Legislature(2003 - 2004)
04/04/2003 03:19 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 155-PUBLIC CONSTRUCTION PROJECT REQUIREMENTS Number 0060 CHAIR ANDERSON announced that the first order of business would be HOUSE BILL NO. 155, "An Act relating to the submission of payroll information by contractors and subcontractors performing work on a public construction contract; and providing for an effective date." Number 0083 REPRESENTATIVE DAHLSTROM moved to adopt the proposed committee substitute (CS) for HB 155, Version 23-GH1119\D, Craver, 4/3/03, as the working document. There being no objection, Version D was before the committee. CHAIR ANDERSON noted that this CS resolves many of the issues raised during testimony at the earlier hearing. Section 1 was revised so that submission of certified payroll reports is every two weeks instead of weekly, and it removes the requirement to submit the reports to the contracting agencies. CHAIR ANDERSON noted that Section 2 of the CS states that the general contractor will pay all fees for the entire project at the beginning of the project -- the contractor's fee plus a fee for each subcontractor. The second part of Section 2 creates a sliding scale for the fee based on the contract amounts as follows: under $5,000 - no fee; $5,000 to $10,000 - $100 fee; $10,000 to $50,000 - $150 fee; $50,000 to $500,000 - $200 fee; $500,000 to $1 million - $250 fee; and $1 million and up - $300 fee. The maximum fee to be paid by the contractor would be $5,000. He noted that Sections 3 and 4 of the CS are unchanged from the original bill. Section 5 directs the Department of Labor & Workforce Development to computerize the submission process for certified payroll reports. Number 0250 CHAIR ANDERSON described Conceptual Amendment 1, which read as follows: 1. Need exemption for emergencies (such as the wind disaster in Anchorage) to allow work to begin and then file notice of intent to pay prevailing wage. 2. Clarify that jobs under $5,000 are exempt from the fee but not from filing notice of intent and an affidavit of compliance. 3. Make language consistent (e.g. the terms "contractor" and "subcontractor" need to be used consistently instead of "employer"). Number 0319 CHAIR ANDERSON moved to adopt Conceptual Amendment 1. There being no objection, it was so ordered. The committee took an at-ease from 3:25 to 3:27 p.m. Number 0497 DICK CATTANACH, Executive Director, Associated General Contractors (AGC), Anchorage, noted that construction is a cost- pass-through industry, so the AGC can support the concept of [the fees in] this bill. He said that the costs would be passed on to the ultimate owners, in this case, the state, the municipality, and the various political subdivisions. He said he will suggest ways to make CSHB 155 work better. In Section 1, which requires the submission of certified payroll reports every second Friday, a company with numerous jobs could end up reporting every week. He suggested reporting all previously unreported payroll on the second and fourth Fridays, then every contractor would be reporting consistently on the same Friday. This would help reduce paperwork, he said. Number 0578 MR. CATTANACH recommended in Section 2 that the minimum [threshold for contracts for purposes of calculating fees] be changed from $5,000 to at least $25,000. He also recommended that the fee be a percentage of the contract amount, up to the maximum of $5,000. For example, a contract between $50,000 and $500,000 would result in a fee between $500 and $5,000 per job. This avoids burdening the contractor with additional accounting just to figure out how much he has to pay. CHAIR ANDERSON asked how it was a burden to add up the total amounts of a job. Number 0660 MR. CATTANACH replied that depending on the size of the job, general contractors have from five to fifteen specialty contractors working under them; he would have to aggregate those subcontracts to see how much he would have to pay. He suggested its simpler to take a percentage on the general contractor's total rather than the general contractor's job plus the associated subcontractors. He suggesting taking a simple one percent if the goal of this section of the bill is to raise money. MR. CATTANACH pointed out problems with Section 2, subsection (c), on page 3, lines 3-7, which appears to hold up the final payment if one subcontractor has not signed the required affidavit of compliance. He said that this holds hostage all the good subcontractors who have signed the affidavit and followed the law. The provision puts enforcement on the contractor and that's not where it belongs, he said. He asked that this subsection be deleted or reconsidered. MR. CATTANACH questioned the purpose of Section 4, page 3, starting on line 18 [which states that contractors starting work before the July 1, 2003, effective date] must file a notice of intent but no fee. He said he didn't see what the state gains with this section. Rather, he suggested leaving existing contracts out of the bill, and making the bill apply to all new contracts issued on or before July 1, 2003, and making it a part of the required contract language. He suggested allowing for electronic reporting to the extent possible. Number 0899 MR. CATTANACH, at the request of Chair Anderson, restated his five suggested changes to the CS. 1) In Section 1, file reports the second and fourth Friday of the month for all payroll that has been incurred since the last reporting period, rather than every two weeks. 2A) In Section 2, change the minimum contract size from $5,000 to $50,000. 2B) For contracts from $50,000 to $500,000, calculate a simple fee of 1 percent calculated on the general contractor's contract. 3) Delete Section 2, subsection (c) because it allows one subcontractor who doesn't sign an affidavit to hold up payments to all other subcontractors. 4) Delete Section 4 because it requires a notice of intent from an ongoing project. 5) Expand the concept of electronic filing of certified payroll reports and allow those to be filed with the affidavits. Number 1083 REPRESENTATIVE CRAWFORD noted his agreement with Mr. Cattanach's points. He said, however, that HB 155 is a smoke and mirrors way of raising revenue; all it does is add to the cost of public construction, which will be paid by the public entity that contracts to build a school or a road. This money won't flow to the Department of Labor & Workforce Development; it's not a fee to help fund their programs. If it's a tax, he suggested calling it a tax. He said he doesn't agree with the premise of the bill. Number 1179 GREG O'CLARAY, Commissioner, Department of Labor & Workforce Development, stated that the CS is an improvement over the original HB 155. The department supports Conceptual Amendment 1. He said he disagreed with Mr. Cattanach's suggested $50,000 as a minimum size contract; he preferred using $25,000 for the minimum size of contracts. He said he agreed with using the 1 percent to calculate the general contractor's fee because the fee increases with the size of the contract. Number 1316 CHAIR ANDERSON summarized Commissioner O'Claray's response to Mr. Cattanach's five points. 1) Commissioner O'Claray agreed with filing certified payroll reports on the second and fourth Fridays. 2) He preferred starting the fees with $25,000 contracts and a 1 percent fee to calculate the contractor's fee. 3) He did not agree with deleting subsection 2(c) because it gives the department teeth to enforce the prevailing wage law, especially with a general contractor who is out of compliance. He said there should be a way for the department to address the problem of a subcontractor who is out of compliance so that others would not be penalized. 4) He agreed that Section 4 can be deleted because current law requires reporting, and the effective date of the bill will determine when the new fees are collected. MR. CATTANACH clarified his fifth point about electronic filing and noted that it's already contained in the CS. Number 1591 REPRESENTATIVE GUTTENBERG asked about holding a prime contractor responsible for a subcontractor filing on time. He noted that it's a set of teeth to keep the subcontractor in line. COMMISSIONER O'CLARAY said he agreed in concept but was trying to avoid holding up a payment to a prime contractor because a bad subcontractor had "gone south." He said he wants to be able to hold up payment to the subcontractor. Number 1688 MR. CATTANACH described a typical final pay request on a project that might have 15 subcontractors. This bill would hold up payment to the single subcontractor who hasn't filed the affidavit of compliance as well as payments to the prime contractor and the 14 other subcontractors. He suggested that if contractors don't comply with the rules, disbar them, and don't allow them to bid on any more projects until they comply. He asked why one would penalize the contractors who play by the rules. REPRESENTATIVE GUTTENBERG said he'd support an amendment to deal with this issue. REPRESENTATIVE CRAWFORD said he wholeheartedly agreed with the need to disbar people who violate the Little Davis-Bacon Act [AS 36.05]. He said he has investigated several instances of companies that do this repeatedly. But he said it's not clear how to incorporate that issue into this bill. Number 1782 REPRESENTATIVE GATTO asked what happens if it is the contractor who goes south [thereby holding up payments to the subcontractors]. COMMISSIONER O'CLARAY explained that is exactly the issue being debated. The bill gives the department the authority to withhold payment in order to force compliance with the newly required reports. He said the bill gives the department enough teeth to keep the contractor from going south. He said he'd prefer to see CSHB 155 move out of committee, and perhaps the disadvantage to the subcontractor could be addressed by a future committee. Number 1861 RON TRUINI, Ironworkers Local 751, proposed several changes to clarify payroll reports and employers. REPRESENTATIVE CRAWFORD noted that Mr. Truini's concerns were already covered in Conceptual Amendment 1. Number 1958 VINCE BELTRAMI, IBEW, [International Brotherhood of Electrical Workers] Local 1547, asked for confirmation that the proposed CSHB 155 will continue having the contractors send the certified payroll reports directly to the Department of Labor & Workforce Development. He also confirmed that contractors can continue to submit written payroll reports after the July 1, 2004, deadline when the department starts accepting electronic reports. He expressed concern regarding whether this bill raised revenue earmarked for the department. He asked the commissioner to comment about whether these funds will prevent cuts to the Title 36 [wage enforcement programs]. Number 2052 COMMISSIONER O'CLARAY responded that he could not guarantee that the money raised by CSHB 155 would flow to the Department of Labor & Workforce Development. The user fees will be deposited to the general fund. He said he hoped that these funds would [prevent] future cuts to the enforcement section of the [Division of Standards and Safety]. He said he will advocate for retaining the funding for this program. He responded to another question from Mr. Beltrami, saying that the House Finance Standing Committee will be making decisions about the governor's proposed FY 04 budget. There's always the potential that Title  programs could be impacted, he said. Number 2161 CHRIS TUCK, IBEW Local 1547, stated that his concerns have been voiced by previous speakers. He confirmed that the language for contractors and subcontractors in the proposed CSHB 155 has been amended. MR. TRUINI suggested on page 1, line 8, deleting "wages paid" and inserting "payroll reports". REPRESENTATIVE CRAWFORD noted that the wording in question is the current statute that has been in effect for quite a while. He reiterated that all of Mr. Truini's concerns have been dealt with in Conceptual Amendment 1. Number 2267 CHUCK WIEGERS, ABC [Associated Builders and Contractors] Alaska, Fairbanks, noted that his issues have been addressed. He did note that under the current law, the department can ask the attorney general to prosecute any contractor who is not paying the prevailing wage; the teeth are still present in the law. Number 2287 JOHN BROWN, President, [Fairbanks] Central Labor Council, stressed that the department needs the funds necessary to make the prevailing wage law work. Enforcement activities have been underfunded, he said. REPRESENTATIVE CRAWFORD responded that if these user fees were designated as program receipts, the money could be used for enforcement. As the bill is written, all this money will go directly into the general fund, so the [proposed CSHB 155] will raise the cost of construction but won't really help the budget of the department. Number 2348 NANCY PETERSON, City of Valdez, expressed appreciation for the changes in Section 1 of CSHB 155, keeping the certified payroll reports flowing to the Department of Labor & Workforce Development. She noted concerns with Section 2, subsection (c), withholding of final payment because it will place a burden on the local contracting agency that will have to pay interest while the department determines whether all the requirements have been met. TAPE 03-28, SIDE B Number 2375 REPRESENTATIVE GUTTENBERG asked where Valdez will find the funds to pay the fees that the contractor will pass on to the city. MS. PETERSON said the fees being charged [and passed on to the City of Valdez by the contractors] will result in a small increase in the cost of the project. She said she was pleased to see that the changes in the proposed CS require the department to monitor the certified payrolls [rather than assigning the task to the contracting agencies]. Number 2284 DON ETHERIDGE, Lobbyist for Alaska State AFL-CIO [American Federation of Labor and Congress of Industrial Organizations], said his group supports the changes in the proposed CSHB 155, especially with the certified payroll reports remaining with the department. He also urged a method directing the user fees to the department, which he acknowledged is a different battle. CHAIR ANDERSON pondered the need for a second conceptual amendment which incorporates the commissioner's suggested changes. These changes would be: Changing Section 1 to reporting on the second and fourth Fridays for all payroll incurred; changing Section 2, raising the minimum contract limit from $5,000 to $50,000 [per Mr. Cattanach] or $25,000 as recommended by the commissioner; use a 1 percent figure to calculate the fee above $50,000 instead of a sliding scale; leaving in the notice element in Section 4, per the commissioner, or removing it, per Mr. Cattanach. Number 2181 REPRESENTATIVE GATTO suggested clarifying the interim periods between the second and fourth Friday deadlines of every month. He suggested deleting "two weeks" and inserting "the previous reporting period" on page 1, line 12. COMMISSIONER O'CLARAY agreed that "the previous reporting period" is a good clarification. Number 2099 CHAIR ANDERSON reviewed the possible changes for Conceptual Amendment 2. REPRESENTATIVE GATTO reiterated his suggestion of deleting "two weeks" and inserting "the previous reporting period" on page 1, line 12. CHAIR ANDERSON confirmed that the second change [on page 2, lines 19-28] would set the minimum contract at $25,000, per the commissioner's preference, and use the 1 percent calculation for the fees instead of the stepped amounts. He confirmed that the committee did not want to delete subsection 2(c) because the commissioner opposed this action. Number 2007 REPRESENTATIVE CRAWFORD said he hated that [the final payment] could be held up because of one bad actor, but the law needs teeth to do the right thing. CHAIR ANDERSON said he believes Section 4 of the CS needs to remain in place and thinks it has been misread. If not, he said he's willing to work to change it before it goes to the House finance committee. REPRESENTATIVE GATTO asked whether the language "on a form provided by" on page 2, line 1, refers to a paper form or an electronic form. He noted that the CS uses both "form" and "electronic filing". Number 1933 PAULA SCAVERA, Special Assistant, Office of the Commissioner, Department of Labor & Workforce Development, said that the word "form", found in various state laws, means paper or electronic. Number 1901 CHAIR ANDERSON summarized Conceptual Amendment 2 as follows: 1. Page 1, line 12 - After the word "previous", delete "two weeks" and insert "reporting period". 2. In Section 2 adjust the minimum contract price to $25,000. Additionally, the sliding scale needs to be removed and replaced with a flat 1 percent of the total contract price for all qualifying jobs. REPRESENTATIVE GATTO asked for clarification on whether the contract total refers to the sum total or only the amount above $25,000. CHAIR ANDERSON confirmed the amount is the total contract. Number 1856 CHAIR ANDERSON moved to adopt Conceptual Amendment 2. There being no objection, it was so ordered. Number 1836 REPRESENTATIVE DAHLSTROM [moved to adopt Amendment 3, 23- GH1119\A.1, Craver, 3/19/03, with line numbers on page 3 hand- corrected to reflect Version D of HB 155] which read as follows: Page 1, line 1, following "relating to": Insert "the definition of 'public construction' for purposes of paying prevailing wages, and to" Page 3, lines 1 - 3: Delete all material and insert: "Sec. 36.05.900. Definitions. In this chapter, (1) "contracting agency" means the state or a political subdivision of the state that has entered into a public construction contact with a contractor; (2) "public construction" does not include rehabilitation, alteration, extension, or repair, structural or otherwise, undertaken by tenants of a building owned or controlled by the state for government or public use after the initial construction or acquisition of the building by the state, notwithstanding AS 36.95.010." REPRESENTATIVE DAHLSTROM explained that she was presenting Representative Rokeberg's amendment because he was not able to attend today's meeting. She referred to his accompanying cover memo in each member's bill packet. Number 1753 REPRESENTATIVE CRAWFORD objected to Amendment 3. He stated that this would be a huge change in [AS 36.05, Wages and Hours of Labor] and would not have the general agreement of the various parties who worked on the CS. He said it's a huge change to remove rehabilitation, alternations, extensions, or repairs [of buildings] from the Little Davis-Bacon Act. No one has contemplated this kind of a change in the law, he said. He explained that he has worked on a rehabilitation of a public building that was worth many millions of dollars. COMMISSIONER O'CLARAY acknowledged that Amendment 3 would have a major negative impact on the prevailing wage rate law. [Renovations of buildings] account for about 50 percent of construction projects, he said. The department could not support this amendment, and it would be a deal breaker on the CS. REPRESENTATIVE GUTTENBERG stated that adopting this [amendment] would make the legislation a different bill. It is an entirely new concept with an entirely new constituency that would want to testify. [This amendment] goes to the core issues of the prevailing wage law, he said. It would be a disservice to this bill and the work accomplished by the various players to open the bill up to a [change] this large and wide. Number 1570 A roll call vote was taken. No Representatives voted in favor of proposed Amendment 3. Representatives Guttenberg, Crawford, Dahlstrom, Gatto, Lynn, and Anderson voted against it. Therefore, Amendment 3 failed by a vote of 0-6. CHAIR ANDERSON closed testimony and debate on the bill. Number 1560 REPRESENTATIVE DAHLSTROM moved to report CSHB 155, Version 23- GH1119\D, Craver, 4/3/03, as amended, out of committee with individual recommendations and the accompanying fiscal note. There being no objection, CSHB 155(L&C) was reported from the House Labor and Commerce Standing Committee.