New Law Imposes Significant Changes to Public Works Contractor Registration and Prevailing Wage Reporting

On June 27, 2017 Governor Brown signed SB 96 which is effective immediately and will be implemented by the Department of Industrial Relations starting July 1, 2017. SB 96 makes significant changes to the contractor registration and prevailing wage monitoring program. Some of these changes may be helpful to school and community college districts while others pose new requirements.

The significant changes are as follows:

The public works contractor registration and pending wage monitoring requirements currently applicable to all projects over $1,000, will not apply to maintenance projects of $15,000 or less, or to construction, alteration, demolition, installation, or repair projects of $25,000 or less. This will exempt many small maintenance and repair projects although they are still subject to payment of prevailing wages. (Labor Code section 1725.5 (f), 1771.1(n).) The contractor or subcontractor whose small project is exempt still has to keep wage records for three years.

Public works contractor registration and prevailing wage monitoring requirements, which went into effect in March-April 2015 for bids submitted and contracts entered into after that time, will also apply on or after January 1, 2018 to any public works contract executed before April 1, 2015. (Labor Code sections 1725.5(e) 1771.1(l).)

The public works contractor registration fee is increased from $300 to $400, renewable annually or beginning June 1, 2019, for up to three years at a time. (Labor Code section 1725.5(a).)
Where an unregistered contractor or subcontractor is found to be working on a public works project, the Labor Commissioner can issue a stop order prohibiting the use of the unregistered contractor or subcontractor until they are registered. This stoporder does not apply to registered contractors or subcontractors on the same project, but it could result in some disruption. (Labor Code section 1725.5(j).)

The awarding body’s notice (PWC-100 form) to the Department of Industrial Relations of a public works project subject to registration and monitoring is due within 30 days of the award of the contract, instead of 5 days currently, but no later than the first day a contractor has workers on the job. (Labor Code section 1773.3(a).) The notice must now include the registration numbers of the contractor and any listed subcontractors. (Labor Code section 1773.3(a).)

There is a civil penalty of $100 per day, up to $10,000, available against an awarding body that fails to provide the PWC-100 notice or enters into a contract with or allows an unregistered contractor or subcontractor to perform public work. (Labor Code section 1773.3(b).) The penalty can also be applied after final payment if an unregistered contractor or subcontractor is found to have worked on the project. (Labor Code section 1773.3(d).) Final payment cannot be issued until at least 30 days after all of the information required on the PWC-100 form has been submitted, which may impact some short duration projects with a single payment due. (Labor Code section 1773.3(d).)

If the awarding body is determined by the Labor Commissioner to have willfully violated contractor registration and monitoring requirements on two or more public works projects in a 12-month period, the awarding body becomes ineligible for state construction funding for one year. (Labor Code section 1773.3(f).) Again, this only applies to projects that meet the higher dollar thresholds.
Bids must now include in the subcontractor list the public works contractor registration number of each subcontractor, as well as the subcontractor’s name, location, contractor’s license number and portion of work. This applies to subcontractors for more than one-half of one percent of the total bid amount. As with contractor’s license numbers currently, an inadvertent error in listing a public works contractor registration number is not grounds for a bid protest or for finding a bid to be nonresponsive if the correct registration number is submitted by the prime contractor within 24 hours after the bid opening. (Public Contract Code section 4104(a).)

Should you have any follow-up questions or comments on this information, please contact us by e-mail or by telephone at (714) 573-0900 (Southern California) or (916) 245-8677 (Northern California).


Court Issues Ruling in Favor of State Allocation Board in Lawsuit Regarding Level III Developer Fees

On May 25, 2016 the State Allocation Board (“SAB”) voted to authorize Level III Developer Fees, consistent with Government Code section 65995.7. Shortly thereafter the California Building Industry Association (“CBIA”) filed a lawsuit in the Sacramento Superior Court challenging the action of the SAB, in a case entitled California Building Industry Association v. State Allocation Board. The court subsequently issued a temporary restraining order to temporarily halt the action of the SAB, and then later issued a tentative ruling in SAB’s favor. The case was heard on July 22, 2016. On August 22, the Court issued a final ruling denying CBIA’s request for a preliminary injunction. The Court’s conclusion, which mirrors its July tentative ruling in support of Level III Developer Fees, is that CBIA failed to prove any likelihood of success on the merits of its case. In addition to denying the preliminary injunction, the Court also terminated the previously issued temporary restraining order.

SAB argued that when funds are not available for new construction projects, pursuant to Article 5 (commencing with Section 17072.20 of the Education Code), that Level III Developer Fees may then be authorized. Conversely, CBIA argued that there were funds available, including Hardship Application and seismic repair funds, and the fact that any amount was available, however small, meant that funds were still available.

The Court examined whether funds available for new construction were based solely on Article 5 funds, or whether the SAB should consider alternative sources of funds. The Court concluded that authorization of Level III Developer Fees are appropriate “when Article 5 funds are insufficient to allow for continued apportionment for new construction.” Additionally, the Court concluded that although there are $2.2 million in Article 5 funds remaining, the next project in line for funding was Fresno Unified School District’s approved application for over $15 million, and that project alone would deplete remaining Article 5 funds. The Court found that SAB was “not approving apportionments as the funds provided fall far short of that needed for the ‘next in line’ approved application.”

The Court also noted that “the statute does not require [SAB] to wait for additional funds that may become available at some point in the future.” Although Proposition 51, regarding the statewide school bond, has been placed on the November ballot, SAB is not required to take a “wait-and-see” approach for funding new construction projects in the meantime.

In its August 22 ruling, the Court also directed SAB to prepare a final order incorporating the Court’s ruling to be entered by the Court and to finalize this matter, pending any appeals by CBIA.

SAB’s earlier finding that state funds for new construction are no longer available and that SAB is no longer approving apportionments for new construction due to lack of funds, which led it to authorize the implementation of Level III Developer Fees, has thus far withstood the legal challenge by CBIA.

We have previously covered the authorization of Level III fees and this legal challenge in our May 27 and July 21 Legal Updates, which can be accessed at http://parkercovert.com/blog/, and we will continue to monitor the status of this case. Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677 or visit our website at http://parkercovert.com/


State Allocation Board Authorizes Level III Developer Fees for the First Time; TRO Issued

May 27, 2016

At Wednesday’s meeting of the State Allocation Board, the Board voted to authorize Level III developer fees, consistent with Government Code section 65995.7.  This is the first time the Board has authorized the levying of Level III fees.

Senate Bill 50, which was enacted in 1998, authorized school districts to levy developer fees at one of three levels:

  • Level I fees, the basic statutory mitigation fees, are established by the State Allocation Board.  Currently, Level I fees are $3.48 per square foot of residential development and $0.56 for commercial development.  The amount is adjusted by the State Allocation Board every other year.
  • Level II fees are generally intended to represent approximately 50% of a district’s matching share for new school construction projects and are typically higher than Level I fees.  Level II fees must be adopted annually by a school district based on a School Facilities Needs Analysis.  The fees may be used for facilities that are attributable to projected enrollment growth from the construction of new residential units.
  • Level III fees are intended to represent approximately 100% of the costs of new school construction projects.  Level III fees cannot be collected unless the State Allocation Board finds that state funds for new school construction are no longer available.  At its May 25th meeting, the State Allocation Board took this step and authorized Level III fees.  In order to collect Level III fees, in addition to action taken by the State Allocation Board to authorize the fees, a school district must qualify for Level III fees pursuant to the process set forth at Section 65995.7.

Several concerns have been raised in response to the State Allocation Board’s authorization of Level III fees.  A state-wide school bond measure has been placed on the November 2016 ballot and passage of the state-wide bond may mean that once again, state funds for new school construction are available, eliminating the basis for Level III fees under Section 65995.7.  It is not clear how Level III fees are terminated once they are no longer needed.

Additionally, the California Building Industry Association has already challenged the action of the State Allocation Board.  A Temporary Restraining Order (“TRO”) has been granted by the Sacramento Superior Court in a case entitled California Building Industry Association v. State Allocation Board (filed May 25, 2016).  This TRO prevents the State Allocation Board from implementing or giving notice of any determination that state funds for new school facility construction are not available at this time and to refrain from authorizing the imposition of Level III fees, pending further order of the Court.  A later court date has been set to hear further arguments in this case.

School districts with Level II and Level III School Facilities Needs Analyses in place may be in a position to begin levying Level III fees in the near future, pending the outcome of the California Building Industry Association v. State Allocation Board case.  Other school districts may wish to take this opportunity to evaluate the underlying authority supporting the district’s developer fee program by preparing a School Facilities Needs Analysis (approved by the district’s board under Section 65995). Such a study may be the basis for enacting a Level III fee so long as the State Allocation Board’s May 25th findings remain in effect.  It should be noted however, that such a study may, over time, become obsolete and not provide adequate justification in support of a district’s fee program as required by law.  Accordingly, it is important that these studies are regularly reviewed and updated as necessary.

School districts planning to move forward with levying Level III fees should be aware of additional State and federal laws that also apply to impact fees since the provisions of Government Code section 65995 et seq. are not the only source of authority in this area.  Further, this issue is more critical since a Level III fee is potentially greater than a Level I or II fee and raises issues regarding the amount of the fee in relation to the facility costs it is intending to address.

Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677, or click “contact” in the menu above.


Court of Appeal Rules Competitive Bids Not Required for School District Entering Into Lease-Leaseback Contracts for New Facilities

May 16, 2016

The California Court of Appeal hamachinery-1241377_1920s issued a new decision regarding the use of lease-leaseback  agreements for school construction projects.  In the case entitled Mcgee v. Balfour Beatty Construction LLC, (Cal App., 2016 DJDAR 4306) plaintiff McGee brought suit against defendants Balfour Beatty and the Torrance Unified School District. Torrance had entered into lease-leaseback agreements with Balfour Beatty for several construction projects relying on the authority of Education Code section 17406.

In its published decision, the Court highlighted the prior lease-leaseback based appellate decisions in Los Alamitos Unified School District v. Howard Contracting, Inc. (2014) 229 Cal App.4th 1222 (Los Alamitos),  and Davis v. Fresno Unified  School District (2015) 237 Cal App.4th 261 (Davis). Relying significantly on Los Alamitos, the Court in McGee held that Torrance was not required to obtain competitive bids prior to entering into contracts for its new facilities.

The Court however went on to conclude that plaintiff McGee should have been permitted to pursue its separate claim against Balfour on the basis that Balfour may have had an improper conflict of interest under Government Code section 1090. According to the court, such circumstances may arise when a construction firm provides pre-construction services to a school district and then enters into a non-competitively bid construction contract with such school district.

Separately, it should be noted that the State Legislature amended Education Code section 17406 effective January 1, 2016. None of those amendments however provided clarification of the issues that have been in dispute in the Los Alamitos, Davis or McGee litigation. Our office has prepared a separate Legal Alert on those amendments.

Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677.


State Increases Limits to Developer Fees and Contracting Amounts

dollar-544956_1920Update: On February 24, 2016, the State Allocation Board approved adjustments to the Level I developer fees.  The residential development amount was increased to $3.48 per square foot (from $3.39) and $0.56 per square foot for commercial/industrial development (increased from $0.55).  The change was the result of a miscalculation in the original amounts approved at the January 27, 2016 meeting.  

In January, the State saw increases to two thresholds related to school district construction and contracting.  Level I Developer Fees were increased by 1.05% and the threshold for competitively bid projects was increased to $87,800.

Level I Developer Fee Increased:  On January 27, 2016 the State Allocation Board approved an increase to school facility fees imposed on development, known commonly as Level I Fees.  The increases take effect immediately and authorize an increase of the Level I Fee on residential construction from $3.36 to $3.39 per square foot.  The Level I Fee for commercial and industrial construction is now increased from $0.54 to $0.55.

Even though this increase is nominal, school districts with Level I Fees in effect, may wish to take this opportunity to evaluate the underlying authority supporting the district’s Level I Fee program.  Typically this authority will be in the form of a School Facility Fee Justification Study approved by the district’s board under Government Code section 65995. Such a study may over time become obsolete and not provide adequate justification in support of the Level I Fee as required by law.  Accordingly, it is important that these studies are regularly reviewed and updated as necessary.

In addition, school districts may wish to evaluate their present expenditure plans to ensure that fee revenue is being utilized in an authorized manner and to further ensure that the five year accounting requirements of Government Code section 66001 are being met.

Bid Threshold for Contracts Increased:  In the area of competitively bid public works projects, Public Contract Code section 20011(a) requires a school district to competitively bid and award contracts involving an expenditure of more than $50,000, adjusted for inflation, to the lowest responsible bidder.  Section 20011(a) authorizes the State Superintendent’s office to annually adjust the base bid amount to reflect certain inflationary cost factors as published by the United States Department of Commerce.  In accordance with this authority, the State Superintendent has recently adjusted the Section 20011(a) bid threshold to $87,800.  This represents an increase from last year’s $86,000 bid threshold.  Please note that certain public projects under Section 22002(c) have a lower bid threshold requirement in the amount of $15,000.

School districts may wish to review ongoing bid procedures to ensure that the appropriate bid limitation amounts are being applied to contracts that are determined to be subject to the Public Contract Code.


Use of Lease-Leaseback Contracting Method in light of Davis v. Fresno Unified School District

For the past several years, school districts throughout the State of California have increasingly utilized the lease-leaseback contracting method to complete their new construction and modernization projects. Since 1957, the Legislature has provided an exemption to the normal design-bid-build competitive bidding process under Education Code section 17406(a)(1) which permits a lease-leaseback structure for builder-financed construction.

Using this contracting structure, a school district leases real estate it owns to a construction firm for $1.00 per year and the contractor agrees to build new facilities on that real estate. This gives the contractor sufficient property rights to “leaseback” the property, and serves as collateral the construction firm can use to obtain third-party financing.

School Districts utilizing the lease-leaseback structure have claimed significant monetary and time savings on their public works projects by using a competitive best value selection process rather than awarding strictly on the basis of the lowest responsive and responsible bid. Since the awarded lease-leaseback contractor must build the project for a Guaranteed Maximum Price (“GMP”), with limited exceptions, contractors are incentivized to work closely with the district to minimize change orders and delays in the completion of the project.

Fresno Unified School District’s Project

Relying on Education Code section 17406(a)(1), the Fresno Unified School District’s governing board in 2012 authorized the execution of a contract for the construction of buildings and facilities at a middle school. Under the contracts associated with the project, Fresno Unified was to lease the project site to Harris Construction Co., Inc. (Contractor). The Contractor would then build the project and lease the improvements and site back to Fresno Unified.

The Site Lease made the project site available to the Contractor for $1 in rent. The Facilities Lease provided that the Contractor would build the project in keeping with lengthy “Construction Provisions” and then sublease the site and project back to Fresno Unified in exchange for payments under a “Schedule of Lease Payments.”

The Schedule of Lease Payments was keyed to payments set out in the Construction Provisions, so that, in effect, the funds paid by Fresno Unified under the Facilities Lease were based solely on the construction services performed by the Contractor. The Facilities Lease was scheduled to terminate when the construction project was completed and the final lease payment was made. Construction was completed in 2014.

Fresno Unified was not scheduled to, and did not occupy the school facility until the lease was terminated. Stephen Davis, a local taxpayer and principal at Fresno-based Davis Moreno Construction, challenged Fresno Unified’s arrangement with the Contractor as in violation of the Public Contract Code’s competitive bidding requirements. Davis alleged the school construction project should have been competitively bid because the lease-leaseback arrangement did not create a true leaseback or satisfy the criteria for a statutory exception in §17406.

Davis also alleged Fresno Unified’s board breached its fiduciary duties by approving the costly arrangement, and that the Contractor had an impermissible conflict of interest that rendered the lease-leaseback agreement void.

The District filed a demurrer, which was sustained by the trial court, claiming that courts in similar cases found that site leases, subleases, and pre-construction services agreements entered into by school districts pursuant to Section 17406 were not subject to the competitive bidding requirement to award to the lowest responsible bidder.

On appeal, the Fifth Appellate District reversed the trial court decision notwithstanding that there have been approximately 10 appellate court decisions prior to the Davis opinion which have validated the use of the lease-leaseback documents and structure similar to what the District has been using.

The court held that Davis stated a claim for violation of the requirement for competitive bidding on a public works project by alleging that a statutory exception for school construction did not apply where a school district’s lease-leaseback arrangement with a construction contractor was merely a subterfuge that disguised a traditional construction agreement. Davis construed the competitive bidding exception of §17406(a)(1) to apply only to genuine leases.

The court agreed. By referring to buildings for use of the school district during the term of the “lease,” the Legislature meant an agreement that had the real substance of a lease, and not merely something the parties called a lease. In addition,to meet the primary statutory purpose of providing financing for school construction, the arrangement had to include a financing component.

In this case, Davis sufficiently alleged that the lease at issue was a subterfuge that did not provide financing for the project. Compensation paid to the Contractor was for construction, not for a period of use of the project facilities. In addition, the arrangement did not contemplate that the Contractor and Fresno Unified would proceed under a true landlord- tenant relationship. Instead, Fresno Unified simply paid for construction and took title when that was completed. Davis therefore stated a cause of action for a violation of the competitive bidding requirements normally in place for such a project.

The court clarified, as well, that a qualifying lease-leaseback arrangement must have a term during which the school district uses the new buildings constructed under the arrangement.

Finally, Davis alleged sufficient facts to state a cause of action for a violation of Government Code §1090’s conflict of interest provisions, which also meant he stated a common law claim for a conflict of interest.

Davis’s allegation that the Contractor provided services to Fresno Unified as a paid consultant under the pre-construction services agreement and that this fact was sufficient to raise the possibility that the Contractor was a “public official” subject to conflicts of interest in Government Code §87100.

It is important to note that the appellate court did not determine that the District had improperly used the lease-leaseback structure, only that Davis had alleged sufficient facts to state a cause of action and therefore sent the case back to the trial court for further litigation on the above issues.

Petition for Review of Court of Appeal Decision

Once the Court of Appeal decision becomes final on July 1, 2015, trial courts will be required to follow the Davis decision. On Friday, June 12, 2015, the Board of Trustees for Fresno Unified voted to file a petition for review of the case before the California Supreme Court. The District has until July 10th to file the petition. Once filed, the California Supreme Court has 60 days in which to makes its decision whether to accept review of the case. If the high court accepts review of the case, the appellate court holding in Davis v. Fresno Unified School District will be set aside until the court makes a final decision, which may take more than a year. If either the California Supreme Court declines to accept review of the case or sustains the holding of the appellate court, the appellate court decision will be reinstated retroactively to the June 1, 2015 decision.

Revision of Lease-leaseback Documents

At the June 12, 2015 C.A.S.H. Legislative Advisory Committee meeting held at Long Beach Unified School District in which the Davis opinion was discussed, it was agreed that the lease-leaseback is still a practical and useful tool for school districts and the Davis decision did not change that.

It was the consensus from attendees that pending final resolution of the Davis decision, that school districts revise their existing lease-leaseback documents, as needed: (1) to ensure that a genuine lease is entered into by the parties; (2) that a financing component is included in the lease-leaseback arrangement; and (3) that the school district use the facilities constructed during the term of the lease.

There was no consensus regarding the potential conflict of interest claim other than to avoid if possible from entering into pre-construction services agreements until it is ultimately determined whether a contractor entering into a preconstruction services agreement with the District should be considered an officer or employee of the District subject to Government Code section 1090 and its prohibition from being “financially interested in any contract made by them in their official capacity.”

To comply with these recommendations, our office has revised its standard form of lease-leaseback documents to provide that the lease of completed facilities continue for a period of 6 months following the school district’s acceptance of the project as complete, and that 15% of the project cost be financed by the contractor during this extended 6 month period. Unfortunately, until a final decision is reached, it will not be known whether these fixes are necessary, and if so, whether they are sufficient.

Our office will continue to closely monitor the status of the Davis case as well as any other similar cases and will advise the District accordingly.

Should you have any questions, please do not hesitate to contact Douglas N. Yeoman at (714) 573-0900, or via the contact form on the menu above.


Suspension of Level 3 Developer Fees Expires

On June 27, 2012, the Governor signed Senate Bill (SB) 1016, which in part amended Government Code section 65995.7 to make the authorization for “Level 3” developer fees inoperative through December 31, 2014, regardless of the status of state funding, except under two circumstances. With the Legislature failing by August 31, 2014, to place a statewide school facilities bond on the November 4, 2014 statewide general election ballot, the second such circumstance occurred, resulting in the expiration of the existing suspension of Level 3 fees as of September 1, 2014.

Under the Leroy-Greene School Facilities Act of 1998, commonly known as SB-50, school districts have been able to levy a fee per square foot of development (commonly called a “Level 1″ fee), so long as sufficient justification exists to support that fee. The current Level 1 fees are $3.36 for residential development and $0.54 for commercial. For school districts that meet certain criteria, a “Level 2″ residential fee may be imposed that can be higher than the Level 1 fee, based on a specific statutory formula. The Level 2 fee is unique to each school district and must be supported by a school facility needs analysis (SFNA) and re-authorized annually. In concept, Level 2 fees are the equivalent of what the state assumes will total 50% of the cost of providing facilities for students from new development. The other 50% was to be funded by the state through SB-50.

SB 50 also resulted in the passage of Government Code section 65995.7, pursuant to which school districts eligible for Level 2 fees may also be eligible for Level 3 fees if the State Allocation Board (SAB) certifies that state funds for new school facility construction are no longer available. Level 3 fees are intended to be the equivalent of 100% of the cost of school facilities for new development. If and when state bond funds again become available for facilities, the difference between the Level 2 and Level 3 amounts is to be refunded either to the state or to developers. Thus, Level 3 fees represent a gap filler for when the state is unable to match its share of the cost of facilities for new development.

Prior to school districts’ imposing Level 3 fees, Government Code section 65995.7(a)(1) requires that the SAB must make the determination that state funds are no longer available, and then notify the Secretary of the Senate and the Chief Clerk of the Assembly, in writing, of that determination and the date when state funds are no longer available for publication in the respective journal of each house.

We will be closely monitoring any actions which the SAB may be taking going forward, and will advise you if and when any such action is likely to be taken finding that state funds are no longer available. If you have questions or need further information on changes in public works project labor compliance, please contact this office.


New Legislation on Public Works Contractor Labor Compliance Registration Program

SB 854 (Chapter 28, Statutes of 2014) was signed into law and became effective immediately on June 20, 2014. SB 854 establishes a new public works contractor registration program. These changes are at Labor Code sections 1725.5 – 1776.

All contractors and subcontractors intending to be qualified to bid or be listed in a bid, or perform work on public works projects are now being required to register, and renew their registration annually, online with the Department of Industrial Relations (“DIR”). Registration began on July 1, 2014. (Labor Code section 1725.5(a)(1).) All contractors and subcontractors submitting bids or being listed as a subcontractor on a bid must be registered by March 1, 2015, and only registered contractors and subcontractors will be able to work on contracts awarded on or after April 1, 2015. (Labor Code section 1725.5(e).) The DIR will have a list of registered contractors and subcontractors on its website. (Labor Code section 1771.1(e).) Until the March 1, 2015 bid deadline, and the April 1, 2015 award deadline, districts can continue to accept bids from, and award contracts to, contractors and subcontractors who have not registered under this program.

For school districts and community college districts, the new registration program will mean that the DIR will no longer charge the awarding body for services provided after June 20, 2014 for prevailing wage compliance monitoring and enforcement by the DIR’s Compliance Monitoring Unit (“CMU”). The fees to fund compliance monitoring and enforcement, determine prevailing wage and public works project coverage, and hear appeals will now be paid by the contractors and subcontractors. Contractors will have to pay a $300 registration fee, and an annual renewal fee by July 1 of each year. (Labor Code section 1725.5(a)(1).)

Starting with new contracts awarded on or after April 1, 2015, and for all projects as of January 1, 2016, labor compliance information during a project will be submitted by contractors directly to DIR. (Labor Code section 1771.4(a)(3), (c)(2).)

Existing labor compliance programs remain in effect as to projects funded in whole or in part under Propositions 47 or 55 and awarded before January 1, 2012. (Labor Code section 1771.7(a)(1), (f).) It appears that existing labor compliance programs and requirements remain in effect for other projects currently in progress or to be awarded before April 1, 2015.

An awarding body (district) will be required to electronically submit a PWC-100 contract award notice to DIR within five days of awarding a contract on all projects, subject to SB 854. (Labor Code section 1773.3.)

Starting January 1, 2015, the invitation to bid and the contract documents must specify that the project will be subject to compliance monitoring and enforcement by the DIR. (Labor Code section 1771.4(a)(1), (c)(1).) The awarding body must post, or require the prime contractor to post, specified job site notices. (Labor Code section 1771.4(a)(2).) The invitation to bid and contract documents must specify that all contractors and subcontractors must be registered in accordance with Labor Code section 1725.5, and that no bid can be accepted or contract awarded without proof of the contractor or subcontractor’s current registration. (Labor Code section 1771.1(b).)

The DIR registration will require that the contractor provide evidence of (i) worker’s compensation coverage; (ii) contractor’s license; (iii) no current debarment under the Labor Code or other federal or state law; and (iv) no delinquent liability to an employee or the state for back wages or related damages, interest, fines or penalties pursuant to a final judgment, order, or other determination by a federal, state or local agency or a court, unless the matter is on appeal and has been bonded around. (Labor Code section 1725.5(a)(2).)

Inadvertent listing of an unregistered subcontractor by a prime contractor in a bid can be corrected by the subcontractor being registered prior to or within 24 hours after bid opening, or by substituting out the subcontractor with the consent of the district pursuant to Public Contract Code section 4107. If neither of these occurs, a competing bidder may file a bid protest on the issue, and the district may deem the bid nonresponsive. (Labor Code section 1771.1(c,d).)

Where an awarding body has had a labor compliance program in effect continuously since December 31, 2011, or has a project labor agreement in effect on a project, the DIR “may” exempt a public works project from SB 854. This appears to be on a project by project basis. (Labor Code section 1771.4(b).)

If you have questions or need further information on changes in public works project labor compliance, please contact this office.


State Allocation Board Approves Biennial Developer Fee Increase

The State Allocation Board, at its January 22, 2014 meeting, approved an increase in “level 1” developer fees from $3.20 to $3.36 per square foot on new residential development and residential additions of over 500 square feet, and from $0.51 to $0.54 per square foot on new commercial and industrial development.

School districts may implement these higher fees immediately provided that they have an appropriate fee justification report in place. Your existing justification report may be adequate or may need to be updated. Implementing the higher fees requires passing a resolution, preceded by publishing a notice twice in a 10-day period, posting the notice, and mailing the notice to anyone who has specifically requested notice. The higher fees go into effect 60 days after the resolution is passed, unless urgency resolutions are used to reduce the waiting period. The county and any cities having jurisdiction in your district should be notified of the increase so that they have current information for building permit applicants.

Non-unified districts should adjust their allocation agreement for sharing the total fee amounts.

As always, fee revenues are to be placed in an account to be used for facilities construction and modernization, as well as costs of justifying and collecting the fees. Those districts that have the higher “level 2” fees on new residential development should still increase their level 1 fees to capture revenues from projects not subject to level 2 fees.

If you have any questions concerning developer fees, justification reports, or the process to increase fees, please contact our office.