“Educating the Government Contracting Community”

Do State Prevailing Wage Laws Apply to You? - Check the History

To price a proposal or bid for a publicly competed project, the bidder has to know if prevailing wage rates apply. Without that information, it is virtually impossible to prepare a responsive and competitively priced bid. Most prime contractors require their subcontractors to submit quotes to them that factor in the correct wage rates for the subcontractors' employees according to the appropriate wage scale. But how do the subcontractor and the prime contractor know which employees are entitled to receive prevailing wages under the contract? It's a critical answer to get right. Being over-inclusive means the prime and subcontractor may be overpaying and thus overbidding the job and not won't win the contract. If they don't include all of the employees that are covered by the prevailing wage law, then they can be subject to paying back wages, penalties, and can be found to have made misrepresentations amounting to False Certifications or False Claims. Anyone who's been to a Bidders' Conference knows that the procuring agency is not going to answer this kind of a question with definitive clarity. And simply reading the solicitation documents and the contract will not yield much more than a reference to the general requirement to comply with the prevailing wage statute. A recent case in California maps out the solution for how government contractors can get a measure of certainty regarding this important issue.

Russ Will Mechanical, Inc. ("Russ Will") got hired as the heating, ventilation, and air conditioning ("HVAC") subcontractor on a public works project to modernize an administrative building at a community college in Santa Clara County, California. Russ Will's subcontract required it to "furnish all labor, materials, equipment and supplies necessary" to complete the HVAC work and required Russ Will to pay "not less that the applicable prevailing wage to all laborers, workmen, and mechanics employed by him at the project site in the execution of work hereunder." Some of Russ Will's employees worked on the project site installing the HVAC system components and received the required prevailing wage. But other Russ Will employees worked at its permanent manufacturing facility and fabricated ducts, flashings, and fittings for the project. Those employees did not do any work on the project site but the components that they fabricated did become incorporated into the project. Russ Will did not pay prevailing wage rates to those employees working at its manufacturing facility.

A Russ Will manufacturing facility employee filed a complaint with the California Department of Industrial Relations, Division of Labor Standards Enforcement (the "DLSE") claiming that he was due to be paid a prevailing wage. The DLSE agreed and ordered Russ Will to pay a civil wage and penalty assessment. The Department of Industrial Relations (the "Department") determined that Russ Will's offsite fabrication employees fell within the coverage of the prevailing wage statute because Russ Will was a subcontractor and did not meet the recognized exemption as a material supplier. To be an exempt material supplier, Russ Will had to sell supplies to the general public (which it did not) and its manufacturing facility must not be established for the particular public works contract. The case took some interesting procedural twists and turns before winding up before the California Court of Appeal, which resolved the matter.

The Court looked at California's prevailing wage law and found that it did not answer the question "Do employees working at a permanent manufacturing facility that is not located at or on the project site fall with in the class of workers entitled to coverage under the prevailing wage law?" In fact, the Court described the statute as ambiguous on that point. The Court then considered California case law. Finding two cases that contained "useful general guidelines for considering whether offsite work is covered under the prevailing wage law," the Court, however, concluded that those cases addressed concerns that not present in Russ Will's case. Lastly, the Court considered how the Department had previously interpreted and construed the prevailing wage statute in the context of offsite fabrication scenarios.

The Court found longstanding, consistent decisions by the Department in which it had determined that offsite fabrication work performed at permanent facilities were not subject to prevailing wage requirements. And the Court used this consistent pattern in the Department's decision-making to trump the fact that that neither Russ Will nor the previous contractors referenced in the prior Department decisions met the "selling goods to the public" requirement of the material supplier exemption. Sheet Metal Workers' International Association, Local 104 v. John C. Duncan & Russ Will Mechanical, Inc. http://www.courts.ca.gov/opinions/documents/A131489.PDF

In the end, the Court reached its decision by doing what Russ Will and its prime contractor should have done to ensure that they were on the right side of the prevailing wage law -- Check the History. They would have found no clear answer in the statute nor in the California cases and would have looked at the Department's prior decisions before they even submitted their proposal. And when Russ Will started its administrative battle with the Department, it would have been armed with the Department's own decisions to support its position.

If your company is concerned about the application of prevailing wage statutes or compliance with other statutory or regulatory requirements, GCARL is able to help ensure that you get the answers that you need on the front end to avoid challenges to your contract awards and post-project expense for non-compliance. And consider becoming a GCARL member at www.gcarl.com/becoming-member

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