,000 and maintenance contracts under $15,000 are now exempt from some prevailing wage requirements, including DIR registration and DIR notification of award.6

Subcontractor List Requirements

What Cities Should Know. The Public Contract Code requires bidders to submit a list of every subcontractor that will perform work in excess of one half of 1 percent of the contract price7. SB 96 requires that the subcontractor list form now include the DIR registration number for each listed subcontractor. An inadvertent error in listing a subcontractor’s DIR number will not be grounds for a bid protest or for rejecting the bid as nonresponsive if the contractor provides the correct number within 24 hours following the bid opening.8

What Cities Should Do. Ensure that the city’s subcontractor list form and its instructions to bidders require the DIR registration number for each listed subcontractor. Adopt internal procedures to check subcontractor DIR numbers immediately after bids are opened and to notify the apparent low bidder(s) that an inadvertent error in a DIR number may be subject to a bid protest if it is not corrected within 24 hours.

Notifying the DIR of Awarded Contract

What Cities Should Know About the DIR Notification Deadline. SB 854 introduced a new requirement that cities and other local agencies notify the DIR within five days of award of a public works contract by completing the DIR’s PWC-100 form online at https://www.dir.ca.gov/pwc100ext/. Under SB 96, cities now have up to 30 days, instead of five days, to notify the DIR following award of a contract subject to DIR oversight — at least in theory. However, the notification of award must be provided no later “than the first day in which a contractor has workers employed upon the public work.”9 That means if work begins 10 days after a contract is awarded, a city must notify the DIR of the contract award no later than 10 days after the award. The city cannot wait the full 30 days.

What Cities Should Know About Subcontractor Information. SB 96 also requires that the awarding agency’s notification of award include a list of all subcontractors and the DIR registration numbers for the contractor and its subcontractors.10 This can be a problem for public works projects that are not subject to bidding requirements and therefore do not require a subcontractor list form pursuant to California Public Contract Code Section 4104. 

What Cities Should Know About Withholding Final Payment for 30 Days After DIR Notification. Under SB 96 a city must now withhold final payment due to a contractor until at least 30 days following submission of all of the information required for award notification, including subcontractor information. This new requirement is most likely to affect very small projects that are completed in less than a month.

What Cities Should Do. To avoid penalties, a city’s internal procedures should require submitting the DIR notification as soon as possible following award of contract — ideally by the next business day. For prevailing wage projects that are not publicly bid, prior to award the contractor must be required to provide the name and DIR registration number for each subcontractor that will perform work under the contract. The DIR registration numbers should be confirmed on the DIR website at https://efiling.dir.ca.gov/PWCR/Search before awarding the contract.

New Penalties for Noncompliance

What Cities Should Know. The Labor Code already includes penalties for contractors that fail to comply with prevailing wage requirements. SB 96 added penalties that apply to cities and other awarding agencies that fail to comply with certain prevailing wage requirements. Cities may be subject to penalties of $100 per day (up to $10,000 total) for:

  • Failure to comply with the DIR award notification requirements;11 or
  • Permitting an unregistered contractor or subcontractor to work on a project.12

In addition, if a city is determined to have “willfully” violated these requirements for two or more projects within a 12-month period, it may lose eligibility for state funding or financial assistance for one year.13

What Cities Should Do. A city’s internal procedures should be updated to ensure compliance with DIR notification and registration requirements for contractors and subcontractors. In addition to confirming DIR registration at bid time, a city should ensure that the contractors and subcontractors maintain current DIR registration during the course of the project, and the city should confirm each registration on the DIR website before issuing final payment. Staff should be trained to understand and follow internal procedures to ensure consistent compliance with current prevailing wage requirements.

New Exemptions for Small Contracts

What Cities Should Know. Some good news for cities: public works contracts of $25,000 or less for construction, alteration, demolition, installation or repair work and contracts of $15,000 or less for maintenance work are now exempt from:

  • DIR registration requirements for contractors or subcontractors performing the work;14
  • Requirements for electronic submission of monthly payroll records to the DIR;15 and
  • Requirements for DIR notification following award of the contract.16

However, for contracts over $1,000, contractors or subcontractors are still required to pay prevailing wages and otherwise comply with work hours and overtime requirements. In addition, contractors and subcontractors working on these small projects must still maintain certified payroll records for at least three years following completion of the work.17

What Cities Should Do. Cities should consider revising contract templates and internal procedures for public works contracts under $25,000 to reflect both the new limited exemptions and the continuing prevailing wage payment and payroll record requirements.

Conclusion

As noted, SB 96 is a complex bill. Each city should consult its legal counsel for guidance in complying with current prevailing wage requirements under SB 96, including:

  • Developing internal procedures and controls;
  • Revising contract templates; and
  • Training staff to ensure consistent compliance.

Cities that have not yet implemented procedures or protocols for prevailing wage compliance should do so as soon as possible to avoid the penalties that may be imposed under SB 96.

Footnotes:

[1] Labor Code § 1771.

[2] Labor Code § 1720 et seq. defines “public works” subject to prevailing wage compliance, which includes activities, such as maintenance, that are not subject to public bidding requirements under the Public Contract Code.

[3] Public Contract Code § 4104.

[4] Labor Code § 1773.3(a)(1).

[5] Labor Code § 1773.3© and (f).

[6] Labor Code §§ 1725.5(f), 1771.1(n), and 1773.3(i).

[7] Public Contract Code § 4104.

[8] Public Contract Code § 4104(a)(2).

[9] Labor Code § 1773.3(a)(1).

[10] Labor Code § 1773.3(a)(2).

[11] Labor Code § 1773.3(c).

[12] Labor Code § 1773.3(c).

[13] Labor Code § 1773.3(f).

[14] Labor Code §§ 1725.5(f) and 1771.1(n).

[15] Labor Code § 1771.4(a)(4).

[16] Labor Code § 1773.3(i).

[17] Labor Code § 1771.4(a)(4).

Photo credit: Falcatraz (construction workers).

About Legal Notes

This column is provided as general information and not as legal advice. The law is constantly evolving, and attorneys can and do disagree about what the law requires. Local agencies interested in determining how the law applies in a particular situation should consult their local agency attorneys.

This article appears in the December 2017 issue of Western City
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