Amendment to California's Prevailing Wage Laws Requires Construction Contractor Registration

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Covered Proposals and Contracts: A new issue facing counsel involved in construction law is the contractor registration requirement (see Stats 2014, ch 28, §§62–63) enacted in June as an amendment to California's prevailing wage laws (Lab C §§1770–1815). These laws govern all public works and many hybrid construction projects, and establish minimum wages and overtime pay for covered laborers. The 2014 amendment applies "to any bid proposal submitted on or after March 1, 2015, and any contract for public work" governed by the prevailing wage laws "entered into on or after April 1, 2015."

Registration Began July 1, 2014: Effective July 1, 2014, the new amendment requires a prospective contractor or subcontractor on such public works bids and contracts to do all of the following: (1) register with the Department of Industrial Relations; (2) pay an initial nonrefundable registration fee and an annual renewal fee; and (3) as part of the registration process, provide information establishing the contractor's eligibility. The Department must maintain a list of registered contractors on its website.

Consequences of Failure to Register: A contractor or subcontractor who fails to properly register will not be "qualified to bid on, be listed in a bid proposal," "or engage in the performance of any public work contract" that is subject to the prevailing wage laws and the new amendment. Moreover, a contract entered into with any contractor or subcontractor who is in violation of the registration requirement is "subject to cancellation." But a contract for public work will not be "unlawful, void, or voidable" solely because of the failure of the awarding body, contractor, or any subcontractor to comply. When a subcontractor is unregistered, the prime contractor may substitute that subcontractor with one who is registered as long as the consent of the public entity is obtained.

A contractor or subcontractor who fails to properly register will not be "qualified to bid on, be listed in a bid proposal," "or engage in the performance of any public work contract" that is subject to the prevailing wage laws and the new amendment. Moreover, a contract entered into with any contractor or subcontractor who is in violation of the registration requirement is "subject to cancellation." But a contract for public work will not be "unlawful, void, or voidable" solely because of the failure of the awarding body, contractor, or any subcontractor to comply. When a subcontractor is unregistered, the prime contractor may substitute that subcontractor with one who is registered as long as the consent of the public entity is obtained.

Contractor Remedies Are Uncertain: The 2014 amendment to the prevailing wage laws did not address whether a contractor who proceeds with work on a public works contract that is ultimately canceled (because of the contractor's failure to register) is entitled to be paid its reasonable costs for labor, equipment, material, or services actually provided. Under another public works law, for example, a contractor who innocently provides work on a public project may be reasonably compensated if the contract is later found to be invalid because of defects in the competitive bidding process caused solely by the public entity. The uncertainty regarding compensation in the registration law will undoubtedly spawn litigation.

The Take-Away: Although the consequences of not complying with the registration requirement are not as draconian as the failure to comply with the contractor licensing requirement, the failure to register will inevitably cause either outright bid rejection or contract cancellation, which could severely impact a company who primarily thrives on public works contracts. If the failure to register is discovered after the contact is being performed, administrative and project management complications will likely delay and increase the costs of the affected project after cancellation. Any ensuing damages to the public entity could be asserted as an offset to a contractor's or subcontractor's action for recovery for work performed under the canceled contract.

Depending on the focus of your practice, there are many CEB products to assist you in counseling your clients on construction and prevailing wage laws, including California Mechanics Liens and Related Construction Remedies (4th ed Cal CEB), California Construction Contracts, Defects, and Litigation (Cal CEB), and California Wage and Hour: Law and Litigation (Cal CEB).

© The Regents of the University of California, 2013. Unauthorized use and/or duplication of this material without express and written permission is strictly prohibited.

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Topics:  Construction Workers, Contractors, Prevailing Wages, Subcontractors, Wage and Hour, Wages

Published In: Construction Updates, Government Contracting Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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