Tag Archive for Associated Builders and Contractors of California

Contractor Has to Shell Out $8 Million After Unions Win Argument That Hilton San Diego Bayfront Hotel Was a “Public Works” Project

Are you one of the 2000+ construction trade workers who built the Hilton San Diego Bayfront Hotel? The California Division of Labor Standards Enforcement (Labor Commissioner’s office) gave me the following information about what to do:

Send your contact information to this California Division of Labor Standards Enforcement district office address (presumably via a letter or postcard) explaining that you were a trades worker on the Hilton San Diego Bayfront Hotel:

California Division of Labor Standards Enforcement
7575 Metropolitan Drive, Room 210
San Diego, CA 92108

According to a representative in the DIR Legal Division, payments to former workers (in the form of checks) are supposed to be available 60-90 days after the June 17, 2013 official announcement. A third-party administrator is handling the processing of the payments.

The phone number for this San Diego district office is (619) 220-5451.


This morning (June 17, 2013) the California Department of Industrial Relations (DIR) issued a press release declaring that the Labor Commissioner Collects Over $8 Million in Wages for Public Works Job at Hilton Hotel in San Diego. Surely unions will portray this settlement as a victory for exploited workers against greedy capitalists. Actually, it is a symptom of absurd, ambiguous, union-backed definitions of public works in state law.

Right off the bat, you notice something odd: the headline of the press release includes the clarification that the hotel was a “public works job.” How did a Hilton hotel become a public works job? You thought “public works jobs” were government projects such as schools, courthouses, libraries, and post offices.

You thought wrong. In 2001, Governor Gray Davis signed the union-backed Senate Bill 975 into law. It expanded the definition of a “public works” project to include just about any assistance of any financial value from a government:

For purposes of this section, “paid for in whole or in part out of public funds” means the payment of money or the equivalent of money by a state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer, performance of construction work by the state or political subdivision in execution of the project, transfer of an asset of value for less than fair market price; fees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be required in the execution of the contract, which are paid, reduced, charged at less than fair market value, waived or forgiven; money to be repaid on a contingent basis; or credits applied against repayment obligations.

In 2012, the Assembly Labor and Employment Committee rejected (on a party-line vote – Democrats opposed and Republicans in support) Assembly Bill 987, sponsored by Associated Builders and Contractors of California and introduced by Assemblywoman Shannon Grove (R-Bakersfield). This bill would have simplified a section of California Labor Code 1720 defining “public works” that two court decisions have described as “As statutes go, Section 1720 is hardly a triumph of the drafter’s art.” Unions like the law as written, and their triumph described below shows why they oppose any reasonable amendments to the law.

The United Port of San Diego owns property on the San Diego waterfront next to the San Diego Convention Center. In 2002, the Port issued a Request for Proposals for an entity to lease the land and build a hotel on the site. After choosing Hilton San Diego Convention Center, LLC to lease the land and build the hotel, the Port negotiated a lease that included a rent credit equal to 60 percent of the rent due each month for 11 years, not to exceed a total of $46.5 million. Subsequently the Port provided a “rent credit acceleration” for the hotel developer.

Hilton San Diego Convention Center, LLC chose Hensel Phelps, an investor in the project, as the general contractor. In April 2004, Hensel Phelps asked the Port if the hotel project was a public works job subject to the payment of state-mandated construction wage rates (so-called “prevailing wages”) to trade workers. In a memorandum dated May 12, 2004, the Port considered the available information and concluded that “the Hilton Hotel development is not considered a public works project subject to the payment of prevailing wages.” See that memo here: May 12, 2004 – Port Says Hilton San Diego Not Public Works.

After construction began in 2006, the Carpenters Contractors Cooperation Committee (CCCC) and Southern California Labor/Management Operating Engineers Contract Compliance Committee, two union-affiliated labor-management cooperation committees, referenced the rent credit and asked the California Department of Industrial Relations (DIR) to determine whether or not the Hilton Hotel was a public works project subject to state-mandated prevailing wage laws. The DIR began its own analysis of the project. See September 14, 2006 DIR Request to Port of San Diego for Hilton San Diego Documents.

In a response to the DIR dated October 2, 2007, Port of San Diego staff stated that it “believes that given the specific conditions of the RFP; challenges caused by extensive site remediation; the extent of public improvements; location; and size of the site, the transaction that was negotiated with Hilton represents the market for this particular site,” thus denying that the rent credit exceeded fair market value. The Port also warned that if the state decided to declare the hotel a public works project, it would discourage additional development of the area:

Port staff has received inquiries from other tenants, who are in the process of developing leaseholds, regarding this matter. We are concerned that attempts to treat private leaseholds as public projects will set off a chain reaction and have a chilling effect on redevelopment and reduce rental revenue to the Port, which will in turn negatively impact the Port’s ability to further its own capital projects.

Associated Builders and Contractors (ABC) of California (my former employer) and Associated General Contractors (AGC) of California submitted letters to the DIR arguing that the Hilton hotel was not a public works project. The Southern California Labor/Management Operating Engineers Contract Compliance Committee submitted a rebuttal to the ABC and AGC arguments.

November 30, 2007 San Diego Hilton Not a Public Works – ABC of CA Comment

December 7, 2007 San Diego Hilton Not a Public Works – AGC of CA Comment

December 19, 2007 San Diego Hilton is a Public Works – Operating Engineers Union Response

On April 1, 2008, the Director of the California Department of Industrial Relations determined that “the construction of the Hilton San Diego Convention Center Hotel and related development” is “a public work subject to prevailing wage requirements.” See April 1, 2008 DIR Director’s Decision – San Diego Hilton – Public Works.

Hensel Phelps filed an administrative appeal of the decision, and the DIR sought additional comments. See April 25, 2008 DIR Notice of Appeal – San Diego Hilton. Among the commenters were Associated Builders and Contractors of California: see May 8, 2008 San Diego Hilton Not a Public Works – Comments on Appeal – ABC of California.

On June 23, 2008, the DIR Director denied the appeal and affirmed his original decision that the Hilton San Diego Convention Center Hotel was a public work subject to prevailing wage requirements. Four days later, Hensel Phelps filed a lawsuit (Hensel Phelps Construction Company vs. California Department of Industrial Relations) in San Diego County Superior Court to overturn the DIR Director’s decision.

On February 25, 2010, a San Diego County Superior Court judge ruled that the Hilton San Diego Convention Center Hotel and related construction was not a “public work” subject to prevailing wage requirements. On April 23, 2010, the Director rescinded his earlier decision and ruled that the Hilton San Diego Convention was not a public works project. See April 23, 2010 DIR Rescinds Coverage Determination for San Diego Hilton.

But the Carpenters Contractors Cooperation Committee appealed the judgment to the Court of Appeal, Fourth Appellate District. On July 26, 2011, the court reversed the Superior Court decision and ruled that the rent credit was a payment of public funds, regardless of whether or not the rent reduction had a realizable monetary worth. See July 26, 2011 Hensel Phelps v San Diego Port District Appeals Court Decision – Prevailing Wage on Hilton San Diego Bayfront Hotel.

The State Building and Construction Trades Council of California had filed an amicus brief in the case. In its July 21, 2011 bulletin Court of Appeal Rules Prevailing Wage is Required on San Diego Hilton Project, it expressed outrage that “the Schwarzenegger Administration refused to file an appeal to defend the Department of Industrial Relations’ coverage decision” and that “the Port District and the Developer should be ashamed of themselves.”

The DIR press release explains what happened next:

Hensel Phelps Construction Company and the Labor Commissioner then negotiated the amount of wages due to the workers. All 2,051 workers will receive the full prevailing wages they earned on this project. They performed every aspect of construction, from foundation drilling to concrete pouring to steel erection to landscaping.

Hensel Phelps Construction Company will pay a third party administrator to process payments to the workers. The prime contractor will also pay an additional $400,000.00 to the Labor Commissioner as reimbursement for investigative costs.

Now we know that state-mandated construction wage rates cost an extra $8 million for a specific $350 million hotel project built in downtown San Diego in the mid-2000s. You can imagine the cost of prevailing wage for a project in a rural area during the recent economic downturn.

Is it surprising that the developers of the proposed Turtle Bay Sheraton Hotel in Redding suspended their plans earlier this year to build the hotel when unions managed (on their second try) to get the DIR to determine that hotel would be a “public works” project? See my February 15, 2013 post Unions Rise to Defense of “Prevailing Wage” Rates Jeopardizing Hotel Project in Redding and my January 31, 2013 post Redding Needs a Charter to End Nonsense Definition of Private Hotel as a “Public Works” Project.

Construction Unions Remain Big Boosters of California High-Speed Rail – My Article in www.UnionWatch.org

I attended the May 28, 2013 field hearing in Madera, California of the Subcommittee on Railroads, Pipelines, and Hazardous Materials of the Committee on Transportation and Infrastructure for the U.S. House of Representatives. The hearing was on oversight of the California High-Speed Rail project.

As I expected, union representatives attended the hearing in their brightly-colored t-shirts, and letters from union officials comprised the bulk of 120 pages of support letters for California High-Speed Rail, as submitted by Congressman Jim Costa (D-Fresno/Merced) for the hearing record. I write about this in my June 4, 2013 article in www.UnionWatch.org entitled Unions Defend California High-Speed Rail Project at Congressional Hearing.

The Project Labor Agreement for the California High-Speed Rail first segment was never mentioned during the hearing, but Associated Builders and Contractors (ABC) of California submitted a written statement “critical of High Speed Rail Authority for shutting out California workers.”

The Union Quest for a Project Labor Agreement on a New Sacramento Kings Basketball Arena: Part One – 2006

Looks like the Sacramento Kings professional basketball team is on its way to Seattle, ending the union dream in Sacramento of a monopoly on building a $500 million taxpayer-funded sports and entertainment complex. Here’s Part One of a two-part series on the history of labor issues concerning the construction of a proposed new arena for the Sacramento Kings.

In August 2006, Associated Builders and Contractors (ABC) of California, the Western Electrical Contractors Association (WECA), and the Coalition for Fair Employment in Construction learned from multiple sources that top construction union officials in Sacramento were anticipating a Project Labor Agreement (PLA) if Sacramento County voters approved a proposed $1.2 billion sales tax increase in the November 2006 election to pay for construction of a new $470 million arena for the Sacramento Kings basketball team, as well as other projects. A Joint Powers Authority comprised of elected officials from Sacramento County local governments would make sure the Project Labor Agreement was imposed, and arena supporters asked Sacramento union officials to keep their costly plan quiet until after voters approved the sales tax.

Supporters of fair and open competition didn’t keep it quiet. In October 2006, my former employer Associated Builders and Contractors of California and the Coalition for Fair Employment in Construction sent a mailer to 27,000 households in Sacramento County asking them to contact the Sacramento County Board of Supervisors and Maloof Sports and Entertainment in opposition to a Project Labor Agreement that unions wanted on the project.

Front of 2006 mailer urging Sacramento County residents to tell the Sacramento County Board of Supervisors and Maloof Sports and Entertainment to reject a union-only Project Labor Agreement for a new Sacramento Kings basketball arena.

Front of 2006 mailer urging Sacramento County residents to tell the Sacramento County Board of Supervisors and Maloof Sports and Entertainment to reject a union-only Project Labor Agreement for a new Sacramento Kings basketball arena.

Sacramento Kings New Arena - Project Labor Agreement Mailer Back 2006

In the end, a whopping 80.38% of voters rejected Measure R to pay additional taxes to fund a new $470 million arena for the Sacramento Kings professional basketball team. And 71.43% of voters rejected Measure Q, an advisory vote on authorizing the use of the new tax revenue in part for building a new arena.

Union leaders and their political allies weren’t done yet. A second chance for a Project Labor Agreement would come in 2011, but this time the opposition would go on the offense.

Part 2 to come…

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The Reason for Murky Bidding on California High-Speed Rail: A Law Enacted in 1996, When the Bullet Train Was Just a Twinkle in California’s Eye

On January 15, 2013, the Bay Area News Group (San Jose Mercury-News) reported in California High-Speed Rail Cost Figures Coming In, but No One Will See Them Yet that the chairman of the California State Senate Transportation and Housing Committee was upset about the sealed bids for the first segment of the California High-Speed Rail project.

…sealed envelopes containing the actual cost for the first leg of the high-speed rail line will finally be hand-delivered to state offices this week. But you won’t see the bid prices yet – and neither will the officials planning the project. They’ll be filed away in sealed containers, with the supporting documents locked up in fireproof cabinets…

But some outsiders are questioning why the state is taking so long to look at the price, particularly with so many taxpayer dollars on the line and a groundbreaking just months away.

“The process is supposed to be transparent,” said state Sen. Mark DeSaulnier, D-Concord, chairman of the Senate’s transportation committee. “Once the bid is in, it’s in the public domain, and the public needs to (be able to see) what the bids look like, especially on a project like this.”

Actually, the process is NOT supposed to be transparent. And Jeff Morales, CEO of the California High-Speed Rail Authority, is correct to point out that this practice is common for big projects around the nation and state. “It is the industry standard in design-build projects to open bid prices following initial evaluations as not to skew the process,” Morales stated.

Here’s the origin of what’s happening today with the murky High-Speed Rail bids. In 1996, Governor Pete Wilson signed into law Senate Bill 1420, introduced by Senators Quentin Kopp (a former High-Speed Rail Authority board member who has criticized the current manifestation of the project) and Jim Costa (who is now a member of Congress), to create the California High-Speed Rail Authority and “prescribe various powers of the authority relative to planning, contracting for the construction of, financing, and operating, a high-speed rail system.”

California Public Utilities Code Section 185036 (added to law by SB 1420) states the following:

185036. Upon approval by the Legislature, by the enactment of a statute, or approval by the voters of a financial plan providing the necessary funding for the construction of a high-speed network, the authority may do any of the following: (a) Enter into contracts with private or public entities for the design, construction and operation of high-speed trains. The contracts may be separated into individual tasks or segments or may include all tasks and segments, including a design-build or design-build-operate contract.

In the mid-1990s, California was beginning to experiment with the design-build procurement process for public works projects. Instead of using the traditional “design-bid-build” method of designing a project, bidding out contracts for construction, and then building the project, a state or local government would request proposals that combined design and construction for single-source delivery.

The idea is that design-build allows different facets of a project to be coordinated and integrated, and as a result construction is less expensive and completed faster. See the web site of the Design-Build Institute of America for its arguments in support of design-build.

However, there are potential drawbacks to public agencies using design-build procurement for taxpayer-funded construction. With design-build, state and local governments are allowed to award the contract to an entity that is not the lowest responsible bidder. Instead, the government chooses a design-build entity based on “best value” criteria that includes price but can also include other objectives, such as “community benefits.” (In the case of California High-Speed Rail, bidders fulfill the so-called “community benefits” criteria through a commitment defined in Section 7.11.3 to sign a specific union-only Project Labor Agreement with the State Building and Construction Trades Council of California.)

This somewhat subjective scoring system allows the government to avoid awarding a contract to an inexperienced or overreaching entity that submits a low bid, but it also invites temptation for government officials to subtly manipulate the scoring criteria to achieve a desired outcome, such as making sure their favored company wins the contract. In the worst circumstances, it opens up the possibility for outright cronyism, nepotism, and fraud.

Authorizing this kind of alternative procurement and delivery system for public works projects would seem to conform with California Public Contract Code Section 101, which states that “California public contract law should be efficient and the product of the best of modern practice and research.” But it seems to betray the principles in California Public Contract Code Section 100, which declares the intent of the Legislature in enacting the Public Contract Code to achieve the following objectives:

(a) To clarify the law with respect to competitive bidding requirements.

(b) To ensure full compliance with competitive bidding statutes as a means of protecting the public from misuse of public funds.

(c) To provide all qualified bidders with a fair opportunity to enter the bidding process, thereby stimulating competition in a manner conducive to sound fiscal practices.

(d) To eliminate favoritism, fraud, and corruption in the awarding of public contracts.

Obviously, the long-term success of design-build procurement relies on transparent procedures and promptly-accessible public records.

As the 1990s ended, state agencies and local governments throughout California were eager to win authorization in state law to award projects to design-build entities instead of using the design-bid-build method. Laws multiplied from 2000 to 2011 explicitly authorizing and reauthorizing “best value” bid criteria and establishing a methodology for many categories of local government entities. Language for these authorizations expanded from the crude, simple statement authorizing design-build for High-Speed Rail in Public Utilities Code Section 185036.

On January 20, 2011, the California State Senate Local Government Committee held an oversight hearing on design-build, specifically focusing on the authorization for counties (which was about to expire). The report produced from this 90-minute, 19-panelist hearing is probably the best available source for the public and the news media about the actual implementation in California of design-build procurement, as opposed to theory and rhetoric. See Faster, Cheaper, Better? How Counties Use Design-Build Contracting. The Summary Report from the Oversight Hearing – Wednesday, January 20, 2010 – California State Local Government Committee (also still posted on the California State Senate web site).

In his role of vociferously opposing the privatization of engineering work through design-build, Ted Toppin, Legislative Director of the Professional Engineers in California Government (a public employee union), revealed the weakness of design-build at the oversight hearing:

Taking a self-described “contrary view,” Ted Toppin told legislators that the Professional Engineers in California Government doesn’t support design-build contracting for four reasons: (1) design-build laws favor contractors over taxpayers, (2) design-build contracts avoid competitive bids in favor of best-value lump sum bids, (3) the design-build selection process is highly subjective, and (4) design-build methods eliminate public inspection of the public works projects. His group is neutral on extending the sunset clause for the counties’ design-build statute, provided that the Legislature requires expanded objective reporting. Toppin then specifically alleged that Sonoma County’s report to the LAO incorrectly reported the cost of its design-build contract. Toppin also claimed that Stanislaus County officials ignored state law when awarding their design-build contract for a swimming pool, failing to consider cost, life-cycle costs, and safety records, as required by law. Further, Toppin said that Solano County incorrectly reported contract costs and didn’t consider the cost criterion when awarding the contract. He told legislators that PECG opposes the expansion of design-build contracting to other projects and opposes a standard statute. [Written reactions from Stanislaus County and Solano County appear in the yellow pages.] Senator Price asked Toppin if design-build contracting has “any redeeming social value at all,” to which Toppin replied that state law should follow the approach for state highways that relies on early involvement and inspection.

While generally supporting the concept of design-build procurement on behalf of my former employer – Associated Builders and Contractors (ABC) of California – and addressing some obscure technical issues related to pre-qualification, I also criticized some of the historical problems with design-build procurement that we now see emerging in 2013 with the California High-Speed Rail:

Dayton criticized the project labor agreement signed as part of the design-build process for the San Joaquin County administration building. His group had difficulty in obtaining public records such as the subcontractors’ bid lists and payroll records. Dayton recommended that future design-build laws ensure public access to those documents, and submitted specific draft language. After the hearing, Dayton provided the Committee with six other proposed amendments to the design-build statutes.

As you can see in the final version of Senate Bill 879 (2010), the ABC of California lobbyist Juli Broyles of California Advocates and I succeeded in getting the law amended to included this new public records accessibility language in California Public Contract Code Section 20133 (g):

(g) Lists of subcontractors, bidders, and bid awards relating to the project shall be submitted by the design-build entity to the awarding body within 14 days of the award. These documents are deemed to be public records and shall be available for public inspection pursuant to this chapter and Article 1 (commencing with Section 6250) of Chapter 3.5 of Division 7 of the Government Code.

But such a requirement does not apply to the design-build procurement for California High-Speed Rail. Why? Because the California State Legislature never adopted this recommendation of the California Legislative Analyst’s Office in its February 3, 2005 report Design-Build: An Alternative Construction System:

Instead of separate legislation providing the design-build authority for different time spans for different groups of state and local entities, as currently exist, we recommend that a single statute be adopted that applies to all public entities providing the same authority and limitations, if any.

Nor did the California State Legislature adopt the exact same recommendation five years later from the California Legislative Analyst’s Office in its January 8, 2010 report Counties and Design-Build (also still posted on the LAO web site):

Instead of separate legislation providing the design-build authority for different time spans for different groups of state and local entities, as currently exist, we recommend that a single statute be adopted that applies to all public entities providing the same authority and limitations.

As a result, the California High-Speed Rail Authority has broad authority to develop its own “best value” criteria and scoring system, while keeping the details out of the public eye.

See an American Recovery and Reinvestment Act (ARRA) California High Speed Authority Design Build Program Plan produced by Parsons Brinckerhoff for the California High-Speed Rail Authority. ARRA was the stimulus package enacted by President Obama in 2009.

Does Senator Mark DeSaulnier Read the Legislation He Supports?

Despite his complaining about the murky bidding process for California High-Speed Rail, Senator Mark DeSaulnier has repeatedly voted for bills that authorize or reauthorize design-build procurement or other alternative delivery systems that include “best value” criteria and the same kind of scoring system that California High-Speed Rail is using.

For example, in 2012 he voted for Senate Bill 1509, which reauthorized design-build for K-12 school and community college districts. He also voted for Senate Bill 1549, which authorized design-build for projects of the San Diego Association of Governments (SANDAG). And he supported the use of design-build procurement by Contra Costa County when he served on the Board of Supervisors, and on more than one occasion.

Nevertheless, it’s good to have him pointing out some of the questionable practices of the bidding procedure for the California High-Speed Rail, although he surely won’t be criticizing the Authority’s requirement that contractors sign a Project Labor Agreement.

The Case Against the Davis-Bacon Act: 54 Reasons for Repeal – Book Forum for This New Publication

Tomorrow (Wednesday, October 17, 2012) at noon Eastern time (9:00 a.m. Pacific time), the Cato Institute in Washington, D.C. will hold a forum on the new book The Case Against the Davis-Bacon Act: 54 Reasons for Repeal.

The Case Against the Davis-Bacon Act: 54 Reasons for Repeal

The Case Against the Davis-Bacon Act: 54 Reasons for Repeal

Here’s the Cato Institute’s description of the book forum:

Featuring the author Armand Thieblot, Olin Institute, George Mason University; with comments by Maurice Baskin, Partner, Venable, LLP, and co-author of Construction Union Tactics to Regain Jobs and Public Policy; moderated by James A. Dorn, Editor, Cato Journal, and Vice President for Academic Affairs, Cato Institute.

Advance copies of the book will be exclusively available at the forum. Online registration for this event is now closed. If you are interested in registering for the event please email events@cato.org. If you can’t make it to the Cato Institute, watch this event live online at www.cato.org/live and join the conversation on Twitter with the hashtag #CatoEvents. Also follow @CatoEvents on Twitter to get future event updates, live streams, and videos from the Cato Institute.

The Davis-Bacon Act, the law that sets wages typically at or near the union rate for workers on billions of dollars worth of public works annually, has afflicted the construction industry for eight full decades. Obsolete and impossible to administer fairly when first passed in 1931, it has not improved since. It has been actively sustained through biased participation by the Department of Labor for the exclusive benefit of organized labor. If not repealed, Davis-Bacon will add billions of dollars of unnecessary costs to public works built over the next decade. Armand Thieblot, a longtime student of the act, documents some major reasons—in addition to cost savings—to repeal it, and shows why actions short of repeal will not be effective. Repeal of Davis-Bacon early in the coming administration will provide major stimulus to a construction industry that desperately needs the help.

When I began working for Associated Builders and Contractors (ABC) in January 1995 as the Manager of State Affairs, one of my first duties was the promotion and distribution of Dr. Armand Thieblot’s 1995 report State Prevailing Wage Laws: An Assessment at the Start of 1995. As the general counsel for Associated Builders and Contractors, Maury Baskin provided me with advice and guidance during my more than 17 years in government affairs management positions for ABC National, ABC of California, and the ABC Golden Gate Chapter (now known as the ABC Northern California Chapter).

For First Time Ever, a Bill Sponsored by Associated Builders and Contractors of California Becomes California Law: A Compilation of Public Works Categories

The Northern California Chapter of Associated Builders and Contractors (ABC) just announced that Governor Jerry Brown signed into law Senate Bill 1370, introduced by Senator Tom Berryhill (R-Modesto/Fresno). Based on my experience in California since 1997 and my archived files back to the 1980s, I believe this is the first stand-alone legislative bill sponsored by Associated Builders and Contractors to become law in California.

Senate Bill 1370 requires the California Department of Industrial Relations to post on its web site a list of every California code section and the language of those sections that require construction contractors to pay state-mandated wage rates (so-called prevailing wages) to workers in the construction trades and in certain professional construction services. The list must be posted by June 1, 2013 and updated annually each February 1.

According to the last legislative analysis of Senate Bill 1370, provided to the full Senate on August 17, 2012, “The author and sponsor of the bill argue that there is no one specific location where all projects subject to state mandated prevailing wage are listed. Proponents believe this one-stop web-based listing would increase government transparency and improve compliance with both project owners and contractors alike.”

California law is peppered with numerous and inconsistent references outside of the Labor Code to projects for which contractors are required to pay state-mandated construction wage rates. There are even two prevailing wage requirements embedded in the text of the California Fish and Game Code (Sections 1350 and 1501.5).

With the enactment of Senate Bill 1370, contractors will be able to better comply with state requirements for construction wage rates. Workers will have a better chance of knowing when their employer needs to pay state-mandated wage rates, no matter how obscure the project. And the public will learn that state-mandated construction wage rates apply to much more than what is typically considered to be a public works project. Fish and Game.

Workers’ Compensation Reform Bill Sent to Governor Jerry Brown Has One Change to Union-Exclusive Alternative Dispute Resolution Carve-Out Program

On August 31, 2012 (the last day of the 2012 California legislative session), the California State Assembly voted 72-5 and the California State Senate voted 34-4 for Senate Bill 863, a bill making various changes to California’s workers compensation system.

As is customary in the California State Legislature, the bill was created as a gut-and-amend at the last minute (amended on August 24, August 27, and August 30) and whipped through the legislative process to Governor Jerry Brown on August 31 without adequate review.

As Sacramento Bee columnist Dan Walters wrote in his September 2, 2012 column entitled The Legislative Process Does Count:

A 170-page overhaul of California’s multi-billion-dollar workers’ compensation system – hammered out during months of secret negotiations between business and labor union lobbyists – was dumped on the desks of 80 Assembly members late Friday after being whisked through two perfunctory committee hearings…

So is SB 863 good public policy or not?

One can’t really answer that question, and the same ambiguity envelops almost everything else that was done, and left undone, in the final days of the session.

SB 863 was one of countless measures that popped up during those days, entirely new bills that were hustled through the process with little or no detailed knowledge of what they really do, or whose interests they serve.

I looked at the final version of Senate Bill 863 to see if the bill changed the obscure alternative dispute resolution “carve-out” program authorized exclusively for the unionized construction industry. It does. For some reason (innocuous or sinister?), Senate Bill 863 eliminates this reporting requirement, which was part of the original 1993 authorization:

By June 30, 1996, and annually thereafter, the Administrative Director of the Division of Workers’ Compensation shall prepare and notify Members of the Legislature that a report authorized by this section is available upon request. The report based upon aggregate data shall include the following:

(1) Person hours and payroll covered by agreements filed.

(2) The number of claims filed.

(3) The average cost per claim shall be reported by cost components whenever practicable.

(4) The number of litigated claims, including the number of claims submitted to mediation, the appeals board, or the court of appeal.

(5) The number of contested claims resolved prior to arbitration.

(6) The projected incurred costs and actual costs of claims.

(7) Safety history.

(8) The number of workers participating in vocational rehabilitation.

(9) The number of workers participating in light-duty programs.

The division shall have the authority to require those employers and groups of employers listed in subdivision (c) to provide the data listed above.

Why was this language eliminated? The legislative analyses for the bill don’t say.

Background on Alternative Dispute Resolution in Carve-Outs for Unionized Companies

This program was established as California Labor Code Section 3201.5. It was part of a workers compensation reform enacted by Governor Pete Wilson in 1993. The program was expanded by reform legislation signed by Governor Arnold Schwarzenegger in 2004. (Section 3201.7 allows unionized employers in other industries to set up similar programs.)

An article in the March 10, 2006 Sacramento Business Journal (“Unionized Firms Save in Workers’ Comp Plan“) gave rare news media attention to this program, which is only available to construction companies in a collective bargaining agreement with unions or signatory to a Project Labor Agreement. I’m quoted in the article:

Too bad this kind of program is only allowed in the construction industry when companies and employees are part of a collective bargaining agreement, said Kevin Dayton, state government affairs director for Associated Builders and Contractors of California, a merit-shop group.

The California Department of Industrial Relations maintains a list of what are now 34 carve-out programs established to date. Unions have promoted this program as a benefit of unionization. For example, the California Commission on Health and Safety and Workers’ Compensation (CHSWC) – then (and now) chaired by California Labor Federation lobbyist Angie Wei – was able to commission what is now the University of California Miguel Contreras Labor Program to produce a 2006 report entitled How To Create a Workers’ Compensation Carve-Out in California: Practical Advice for Unions and Employers. The California Commission on Health and Safety and Workers’ Compensation has also hosted at least one conference on Workers’ Compensation Carve-Outs and Alternative Dispute Resolution.

Although I never hear carve-outs cited nowadays as a reason to require contractors to sign a Project Labor Agreement, unions and pro-union construction management firms such as Parsons Constructors used the existence of this alternative dispute resolution carve-out program as an argument in support of Project Labor Agreements for large infrastructure projects during the early years of government-mandated Project Labor Agreements in California (1993-2000). One example was the Project Labor Agreement for the U.S. Department of Energy’s Lawrence Livermore National Laboratory National Ignition Facility in Livermore, California. It was negotiated in 1997 between construction manager Parsons Constructors and officials of the Building and Construction Trades Department, AFL-CIO and the Building and Construction Trades Council of Alameda County.

Seeking Access to Alternative Dispute Resolution for Non-Union Contractors

In 1998, then-Senator Dick Mountjoy introduced Senate Bill 2019, sponsored by the California Business Properties Association (the contract lobbying firm at the time for three California chapters of Associated Builders and Contractors), which would have eliminated the requirement that alternative dispute resolution programs for workers compensation in the construction industry be part of a collective bargaining agreement. Opposed by unions and trial lawyers, the bill did not get out of committee, and since then there have been no attempts to expand alternative dispute resolution in the construction industry outside of the unionized arena.

Before the 2011 legislative session, I attempted on behalf of my former employer (Associated Builders and Contractors (ABC) of California) to develop language that would allow non-union contractors to reduce workers compensation costs through participation in an alternative dispute resolution program. I was unable to figure out a way to graft such a program onto the existing law, which is dependent on the models of union collective bargaining agreements and labor-management cooperation committees.

Trying to Eliminate Favoritism in California State Law for Bidders in the Union-Exclusive Alternative Dispute Resolution System

Various laws authorize state agencies and local governments in California to award contracts for construction projects with subjective “best value criteria” under the “design-build” alternative bidding procedure. Unionized contractors that are part of alternative dispute resolution carve-out programs get a special exemption from safety requirements.

Design-build authorization language throughout California law includes the following:

A bidder’s safety record shall be deemed acceptable if their experience modification rate for the most recent three-year period is an average of 1.00 or less, and their average Total Recordable Injury/Illness rate and average lost work rate for the most recent three-year period does not exceed the applicable statistical standards for its business category, or if the bidder is a party to an alternative dispute resolution system, as provided for in Section 3201.5 of the Labor Code.

So a bidder in an alternative dispute resolution system (under California Labor Code Section 3201.5) does not have to worry about the experience modification rate or injury/illness/loss rate. As noted above, Section 3201.5 only applies to contractors in either a collective bargaining agreement or a Project Labor Agreement. Non-union contractors cannot use this method of alternative dispute resolution.

On January 11, 2010, the Assembly Business and Professions Committee considered Assembly Bill 1063, introduced by Assemblyman Martin Garrick and sponsored by my former employer, Associated Builders and Contractors (ABC) of California. It would have removed language that allows a contractor with a poor safety record to be “acceptable” if it is part of an alternative dispute resolution program that by law is restricted to contractors in a collective bargaining agreement or project labor agreement.

ABC of California argued that all design-build entities should have a decent safety record, without exceptions. The Western Electrical Contractors Association stated that “A safety record should be based on safety – not the existence of a side-agreement over dispute resolution – the two have nothing to do with each other! There is simply no valid public policy served by this requirement.” But the California Labor Federation, AFL-CIO opposed AB 1063 by praising unions and their activities, which was sufficient for the bill to fail on a party-line vote (Democrats opposed, Republicans in support.)


Update, October 31, 2013: The California Department of Industrial Relations (DIR) issued a bulletin on October 28, 2013 announcing The Division of Workers’ Compensation (DWC) Approves Carve-Out Agreement Covering 22,000 Workers in Southern California between seven Southern California United Food and Commercial Workers (UFCW) local unions, Vons and Super A Foods. I sent this tweet in response:

A labor attorney representing management emailed me a response:

But Kevin this can only work under a union contract because the health plan workers comp plan and grievance process are combined. A good idea. Still, few unions have implemented as it is a lot of work to make it work…Impossible to do in a non-union setting as the grievance process side of things would be cost prohibitive and disruptive – only works in union setting as the grievance process is already in place, as is the trust health plan administration system which does double duty – that is reason for efficiencies. Maybe some giant corporation might try it non-union but doubt it – frankly most unions see the benefits but it is so much work and can cause employee dissatisfaction if a comp case goes wrong that not worth it. And then what do you do with claimants’s lawyers? – nice idea, but generally a no-go.

U.S. Chamber of Commerce Publishes Guide on “Sabotage, Stalking & Stealth Exemptions: Special State Laws for Labor Unions” – California Is Featured

I was pleased to see that the U.S. Chamber of Commerce released a report on August 10, 2012 through its “Workforce Freedom Initiative” on a fairly obscure topic that is usually left to the National Right to Work Committee and its research wing, the National Institute for Labor Relations Research: special exemptions from prosecution for union officials when their actions normally regarded as crimes are committed in the context of “lawful labor union activity” protected by the National Labor Relations Act (NLRA) or state labor relations laws (such as California’s Agricultural Labor Relations Act).

“Sabotage, Stalking & Stealth Exemptions: Special State Laws for Labor Unions” concludes that “The most glaring examples of union favoritism under state laws tend to occur in criminal statutes and allow individuals who engage in truly objectionable behavior to avoid prosecution solely because they are participating in some form of labor activity.”

As you might guess, much of this report focuses on California laws, in particular laws that compromise private property rights when union officials are trespassing on private property on union business. It cites several examples:

  • criminal trespass and trespassing laws in California Penal Code Section 602 that do not apply to “persons engaged in lawful labor union activities”
  • rules in California Penal Code Section 640 against willfully blocking the free movement of another person in a public transportation system facility or vehicle except when related to “collective bargaining, labor relations, or labor disputes”
  • criminal laws in California Penal Code Section 420.1 against preventing, hindering, or obstructing someone from entering, leaving, or passing through land, except when the perpetrator is engaged in “lawful labor union activities”
  • laws in California Penal Code Section 552.1 criminalizing trespassing on or loitering at industrial facilities, except when people are lawfully “engaging in any organizational effort on behalf of any labor union, agent, or member thereof, or of any employee group, or any member thereof, employed or formerly employed in any place of business or manufacturing establishment described in this article, or for the purpose of carrying on the lawful activities of labor unions, or members thereof” or acting for the “purpose of investigation of the safety of working conditions on posted property by a representative of a labor union or other employee group who has upon his person written evidence of due authorization by his labor union or employee group to make such investigation.”

I’ve been told by management-oriented labor law attorneys that the “lawful labor union activities” in the California Penal Code are often raised by unions as a justification to trespass, but these exemptions generally pertain to union officials who have a valid claim to observe working conditions and monitor an employer’s compliance with a collective bargaining agreement (or a Project Labor Agreement).

Here is some additional information to flesh out some of the California examples in this guide:

Restraining Orders and Preliminary and Permanent Injunctions

The report dedicates a few paragraphs to the Ralphs Grocery v. United Food & Commercial Workers Union cases now to be considered at the California Supreme Court. These cases deal with two union privileges in state law that the U.S. Chamber of Commerce report does not specifically cite. Here’s a bit more detail:

On July 19, 2010, the California Third Appellate Court issued a decision invalidating the so-called Moscone Act, signed into law by Governor Jerry Brown in 1975, that limited the ability of state courts to issue any restraining order or preliminary or permanent injunction to stop a variety of actions related to labor disputes. (The Moscone Act is California Code of Civil Procedure Section 527.3.) This decision on a rather obscure topic actually generated an article in a major California newspaper: the July 20, 2010 San Francisco Chronicle: Pro-Union Law Struck Down by Appeals Court.

To summarize very crudely in layman’s terms, the court determined that the owner of private property with some degree of public access (such as a grocery store) can get an injunction from a state court to stop peaceful speech activity (such as picketing and handing out flyers) on that private property even when it is related to a labor dispute.

The appeals court also declared a second labor law to be invalid: California Labor Code Section 1138.1, which was part of Assembly Bill 1268, signed into law by Governor Gray Davis in 1999. This bill declared that unions and union officials and members were not responsible for unlawful acts committed by union members during labor disputes unless there was “clear proof of actual participation in, or actual authorization of those acts.” It also established very high standards for a court to issue a temporary or permanent injunction in any case involving or growing out of a labor dispute.

The most informed and aggressive opponent of AB 1268 was my former employer, Associated Builders and Contractors (ABC) of California. It was one of ABC of California’s “Dirty Dozen Most Unwanted Bills of 1999” during the first year of the Gray Davis administration.

ABC of California asserted that AB 1268 would encourage violence during labor disputes. A contractor who was then a member of ABC testified against the bill in a committee hearing along with attorney Brad Newman (now with the Paul Hastings, LLP law firm in Palo Alto), who also submitted a 17-page brief during the April 21, 1999 hearing to the bill’s author, State Senator Shelia Kuehl, pointing out the bill was unconstitutional. He also submitted a follow-up brief on the amended version of the bill. (Mr. Newman was vindicated after eleven years!)  ABC of California also had its members send faxes to Governor Davis asking him to veto the bill. I spoke on a Modesto conservative radio talk show about the bill. The Contra Costa Times published an August 29, 1999 editorial opposed to it. Davis signed it anyway.

The California Fifth Appellate Court issued a similar decision striking down the Moscone Act and AB 1268 on January 27, 2011.

The United Food and Commercial Workers Union (UFCW) appealed both court decisions to the California Supreme Court. See information about the appeal of the Third Appeals Court decision to the California Supreme Court here and information about the appeal of the Fifth Appeals Court decision to the California Supreme Court here.

Warning to Employers: Unions Assert Special Rights to Trespass in California

I’ve been told by management-oriented labor law attorneys that California employers can best protect themselves against trespassing issues by treating union trespassers in the same way as other trespassers. They tell me that if an employer treats visitors, solicitors, lunch trucks, and tool trucks differently than union “visitors,” that inconsistency can be exploited by union lawyers.

In addition, “An employer clearly acts at his own peril if he effects a citizen’s arrest of a union visitor on private property in California.” This was the advice given in 2001 by a California management-oriented labor law attorney in the wake of the June 13, 2001 Ninth Circuit U.S. Court of Appeals decision in Radcliffe v. Rainbow Construction Company.

Indeed, union representatives who visit job sites sometimes come armed with letters from their union attorneys claiming that this court decision and other state laws allow union officials and “non-employee union organizers” to enter private property for the purpose of engaging in labor compliance and other “lawful labor union activity.” I have a collection of such letters.

There seems to be demand from California employers for a guide concerning union trespassing, including information on union access to workers to pressure them to sign of union authorization cards. In the meantime, if your company is having problems with union officials and union organizers trespassing on your property or job site, you should consult with a management-oriented labor law attorney before you take any action.

Additional Coverage of This Guide:

States Exempt Labor Unions from Stalking, Trespassing Laws – August 10, 2012 – The Foundry: Conservative Policy News Blog of The Heritage Foundation

Fresno Bee Calls for CEQA (California Environmental Quality Act) Reform That Includes Stopping Union “Greenmail” for the Purpose of Coercing Developers to Sign Project Labor Agreements

The Fresno Bee published an editorial on Sunday, August 5, 2012 calling for Governor Jerry Brown to take a leadership role in reforming the California Environmental Quality Act, or CEQA (California Public Resources Code Section 21000 et seq.) so that unions can’t exploit it to block proposed projects until the owner signs a Project Labor Agreement giving unions monopoly control of the construction work.

See “EDITORIAL: Governor Again Moves Toward Needed CEQA Reform Steps – Changes to the State Law Should Be Vetted and Discussed by All Parties” – Fresno Bee – August 5, 2012.

Like other counties in the San Joaquin Valley (such as Kings, Tulare, and Kern counties), Fresno County has received numerous environmental comments on behalf of construction trade unions from the law firm of Adams, Broadwell, Joseph & Cardozo concerning proposed solar energy power plants. The ultimate objective is not saving the planet, but coercing the developer to sign a Project Labor Agreement.

The editorial states the following:

Brown recently has been dropping hints he is open to a significant reform of the law. It’s clearly needed, and we hope this isn’t another instance of him shooting off his mouth. California needs significant CEQA reform.

CEQA is being abused, and defenders of the law get defensive whenever anyone suggests it. The most pernicious abuse is known as “greenmail,” with groups threatening CEQA lawsuits to get labor concessions or other side deals.

See a Sacramento Bee article about Governor Brown’s comments: “California Gov. Jerry Brown Upsets Environmentalist Friends with His CEQA Critique” – Sacramento Bee – July 31, 2012.

Also, read the opinion piece from former California governors George Deukmejian, Pete Wilson, and Gray Davis calling for “modernization” of CEQA: “Keep California Green and Golden with CEQA Reforms” – San Diego Union-Tribune – July 12, 2012.

Real Reform of CEQA Will Be an Uphill Battle

The California State Legislature has considered one bill this year to significantly reform CEQA. On January 9, 2012, the Assembly Natural Resources Committee considered Assemblywoman Shannon Grove’s Assembly Bill 598, which would have given the California Attorney General the exclusive authority to file or maintain a lawsuit alleging that an Environmental Impact Report (EIR), negative declaration, or mitigated negative declaration does not comply with CEQA.

The committee rejected the bill on a 6-3 party-line vote, with Republicans in support and Democrats opposed. The hearing was an opportunity for the committee to discuss how certain parties, particularly labor unions, exploit public participation in the CEQA process to achieve objectives unrelated to environmental protection.

Assemblywoman Grove cited four specific examples of different unions (the Teamsters, the California Nurses Association, the United Food and Commercial Workers, and the Service Employees International Union) filing CEQA lawsuits to delay projects as leverage to extract labor concessions from businesses. She also noted that some businesses use CEQA to try to block potential competition.

Testifying on behalf of my former employer (Associated Builders and Contractors of California), I discussed how certain construction trade unions abuse CEQA as a weapon to delay projects until the owner agrees to require contractors to sign a Project Labor Agreement with unions. The Western Electrical Contractors Association (WECA) and the Chambers of Commerce Alliance of Ventura & Santa Barbara were the other public supporters of the bill.

Assemblywoman Linda Halderman (R-Fresno) cited a specific example of a union using CEQA to try to force a contractor to sign a Project Labor Agreement to install solar panels at Fresno-Yosemite International Airport. Assemblyman Steve Knight (R-Palmdale) adeptly exposed the Attorney General’s double standard of opposing the additional responsibilities assigned in AB 598 while remaining silent about adopting additional responsibilities through other legislation.

Legitimate environmental organizations such as the Sierra Club and the Planning and Conservation League opposed the bill. The Teamsters and United Food and Commercial Workers (UFCW) union opposed the bill in writing but did not speak at the hearing. Democrats on the committee opposed the bill, but some of them (along with the Attorney General’s office) acknowledged that some parties abuse CEQA. Assemblyman Bill Monning (D-Santa Cruz) said nothing about how the Carpenters union used CEQA in a recent high-profile campaign to delay and ultimately derail the proposed La Bahia Hotel in Santa Cruz.