LEGAL NEWS Prevailing Wage Compliance Monitoring Now

Funded by Contractor Fees By Gregory Korbel and Stephanie Rocha, Miller, Morton, Caillat & Nevis, LLP

This summer, the California Legisla-

ture added a mandatory registration pro- cess for all contractors seeking to perform work on public projects. The basis for the additional layer of government compliance is elimination of the construction cost in- curred by public agencies in monitoring and enforcing compliance with prevailing wage requirements. All workers employed on a public works

project must be paid the general prevail- ing wage rate set by the Director of the Department of Industrial Relations (DIR), and DIR is required to monitor and en- force compliance. Until recently, the cost of monitoring and enforcing compli- ance with the applicable prevailing wage requirements was paid, in part, by the awarding public works agency as a cost of construction. The money was deposited into the State Public Works Enforcement Fund, a continuously appropriated fund that was used in DIR monitoring and en- forcement duties. As of June 2014, however, this payment

for the monitoring and enforcement of compliance with the prevailing wage rates has been shifted from the public agency as a cost of construction, to the public works contractor who now must register, qualify and pay a fee to bid or perform work on any public works project.

Registration Requirements As of July 1, 2014, a contractor that

wants to bid on, be listed in a bid proposal, or perform work on a public works proj- ect is required to register with DIR, pay an initial nonrefundable registration fee of $300, pay an annual renewal fee each July 1 thereafter, and as part of the regis- tration process, provide specified informa- tion to establish the contractor’s eligibility to be registered. These requirements apply whether the contractor is bidding as the general contractor or a subcontractor. Spe- cifically, the contractor must provide evi- dence of the following:  Sufficient workers’ compensation cover- age

 Proper licensure  That the contractor has no delinquent li-

20 November/December 2014

ability to an employee or the state pursu- ant to a final judgment, award or order

 That the contractor is not currently de- barred from public works

 That the contractor has not previously engaged in bidding or public works con- tracting without the required registration

certain notice, record keeping, and report- ing requirements. Once registered,

The contractor must also comply with the

contractor should be listed on the DIR web site.

The fees from the contractor are to be

deposited into the State Public Works En- forcement Fund, which will no longer be continuously appropriated. The fund will be used for the costs of administering the registration and qualification of contrac- tors, the costs and obligations associated with administration and enforcement re- quirements with regard to the prevailing wage provisions, and public works projects monitoring and enforcement duties of the Labor Commissioner. The annual renewal fee is unknown at

this juncture. It will be adjusted based on the balance of the fund. This could mean an unpleasant fee hike for public works contractors next year. The alternative is prohibition from bidding on or engaging in the performance of any contract for public work. While registration is required now, the

new law would apply to any bid proposal submitted on or after March 1, 2015, and any contract for public work entered into on or after April 1, 2015.

The Risks Contractors must be aware of the at-

tendant risks in failing to comply with the law. First, the new law is laden with penal- ties. Even inadvertent failures to register or pay renewal fees will cost the contractor a stiff penalty. More significantly, however, is failure to register may form the basis for bid protests, and could also result in can- cellation of the contract. In accordance with the new law, a pub-

lic entity may not accept a bid or enter into a contract without proof of the contractor

Gregory Korbel Stephanie Rocha

or subcontractor’s current registration to perform public work. A general contrac- tor who inadvertently lists a subcontractor who is not registered in a bid proposal may successfully defend a bid protest only if (1) the subcontractor is registered prior to the bid opening; (2) within 24 hours after the bid opening, the subcontractor is registered and has paid a $2,000.00 penalty registra- tion fee; or (3) the subcontractor is replaced by another registered subcontractor. A contract entered into with any con-

tractor or subcontractor in violation of the registration law is subject to cancellation. While an unregistered contractor may be able to recover payment for work per- formed on a public work project, the case law regarding this provision has not yet developed. Thus, it is possible that dam- ages caused to the public agency by con- tract cancellation or substitution could be asserted as an offset by the public agency against any claim for payment for work already performed. In addition,

if the

contract contains an attorney’s fee provi- sion, the public agency may be entitled to recovery of any attorney’s fees and costs expended in having to cancel the contract. The law requiring registration adds

another procedural hurdle for the public works contractor. But with risk of dis- qualification and a potential costly dispute over payment for work performed, it is un- doubtedly an important one. Any contrac- tor contemplating future work on a public project would be wise to register now.

Gregory Korbel is a partner and Stepha-

nie Rocha is an associate, representing devel- opers, builders and contractors in construc- tion law matters, at Miller, Morton, Caillat & Nevis, LLP in San Jose, CA. They can be reached at gkorbel@millermorton.com and srocha@millermorton.com.

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