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SR-205-003 (333) \ \-1: ~~5"'003 :JtT 2 fl19RG CM:SS:NM:JG:dvm city council Meeting: 10/28/86 Santa Monica, California TO: Mayor and city Council FROM: City staff SUBJECT: Recommendations Regarding Payment of Prevailing Wages and Apprenticeship Programs for All City-Related Rehabilitation and construction projects INTRODUCTION On August 12, 1986 City Council requested that Staff provide information regarding the background and potential implications of a policy regarding the payment of prevailing wages and operation of apprenticeship programs as proposed by Local 1400 of the United Brotherhood of Carpenters and Joiners of America. The following report provides the information as requested. BACKGROUND In March of this year, Local 1400 of the united Brotherhood of Carpenters and Joiners of America presented for council consideration a resolution proposing that all "construction employers be required to pay the State-established prevailing wage rate on all projects involving city-owned or City-leased land (even projects financed with private money). If In further conversations, representatives of Local 1400 also specified that - 1 - \ \....E ;"GlJ II ~ . the prevailing wage requirement should apply to all proj ects financed in total or in part with city funds. In addition, Local 1400 proposed that the resolution be expanded by including a requirement that for all projects performed on Ci ty-owned or Ci ty-leased land or property, construction employers provide uproof of participation as a signatory to a recognized apprenticeship and/or training program. . ." The proposed apprenticeship provisions would not apply to contracts of general contractors involving less than $30,000 or 20 working days or to contracts of specialty contractors not bidding for work through a general contractor, involving less than $2,000 or fewer than five working days. A copy of the proposed resolution is attached for reference (Attachment I). DISCUSSION Currently, the city generally meets the request of Local 1400 in that it requires all successful bidders on its public works projects to pay prevailing wages as set by the California Department of Labor. In addition, all successful bidders on public works projects must apply for a Certificate of Approval for the employment and training of apprentices for each craft or trade, or contribute a pre-specified amount to a trade-specific training fund sponsored by each union ~, if such contributions are refused by the training fund administrators, make the same - 2 - contribution to the California Apprenticeship Council. The availability of three options far participation in apprenticeship programs enables those smaller non-union and/or WHBE contractors to successfully bid for public works projects since these types of firms do not typically have the resources or union affiliation required to operate a recognized apprenticeship program. All of the City's current requirements are in accordance with California state law (California Labor Code Chapter 4, Division 3, sections 1775 - 1777.5 and 3070). In addition, many praj ects constructed in the City which are financed with grant funds (CDBG, Rental Rehabilitation, section 8, CHFA, etc.) are already required to pay Davis-Bacon or State prevailing wage rates if they are larger than the minimum size or level of financing thresholds set by the grantor agencies. None of the grantor agencies enforce any requirements regarding participation in recognized apprenticeship programs. A mare detailed discussion of these Federal and state requirements begins on page 9. However, the city has no such prevailing wage or apprenticeship training requirements for privately financed projects performed on city-owned or City-leased property (i.e. Airport redevelopment; Pier business development) or for projects partially financed with city funds (i.e. community Corporation - 3 - projects). The ramifications of requiring that such non-public works proj eets meet the requirements of the resolution vary depending on the type of project. For larger private construction projects which tend to use union craftspeople, prevailing wages would generally be paid and on-site apprenticeship programs offered. For smaller private construction and rehabilitation projects, the requirements could have a significant impact. A detailed discussion of these ramifications is outlined below: I) Analysis of the Impact of prevailinq Waqe Requirements The proposed requirement that all contractors performing work on city-owned or city-leased property or utilizing City funds be required to pay prevailing wages would result in increased labor costs since many such contractors normally perform the work with non-prevailing wage labor. In the Los Angeles area, the union-negotiated wage rates for each trade are adopted by the Department of Labor as the "prevailing wage". Union-negotiated wage scales include a base salary and a benefits package (pension, disability, maj or medical, apprenticeship fund); the total salary package is what is set as the prevailing wage by the Department of Labor. Thus, contractors who normally use non-union labor state that their labor costs under a prevailing wage requirement increase due to the need to pay a wage equal to - 4 - the union-established base salary for a laborer or skilled craftsperson plus the benefits package. A prevailing wage requirement also results in a significant reporting workload for contractors who must be able to provide evidence that they have actually paid prevailing wages. This reporting requirement resul ts in addi tional administra t i ve overhead cost associated with monitoring of procedures, paperwork completion and payroll certification. In addition, the oversight agency charged with enforcing the prevailing wage requirement must also devote staff time for compliance review in the form of construction site visits and employee interviews. Discussions with several area contractors (including those specializing in housing construction and rehabilitation and WMBE firms), with representatives of the community Redevelopment Agency of Los Angeles (which has a prevailing wage requirement for certain new construction and rehabilitation projects) I and with Community Corporation resulted in the following cost increase estimates for projects with prevailing wage requirements: - 5 - W N ...... =E: - - - PJ LQ H 0 tD :x- 0 (l ::r ::s 0 - 0 !li Po ~ a .., m a rt I I I 1 1 I '0 I 1 ~ 1::tJ IZ' e- m ::I m (1) ::I *'**"'**" ~-* ~ ::I tt1.., ..... ::r ...... :e: ..... o,JO'lUt ~WN l-' P. lit; rt ollol-'l>> N rt (1) 00 '< OUtO'" ocon '< -- = w.w. ..... 0 ~~ rt (1)(1) n eel-' s:: C ::t ~ 00 0 ::I = ..... ::1::1(1) (1) tttttt 0 rtrt Ii' .... .... rt .... ..... rt 0.. 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(fill) ..... ll) ::I (tll,Q rt lQ lQ (l) III .....- (tl a wt'O- =0 I-'(l)WI-'I-' 0 l,Qll) (tIrtliPCo,J 0 .. 11 OAlllfrdP l:f to rtl-'n n s I-'Itl 11' l>> 1-'-0 ell PJ ::s 1-'- 11::10 ::s tTrt 0 OOl.Cl:::I rt o 11 S>> Itl . 0 tf.I 111.( I-' ::s 11 Itl.. .. rt (1) ., 1-'11 rt (fIt'O StilI.( Itl - I-' (tI tt.. . c 00 6- ::rt; trl . ltl ::r I -., CD [f.l CD . rt _h_ Contractors and developers note several additional impacts of prevailing wage requirements which should be highlighted: 1) Prevailing wage reporting and monitoring responsibilities of contractors and oversight agencies can often result in bureaucratic delays. Falsification of documents is not unusual and requires diligent investigation. 2) Many small and/or WMBE firms refrain from bidding on prevailing wages and apprenticeship training because they cannot afford to pay themselves or their subcontractors a prevailing wage rate and bid competitively against larger contracting firms which are able to contain costs due to their economies of scale. In addition, many such firms are either unfamiliar with or simply unwilling to process the wage reporting paperwork required. The end result is to discourage small and/or WMBE bids resulting in a less-competitive bidding process overall. 3) Many housing rehabilitation projects such as those performed by Community Corporation are considered "small, infill projects," which many large union contractors consider too small to bid for. On the other hand, many WMBE firms do bid for small, infill projects, but might refrain from doing so if the payment of prevailing wages - 7 - refrain from doing so if the payment of prevailing wages was required due to the circumstances outlined above. The end result could be a lack of competitive bidders for community Corporation and other housing rehabilitation projects. 4) Many organizations such as Community corporation rely on self-help labor in housing rehabilitation. Requiring the payment of prevailing wages would prevent such organizations from taking advantage of the cost savings resulting from the use of such labor, would increase the level of funding assistance requested of the city, result in fewer housing units constructed due to increased cost, and contribute to increased housing costs upon proj ect completion. The City Attorney also notes one legal limitation of the proposed resolution requiring the payment of prevailing wages for projects performed on CitY-leased land. The requirement could only be applied to leases signed after the adoption of the proposed policy; pre-existing lessees would be exempted from the requirement until the expiration of their leases and their future renegotiation. - 8 - Current Prevailinq Wage Requirements - Federal, state and other Local Government Jurisdictions Recipients of federal funding for construction are required by Davis-Bacon wage laws to pay workers at the prevailing wage rate set by the regional office of the Department of Labor and to satisfy apprenticeship standards under the fOllowing conditions: Funding Type Threshold Community Development Block Grant A) Residential Construction 8 or more units B) Non-Residential Construction Cost of $2,000 or more Rental Rehabilitation section 8 12 or more units 9 or more units All construction requires Davis-Bacon 5 or more units 5 or more units section 202 FHA 207 rentals FHA 213 co-ops FHA 221 ( d) (3) 8 or more units FHA 312 8 or more units FAU All construction requires Davis-Bacon - 9 - It should be noted that HUD considers bona fide self-employed sole proprietors and partners exempt from Davis-Bacon. This often includes local and/or WMBE contractors. The California Housing Finance Authority (CHFA) requires that all projects involving more then $400,000 in construction costs pay prevailing wages. The Community Redevelopment Agency (CRA) of Los Angeles requires that projects receiving more than $100,000 in CRA funds for commercial construction and $250,000 for residential construction are to pay either Davis-Bacon wage rates if Federal funds are also being utilized, or state prevailing wage requirements if only CRA funds are being utilized. The city of San Francisco requires that prevailing wage rates be paid on most construction proj ects involving Ci ty funds, but admits that the policy was established by default since construction projects in the City always involve State and/or Federal funds which automatically trigger state prevailing or Davis-Bacon wage requirements. For large housing development projects funded primarily through the City's Housing Development Corporation, funding recipients are allowed to direct City funds toward site acquisition, architectural and other development fees which are not subj ect to the same prevailing wage requirements - 10 - that apply to construction. Housing developers are then not required to pay prevailing wage rates on construction as long as they are not utilizing city, State or Federal funds. Just as state law requires for the city of Santa Monica, all city of San Francisco public works contracts require the payment of prevailing wages. II) Implications of the Proposed Apprenticeship Requirement The proposed resolution's requirement that, "all project bidders provide proof of participation as a signatory to a recognized apprenticeship and/or training program or the city may rej ect their bid" is significant because, while not readily apparent in the wording, it would discriminate against most non-union and small contractors. In general, the majority of officially recognized apprenticeship programs are operated by the unions and are not open to non-union members. A few government-sponsored apprenticeship programs are available to non-union contractors, but openings are limited. Non-union contractors tend not to offer recognized apprenticeship programs because their operations are small and the costs of offering a recognized program are significant. A representative of the California Association of Minority Contractors (CAMAC) indicated that, although CAMAC itself hopes to offer a recognized apprenticeship program in the future, to require such of individual contractors would prevent - 11 - many small and/or WMBE firms from working in the City and could be perceived as a restraint of trade on the City's part. The Ci ty 's current apprenticeship training program requirements for public works projects are not considered discriminatory because they allow non-union contractors to make a contribution to the California Apprenticeship council in lieu of operating an on-site program. Apprenticeship Program Requirements - City of San Francisco Local 1400 has noted that the city of San Francisco has adopted a similar ordinance regarding proof of participation as a signatory to a recognized apprenticeship and/or training program. A copy of that ordinance is attached for reference (Attachment II). Discussions with a representative of the Mayor's Office of Housing and Economic Development revealed several problems City staff have faced in implementing such an ordinance. First, the ordinance was adopted as a result of significant pressure from San Francisco union leaders. Many City staff feel the ordinance is discriminatory, and have sought to circumvent the requirement based on their interpretation of the language. In Section 6.46 the ordinance states, II In the awarding of any contract or written order for any public work or improvement mentioned in this article. . . .11 The lack of a clear statement - 12 - of what constitutes a IIpublic work or improvement" has made it difficult to interpret the ordinance. In Section 6.47, the ordinance states that, ItBids may be rejected for lack of qualifications or equipment." City Staff have assumed that the language which states that the "awarding officer, board or commission . may rej ect II a bid enables them to waive the apprenticeship program requirement should they deem it desirable. One significant problem with the ordinance is that its official adoption signaled to the Unions the City's willingness to concede to their wishes. As a result, they feel they have the authority to continually challenge city staff's decision to waive the apprenticeship program requirement in individual cases, and do so on a regular basis. SUMMARY As outlined in this report, the city of Santa Monica has in place as adopted city policy much of the prevailing wage and apprenticeship program requirements as proposed by Local 1400 of the United Brotherhood of Carpenters and Joiners of America. However, further expansion of the requirements would require an evaluation of the impact on several other important public policy objectives of the City such as encouragement of women and minority owned firms and affordable housing production. - 13 - For example, equitable pay rates for employees is a city objective. We further emphasize this objective by requiring that all contractors on public works projects pay a fair wage as determined by the Department of Labor. On the other hand, the City supports the WMBE program a program which could be seriously compromised by the proposed policy which would appear to discriminate against small and non-union contractors. In addition, the City supports construction of affordable housing, which is affordable, in part, due to the reliance on low cost and self-help labor by organizations such as Community Corporation. Should the use of such labor no longer be an option for City-funded housing projects, the level of affordable housing construction would be reduced. Finally, the City has begun to require the inclusion of several design amenities by developers in order to enhance the quality of life in Santa Monica. Such amenities include park-like open space and childcare facilities. Should developers face increased construction costs in Santa Monica, we could be faced with decreased interest in such development and thus decreased construction of these important amenities. It should also be noted that of the $25 million budgeted in FY1986-87 for Capital Improvement Projects, approximately $18.9 million is allocated for "public works" proj ects which require - 14 - the payment of prevailing wages and participation in the three option apprenticeship program. Only $2.6 million is currently allocated for the purchase, rehabilitation and/or construction of affordable housing and would not require the payment of prevailing wages and apprenticeship program participation. RECOMMENDATION In light of these issues, staff recommends that the City Attorney be directed to prepare an ordinance expanding the scope of proj ects subj ect to prevailing wage and apprenticeship program requirements to include a higher threshold of project size than that recommended by Local 1400. Prepared By: Stan SchOll, Director of General Services Neil Miller, Assistant Director General Services Julia Griffin, Senior Management Analyst Attachments (wagesl) - 15 - .. ATTACHME~T I March 21, 1986 TO: Me~bers of Santa Manlca Clty CouncIl ke: PubllC Works ProJects Cauncl1persons: As you are aware, the Callfornla DaVls-BaC0n :,~: r~~u~~~~ that the preva~11ng wage rule establlshed by th~ ~t~:c ~f Ca~::~!- n1a must be pa1d on all publlC works proJec~s. We be11eve that the constructlon workers emp l:::y,::", ()r~ C 1 r - owned or C~ty-leased land deserve to be ~ald a~ l~ast l~L~' ~~~- Lng wage ra':e pald to tne maJor2..y of Qt'1....r ,-"8ns:'-,:":::~,,,:" ,_': ,,'..-:5 employed wlth~n the ]urlsdlctlun of the CltV ot ~~Ilt~ ~~~l~~. Our bellet IS based on the fact that cons~ructlo~ ~cr<~r~ ~-~:2~c~ on Clty-owned or Clty-leased property are tdxpayers ~~o ~dl~ to f~nance the operatlon of the CltYi anc, there!8r2, 3 ~0~_~ ~o~ be reau1red to work for substandard wag~s. Therefore, we request t.ha t the C:L t. y CO''';':-:C l ~ ~ao;~~ :- _"' ~ :.~ 2.:' 2....- :ng resolut~on: Construct~on Employers are ~equ:~~~ ~~ . 2' the state es~abl~shed preva1l~ng wage rate or. al' .'rv~c~~~ _~\~_\- 109 Clty-owned or Clty-leased land 'even prcJec~ ~:na~c~~ ~_~.' prlvate money). Furthermore. in order to comply wlth the PO~lCY c: ~re State of Callfornla urglng the use of apprentlces as set :crt~ 1n Labor Code Sectl.on 3075.1, the Clty Councll should agree to make the following a part of the above-referenced reS01~~lGn. In the awardlng of any contract or wrltten order for ar.y pub11c work or improvement mentloned 1n thlS artlcle, the awa~d~:'~ offlcer, board or commlSSlon shall requlre from all contrac~ors and subcontractors offerlng or agreelng to perform any wor< on sald publlC improvement, proof of partlclpaLlon as a slgna:c~~ to a recognlzed apprentl.CeShlp and/or traln:ng prU(lram i..lnJer Chapter 4 (comrnenclng at Section 3070), Dl'..'lSH)11 3, ci :118 ':.3.~:1~'L- nla Labor Code and certlfled by the State of Ca11forn:a D1V1S10~ of Apprentlceshlp Standards, where such programs ~XlS= :or ~he wor~ to be performed, informatlon concerning ~helr ~^p~lle"ce, flnanClal guallficatlons and abllity to p~rtorm said contrac= or sald subcontract, as well as to whether saId contracror or ~ . - 1, 1986 Pag~ 2 subcontractors possesses, or can obta~n ~n time co p~r:ol~ sal~ contract or subcontract, the necessary eqUIpment. The apprent~cesh~p prOV~Slons of thlS section shall not apply to contracts of general contractors lnvolvlng l~ss than th~rty thousand dollars ($30,000) or 20 working days or to con- tracts of spec~alty contractors not b~dd~ng for work through a general or prIme contractor, Involvlng !ess thar twu thou~and dollars (S2,000) or fewer than five work~ng days. Should said awarding off1cer, board or comW1SSlcn determine that sald contractor or any subcontractor 15 not a s~gnatory to a recognized apprentlcesh~p and/or traln~ng program under Chapter 4 (commencIng at SectIon 3070), D~V1S10n 3, of the Cal~fo=- nla Labor Code and cert1fied by the State cf Callfornla DIV1Sl0~ of Apfrentlceshlp Standards, where such programs eXist for ~~~ work to be performed, does not possess the necessa~y exper~ence and f~nanc~al qual~f~cat~ons to perform sa~d contract or subcon- tract, or that he does not possess, or cannot obta~n ~n due t~me the necessary equ~pment to perform sa~d contract, sa~d award~ng officer, board or commission may reJect the b~d of any such contractor and should said determinat~on affect only a subcontractor, then said awarding officer, board or comm1S5~on may compel said ~ontractor to subst1tute a subcontractor who ~s a signatory to a recogn~zed apprent~ceshlp and/or traln~ng program under Chapter 4 (commenc1ng at Sect~on 3070), D~v~s~on 3, of the California Labor Code and cert~fled by the State of Callforn~a Division of Apprent~cesh~p Standards, where such programs ex~st for the work to be performed, or who, 1n the opin1on of sa~d awarding officer, board or comffi1SSlon, pos~esses the necessary experience, f~nanc~al qual~ficat1ons and equlpmenL to perform the sa~d subcontract. The apprent1ceship prov~s~ons of th~s sect10n shall not apply to contracts of general contractors ~nvolv~ng less than L, 1986 Page 3 th~rty thousand dollars ($30,000) or 20 worklng d.J'l::' Ot- to ..:..::'~- tracts of spec1al ty contractors not b1.dchng for wur.. ': 1. 1-0US~, a general or pr1rne contractor, 1nvolv1ng Ics5 than 'Wl; rhousarJ dollars ($2,000) or fewer than f1ve work1ng days. Very truly yours, -. ::- ". ATTACHr>1E);"T II FILE toO. 3Z3-52 lh~~".f.'t~:. ~ :1)-:1 ORDINAl~CE. A.."!ElmING SECTIO~S 6.33, 6.L.6 Ahl) 6.47 OF TII[ SMl F?_\~;::::IS:C 1\..::l~I!,!- STRATlVE CODE TO INCLUDE WRITTEN ORDERS AND PROVlSl0NS FOq PARTICIPATIO:: IN APPRENTICESHIP AND/OR TRAINING PROGRA~. NOTE: Additions or substitutions tire und(,l lined, deletIons are indicnted by (double p~renthescE) Be it ordained by the People of the City and County of San F.anClsco' Section 1. The San FrancIsco AdministratIve Code is hereby 3menced by amending Sections 6.33, 6.46 and 6.47 thereof to read as follows: - > Sec. 6.33. Applicability of Section 7.204 of Charter All the terms and prov1sions of Section 7.204 of the C~arte~ shall be applicable to and become a part of any and all contracts or wrltte~ orcers entered Into pursuant to the terms ~nd prOVISIons of thIS chapter. Sec. 6.46. Contractors and Subcontractor,> to rurn!.sh QU.11:hc:Jtlons In the awarding of any contract or written order for any p~~llC ~ork or improvement nentioned in this article, the n~~rdlng office., bO.1r~ or COnmlSSlon shall require from all contractors and ~ubco~tractors offerIng or agreeing to perform any ~ork on saId public lmpruvement. proof of ?art~cl:a(ICn as a signatory to 8 recognized apprenticeship andlor tr~lnIng F"cgran unde~ Chapter 4 (commencln~ at SectIon 3070) I DIVISIon 3: of the CalIfornIa Labor Code and cert1fied by the State of CalIfornIa DIViSIon of ^?prentIceship E.~Bndards, vhere such programs eX1S[ for the \.Iork to be perforred, Iniorr:atlon concernIng the1r Exper~ence, fInanCial qualIfIcatIons and abIlity to perform said contract or said subcontract, as well as to ~~ether said Contractor or subcontractors p05se8ses, or can obtain in time to perform said contract or sub- contract, the necessary equipment. The apprenticeship provisions of this sectlon shall not apply to contracts of general contractors involving less than thirty thousand dollars <S30,OOO} or 20 ~orking days or to contracts of specialty contractors not bIddIng for work through a general or prime contractor, involVing less than tyO thousand dollars (S2,OOO) or fewer than five ~orkIng days. Sec. 6.47 Bid May Be Rejected for Lack of Qualifications or EqUIpment. Should said a....arding officer. bo~rd or COlr:fTllSsion determlne that sald contractor or any subcontractor is not a Signatory to a reco~nized a?prentlces~l~ and/or trainlns pro~ram under Chapter 4 (co~encln~ at Sectlon 3070, DIVtSiO~ 3~ " of the Callfornu] L3bar Code and certIfIed I,; thl"' ~t.JtL L'[ c.l~d':r:ll.J ')IVISl":' of Appre'1tlcesnlP Standards', ....,hcre such pro[r"[T'o; CY1S:" for the "'vr\... to be r~r- fo!"t:'ed, does not' possess th~ necessary experIence and fln<:.ncl.Jl qU,Jililcat\.c~9 to perform sald ccntract or subcontract, or tn.:!t he doc9 not possess, or c.Jnnot obt~in in due time the necessary equipncnt to perforM said contr~ct. said a- varding officer, board or commlssion may reject the bid of any such contrac:or and should said deter~ination affect only a subcontractor, then said a~~rding officer. board or co~ission may compel sald contractor to substltute a sub- contractor vho is 8 signatory to a recognlzed apprentlceshIp and/or tr.Jlnln~ pro~Tac under Chnptcr 4 (conmencln~ at Section 3070) r DIViSlon 3l of t~e Callfornla Labor Code and certIfied by the State of Cal1fornla Dlvlslcn of Apprentlceshlp Standards I where such proRrar-:s eX15t for the ,-,orK to be per- formedl or ~ho. 1n the oplnlon of sald awarding offlcer, board or CO~lSSlon, possesses the-necessary experience. fln~nclal qualifications and equipment to perform the 8aid subcontract. The apprenticeship provisions of this sect~on shall not apply to contract3 of general contractors involving le65 than thlrty thousand dollars (530,000) or 20 worklng days o~ to contracts of ~peclalty contractors not blcdlng for ~ork through a general or pri~e contractor, involvlng less than t~o thous~nd dollars ($2,000) or fewer than five vorklng days. GEORGE AGNOST, City Attorney By Is).~nedl . ~' Deputy Clty Attorney