In the flurry of activity that a legislative deadline always brings, the California Legislature passed significant changes to public works law as a part of next year’s budget. This year’s changes were routed through a budget trailer bill, a process known for attaching controversial policy changes to budget spending.
This year’s changes were slipped into SB 96, a bill that contained a host of other changes from authorizing construction of a veteran’s cemetery in Southern California to changing judicial compensation. Retroactive changes to the recall process proved to be the most controversial and are currently being litigated in court.
SB 96 raises the exemption for using contractors that are not registered with the Department of Industrial Relations. Districts are no longer required to hire department registered contractors or file a PWC-100 form for projects under $25,000 for new projects and under $15,000 for maintenance projects. The bill also raises the annual registration fee for contractors from $300 to $400.
California is the sixth state in the country to implement contractor registration laws. The program was first established under SB 854 in 2014 as a way of enforcing prevailing wage requirements. According to Eric Rood, Assistant Labor Commissioner for the Department of Industrial Relations (Department), the program established by SB 854 fell short in a few ways. “Many agencies, especially in rural areas, were continuing to hire unregistered contractors,” says Rood. “The law had no teeth to enforce the registration requirement”.
The Department conducted an aggressive outreach campaign to public agencies and contractors for feedback on the program. The Department found that compliance with the $1,000 registration threshold was difficult, especially for smaller and rural agencies. Many found their already small pool of contractors were uninterested in filing the necessary paperwork and paying the fees to compete for small public contracts. With this feedback in mind, the Department drafted SB 96 to offer public agencies both a carrot and stick to increase participation in the contractor registration program.
SB 96 also includes penalties for public agencies that fail to comply with the requirements of the contractor registration program. Districts that use unregistered contractors on projects when required to can be fined $100 per day, up to $10,000. Additionally, any district that willfully violates the provisions of the law more than twice in a calendar year can lose eligibility for state funding for a year.
So, should districts expect the Department to be looking over their shoulders with their aggressive new enforcement tools? “The Department will be looking at compliance with a lens of good faith,” says Rood. Districts that are proactively seeking to comply with the law have little to fear. Even if a citation is made, districts have a right to due process via a hearing and an appeal process set up in statue. Rood says the Department is focused on going after the bad actors who blow off the law.
“Department investigations are driven by complaints,” says Deborah Wilder, a public works attorney and President of Contractor Compliance and Monitoring, Inc.“ The Department does not have the staff to monitor compliance with the contractor registration requirements or verify the information provided by districts on the PWC-100 unless necessitated by a complaint.”
Wilder said the revisions to the law open up new questions that need to be clarified by the Department. Districts are now required to file a PWC-100 within 30 days of the award of a contractor, but no later than the first day in which a contractor has workers employed upon the public work. Occasionally a district will need to perform emergency work, whether it’s a broken pipe or a flooded roadway. The new statute offers no protection for a district that by circumstance is unable to file a PWC-100 before starting emergency construction or repair. According to a strict reading of the statute, the Department’s fines still apply.
Wilder raised the liability of district for subcontractors and sub tier subcontractors as a second issue that the law is silent on. SB 96 states that a district that “permits an unregistered contractor or subcontractor to engage in the performance of any public work,” may be subject to fines of up to $10,000. “Frequently an agency may not be aware of what subcontractors are being employed by the general contractor on a project, let alone what additional sub tier subcontractors are employed.” It remains to be seen whether the Department will enforce fines against districts whose contractors and subcontractors have employed unregistered subcontractors, regardless of the district’s knowledge.
Special districts have mostly reacted positively to the changes brought by SB 96 to the contractor registration program. The new law will mean many will have an easier time securing contractors for small projects and will have to file less paperwork with the state. Wilder says that districts must be wary of the potential pitfalls of the new legislation. “It is critical for districts to educate themselves and their staff on the new requirements,” says Wilder. “The best to be proactive about doing this is to get involved with their trade associations.”