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Articles

April 28, 2015

Contractors Must Act Quickly to Comply with New Registration Requirements for Public Works

California Constructor Magazine, published by Associated General Contractors


California public works contractors are undoubtedly familiar with the state’s prevailing wage law, under which all workers employed on a public work of improvement within the state must be paid the prevailing wage set by the Department of Industrial Relations (DIR). 

Until recently, the DIR’s costs of monitoring and enforcing compliance with the prevailing wage laws were paid by the awarding public agency as a cost of construction. However, in June 2014 the California Legislature enacted Senate Bill 854, which shifts this cost to public works contractors and requires all public works contractors to furnish electronic certified payroll records directly to the Labor Commissioner. These new requirements apply to all public works projects that are subject to prevailing wage laws.

New Registration Requirements
SB 854 created a mandatory registration program for all contractors seeking to perform work on public works of improvement. Under the new law, contractors and subcontractors seeking to bid on or perform work on a public works project are required to register with the DIR, pay an initial, non-refundable registration fee of $300, and pay an annual renewal fee to maintain their registration. Fees are paid directly into the State Public Works Enforcement Fund, a continuously appropriated fund used to finance the DIR’s monitoring and enforcement duties. Future annual renewal fees are tied to the balance of the Fund, which could lead to large fluctuations in the renewal fee from year to year.

To be eligible for registration, contractors must provide evidence of all of the following:

  • sufficient workers’ compensation coverage; 
  • proper licensure with the Contractors State License Board; 
  • no delinquent liability to an employee or state for any assessment of back wages or penalties;
  • no federal or state debarments from bidding; and
  • no prior violation of registration requirements in the 12 months preceding the application, or since the effective date of the new registration requirements, whichever is earlier.

The DIR is required to maintain a list of registered contractors on its website for the purpose of facilitating compliance with the new registration requirements. The DIR allows any member of the public to search the list free of charge at https://efiIing.dir.ca.gov/PWCR/Search.action. Additionally, awarding agencies are now required to report awards of public contracts to the DIR to facilitate enforcement.

Contractors and subcontractors have been able to register since July 1, 2014, and initial registrations are valid through June 30, 2015. Awarding agencies began including required notices regarding the new requirements in their calls for bids and contract documents on January1, 2015. Beginning March 1, 2015, general contractors were prohibited from bidding on public works unless they are registered with the DIR, and may not list an unregistered subcontractor in any such bid. Unregistered contractors are also prohibited from engaging in the performance of any contract for public work awarded on or after April 1, 2015.

Contractors who are not required to hold a license at the time of bidding are currently exempt from the new registration requirements. Additionally, contractors who have bid on public works without the required registration may be able to avoid disqualification by paying an additional $2,000 penalty, provided that they have not previously been found to be in violation of the registration requirements within the preceding 12 months.

Submission of Certified Payroll
For all new projects awarded on or after April 1, 201 5, however, contractors and subcontractors are required to furnish certified payroll records in electronic format to the Labor Commissioner. Under the new law, the Labor Commissioner is authorized to require contractors and subcontractors to furnish electronic certified payroll records at an earlier date and has indicated that the Division of Labor Standards Enforcement (DLSE) will do so in connection with green energy school projects that receive Proposition 39 funding.

Beginning January 1, 2016, this requirement will be extended to all public works projects, regardless of the award date. The Labor Commissioner may, but is not required to, excuse contractors from furnishing
electronic certified payroll records on projects either under the jurisdiction of one of the four legacy DIR-approved labor compliance programs (i.e., Cal trans, City of Los Angeles, Los Angeles Unified School District, and County of Sacramento) or covered by a qualifying project labor agreement.

Consequences for Non-Compliance
Contractors who bid on public works of improvement should familiarize themselves with the new registration and electronic certified payroll requirements and comply with these requirements as early as possible. Even inadvertent failures to register or pay renewal fees will result in penalty assessments that must be paid before the contractor can be registered. Additionally, the new law ensures compliance with the registration requirements through the following mechanisms:

  • Public entities are prohibited from accepting a bid from, or entering into a contract with, a contractor without proof that the contractor's registration is current and that the contractor has not bid on a public work without the required registration within the preceding 12 months. Contractors who have previously violated the registration requirement, or who have no prior violations, but fail to pay the required penalty assessment to cure a first-time violation, are disqualified from bidding on any public work of improvement for a period of 12 months.
  • A general contractor who inadvertently lists an unregistered subcontractor in its bid may successfully defend a bid protest only if (1) the subcontractor obtains the required registration prior to bid opening; (2) the subcontractor obtains the required registration within 24 hours after bid opening and pays a $2,000 penalty assessment; or (3) the subcontractor is replaced with a properly registered subcontractor.
  • Any contract entered into in violation of the new registration requirements is subject to cancellation, but is not void. Therefore, it is possible that an unregistered contractor whose contract is cancelled pursuant to SB 854 may nonetheless be able to recover payment for work already performed. However, any payment that is due the contractor could be subject to offset to the extent that the awarding agency suffers damages as a result of the cancellation, together with any award of attorneys' fees and costs authorized by the cancelled contract. 

The intent of this legislation, as announced by the DLSE, is to (1) provide a consistent and reliable funding source for the enforcement of prevailing wage laws in California, (2) protect employees and honest employers, and (3) maximize the state's ability to ensure that employers comply with the prevailing wage laws. The new registration requirements imposed by SB 854 are codified at Labor Code §§ 1725.5, 1771.1, 1771.3-1771.4, 1773.3, and 1776. 

Needless to say, the substantial penalty assessments, loss of contracts, and a potential period of disqualification imposed by SB 854 are risks that contractors with significant public works business simply cannot afford to take. Contractors should take immediate steps to avoid violations by familiarizing themselves with the new law's registration requirements and the deadlines for meeting them. Contractors who have not yet registered would be well advised to consult with counsel experienced in public works and prevailing wage law to identify any registration issues.

 

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