Do you have the proper skilled and trained workforce for your construction projects? If you take on public works projects in California, you may not be in compliance with the new changes in the law. To avoid civil penalties or nonpayment and potentially being precluded from future bids on public works contracts, you must critically review your team and proposal prior to accepting an award. Once awarded a public contact requiring a skilled and trained workforce, diligent reporting practices and oversight are required to maintain compliance.
Compliance with California’s skilled and trained workforce requirements for contractors, engineers, architects, design professionals, and suppliers competing for public works construction projects in California is mandated through enforcement with the enactment of AB 3018. Signed by Governor Brown in his last legislative session, AB 3018 dramatically increased the penalties for non-compliance with the existing skilled and trained workforce requirements in California. The new penalties include civil fines by the Labor Commissioner up to $10,000 per month per non-compliant contractor, disqualification from bidding on future public works contract, and withholding of payment for delinquent contractors. This update provides information on California’s skilled and trained workforce requirements, identifies key issues on compliance to avoid penalties, and discusses the impact of enforcement on construction professionals’ business practices.
Who Needs to Comply with California’s Skilled and Trained Workforce Requirements?
- Not every public works contract in California is required to have skilled and trained workforce requirements.
- If you are required to be listed as a contractor in the proposal or bid, you likely need to comply. If you are not listed as a contractor in the proposal or bid and your contract price does not exceed 0.5% of the prime contract, then you are not required to comply.
Existing California law (Public Contracts Code section 2600, et seq.) authorizes a public entity to require a bidder, contractor, or other entity to use a skilled and trained workforce to complete a contract or project, and requires that the commitment to use a skilled and trained workforce be made in an enforceable agreement that meets specified requirements discussed below.
Existing law requires all public works contracts “relating to school facilities” and “design-build contracts” to comply with the aforementioned trained and skilled workforce requirements.
For other types of public works contracts requiring skilled and trained workforce requirements, if a public works contracting party is not listed on the bid as a contractor or subcontractor and its total contract price is less than or equal to 0.5% of the prime contract, then it is not required to comply with the skilled workforce percentages.
If the contract price exceeds 0.5% of the prime contract, and the contracting party is not required to be listed on the bid or proposal, Labor Code section 1722.1 defines who is treated as a “contractor” and “subcontractor” as “a contractor, subcontractor, licensee, officer, agent, or representative thereof, acting in that capacity, when working on public works pursuant to this article and Article 2.” Article 2 generally requires certain subcontractors who work on public works projects to register with the Labor Commissioner.
Finally, if the contract price exceeds 0.5% of the prime contract and is required to be listed on the bid or proposal, then existing law generally requires these entities to comply with the skilled and trained workforce requirements above. In addition, the contractor or subcontractor need not meet the requirements if, during the calendar month, the contractor or subcontractor employs skilled journeypersons to perform fewer than 10 hours of work on the contract or project. There is not likely to be further clarification on which entities will be treated as “contractors” and “subcontractors” for the skilled and trained workforce requirements until the Labor Commissioner provides additional clarification.
What are the Criteria to Determine whether a Skilled or Trained Workforce Requirement is Met?
- Contracts that require skilled and trained workforces can be satisfied by either: (1) employing the requisite percentage of apprenticeship graduates on a qualifying project; or (2) staffing apprenticeship graduates to meet the requisite percentage of hours on a qualifying project.
- If a contractor is required to be listed on the proposal or bid for a public works contract requiring a skilled and trained workforce, then the contractor must comply with the skilled and trained workforce requirements.
California law defines a “skilled and trained workforce” to mean a project workforce that meets certain qualifications, specifically “graduates of an apprenticeship program for the applicable occupation.” The following table provides a breakdown of the increasing apprenticeship graduation requirements for a public works workforce under existing law:
Alternatively, for the hours of work performed by skilled journeypersons employed by the contractor or subcontractor on the contract or project, the percentage of hours performed by skilled journeypersons who met the graduation requirement is at least equal to the required graduation percentage.
California Labor Code section 3075 provides details on the required apprenticeship programs to satisfy the graduation requirements for a public works workforce. The apprenticeship graduation requirements can be satisfied by a union or merit shop program including those provided by the Associated General Contractors and Associated Builders & Contractors. These programs can be used by journeyman who have not graduated from an approved apprenticeship program in order to test up or out of a traditional apprenticeship program, but still require the journeyman to participate in, at minimum, a six-month apprenticeship program in order to receive certification for the trade. An apprenticeship program can be administered by a joint apprenticeship committee, unilateral management or labor apprenticeship committee, or an individual employer. A new apprenticeship program can be approved for circumstances where any of the following conditions are met:
(1) There is no existing apprenticeship program approved under this chapter serving the same craft or trade and geographic area;
(2) Existing apprenticeship programs approved under this chapter that serve the same craft or trade and geographic area do not have the capacity, or neglect or refuse, to dispatch sufficient apprentices to qualified employers at a public works site who have requested apprentices and are willing to abide by the applicable apprenticeship standards, as shown by a sustained pattern of unfilled requests; or
(3) Existing apprenticeship programs approved under this chapter that serve the same trade and geographic area have been identified by the California Apprenticeship Council as deficient in meeting their obligations under this chapter.
How do you Demonstrate Compliance with California’s Skilled or Trained Workforce Requirements?
- Contractors subject to the skilled and trained workforce requirements are required to submit monthly reports demonstrating compliance with the graduation requirements that are subject to audit and investigation by the Labor Commissioner.
Existing California law requires a successful bidder subject to the skilled and trained workforce requirements to provide monthly reports demonstrating compliance with the aforementioned skilled and trained workforce requirements to the public agency or other awarding body.
Effective January 1, 2019, AB 3018 provides that the public agency or other awarding body must forward a copy of the monthly report to the Labor Commissioner for issuance of a civil wage and penalty assessment and a copy of the plan, if any, to achieve substantial compliance with skilled and trained workforce requirements and the response to that plan, as prescribed, if the monthly report does not demonstrate compliance with skilled and trained workforce requirements.
AB 3018 also amended Public Contract Code sections 2601 and 2602, and added new section 2603, shifting some responsibility for skilled and trained workforce compliance to subcontractors. If the prime contractor fails to comply with the monthly reporting requirements as a result of one noncompliant subcontractor, the public entity or awarding body is required withhold 150% of the value of the monthly billing for that subcontractor until that subcontractor demonstrates a plan to achieve substantial compliance, or until the subcontractor is substituted out in accordance with applicable law. The prime contractor is permitted (but not required) to withhold payment from the subcontractor. The public entity will be permitted to pay the prime contractor for the other work on the project performed by the prime contractor or by other compliant subcontractors.
What are the Penalties for Non-Compliance with California’s Skilled or Trained Workforce Requirements?
- Non-compliant contractors can be hit with up to $10,000 in fines per month, disqualification for future public works contracts, withholding of payment for non-compliant service rendered, and subject to additional reporting requirements.
AB 3018 empowers the Labor Commissioner with authority to investigate suspected violations of the skilled and trained workforce requirements and impose civil penalties up to $10,000 per month per non-compliant contractor. In situations where the Labor Commissioner finds that violations of the skilled and trained workforce requirements are willful, the contractor or subcontractor may be temporarily disqualified from bidding on public works projects. Prior to AB 3018, enforcement of the skilled and trained workforce requirements was left to the awarding bodies with no specified penalties.
AB 3018 also empowers the public agency or awarding body and prime contractor to withhold up to 150% of the value of the monthly billing for a non-compliant subcontractor who fails to timely submit the required information or does not demonstrate compliance. Non-compliant prime contractors and subcontractors are subject to additional and onerous reporting requirements to the Labor Commissioner, including declarations as to the accuracy of the information provided under penalty of perjury.
The Labor Commissioner shall publish on its website a list of contractors who are ineligible to bid on or be awarded public works contract, or to perform work as a subcontractor on a public works project pursuant to this section.
What can California Contractors, Engineers, Architects, Design Professionals, and Suppliers Competing for Public Works Projects do to Comply with AB 3018?
- Maintaining compliance with the skilled and trained workforce requirements will likely result in increased labor costs for contractors bidding on public works contracts.
- Increased penalties and enforcement for non-compliance will require additional investment into reporting and compliance work.
- Staffing and hiring decisions for public works contracts requiring skilled and trained workforces should be made at the time bids and proposals are submitted.
The increased penalties and investigation provided for under AB 3018 turned California’s skilled and trained workforce requirements from an aspirational goal to a present-day reality for contractors working on public works contracts. Given the limited number of apprenticeship graduates in the journeyman workforce, competition for those candidates with the required experience is expected to increase, putting additional upward pressure on labor costs. This is in addition to the already-limited number of qualified workers in the construction industry.
Indeed, in certain locales with public contracts requiring a skilled and trained workforce, apprenticeship graduates may need to be sourced from other locations in order to meet the skilled and trained workforce requirements. In the alternative, employers may need to start their own apprenticeship program.
In addition to increased labor costs, the severity of the penalties for non-compliance will also result in additional compliance-related expenses to ensure that the required information is accurately reported and supported with the Labor Commissioner. This includes costs associated with retaining an attorney familiar with California’s skilled and trained workforce requirements prior to an investigation or enforcement action by the Labor Commissioner to ensure compliance. Thus, contractors bidding for public works contracts subject to trained and skilled workforce requirements will likely be forced to pass these additional costs along to public agencies seeking affected Requests for Proposals which may further winnow out the contractors who are able to earn awarded bids.
Contractors submitting bids and proposals on public works contracts in California requiring skilled and trained workforce requirements should invest additional resources into staffing and hiring decisions before bids or proposals are submitted after California’s passage of AB 3018. Additional preparation well prior to submission of bids, including retaining qualified legal counsel in advance of preparing the bid, should ensure that contractors can maintain compliance throughout the life of a project without being subject to the penalties and fines discussed above.