Legislature(1995 - 1996)
03/07/1995 08:03 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HSTA - 03/07/95 HB 218 - PROMPT PAYMENT OF TRUCKING SUBCONTRACTORS CHAIR JEANNETTE JAMES, who introduced HB 218 at the request of the Alaska Independent Truckers, read her sponsor statement: "This bill was filed upon request for the Alaska Independent Truckers, to provide for their prompt payment. However, HB 218 could fill a niche and open a door for an entire category of service providers in Alaska. "We claim we want to create jobs. Here is a way to do it. "There is a group of skilled workers and professionals in our state who fall between the cracks. They are not small businesses. They are not employees. They are each individual operators who provide their own tools, equipment, and expertise for hire. They offer small businesses all the advantages of a single temporary employee, available only when needed, without the red tape and expense of hiring and firing employees, renting or buying equipment, and training operators. "Since these workers are just single independent operators, they do not have a resource of working capitAl and they need to be paid on a regular and prompt basis. "Often these single independent operators do eventually raise enough capital to create their own small businesses. They can be the forerunners for a more healthy business environment in Alaska if we clear their way. HB 218 could be the start." Number 030 CHAIR JAMES added that, although this is a truckers bill, she has talked to a number of other independent providers of services who would like to see this bill passed so they can be paid promptly, since "this is their pay check." The blank CS for HB 218, work draft 9-LS0352/G, was the working draft for the committee meeting. Number 067 BOB EAKMAN, General Manager and Lobbyist for the Alaska Independent Truckers Association of Anchorage, gave a history of the independent owner-operators, stating they fell through the cracks when laws were passed in 1986 requiring the prime contractor and the subcontractor to be paid within seven days, but failing to address or protect the independent owner-operator. This means the independent trucker's credit is always in jeopardy because he often is not paid in time to meet his own bills and payments. It also means that sometimes safety considerations get dropped if truckers cannot afford to keep their trucks in compliance with safety requirements. Number 161 REPRESENTATIVE JOE GREEN referred to lines 7 and 8 of page 2 of the blank CS working draft and asked if a trucker could possibly end up submitting three or four bills in a given month. Number 180 MR. EAKMAN said this was possible, but they agree to not bill more than twice a month on a given job. If a trucker has more than one job, it is up to him to keep it straight. Number 197 REPRESENTATIVE GREEN referred to lines 13 through 15, page 2 of the working draft, asking whether the 1/2 percent per month interest on the unpaid balance applies only to the actual days which the payment is late. Number 226 MR. EAKMAN answered normal practice must be followed, charging 1/2 percent per month or 18 percent per annum, not fractionalizing it for partial months. Number 245 TERRY BANNISTER, Attorney, Legislative Legal Council, Legislative Affairs Agency and drafter of HB 218, agreed to answer questions. REPRESENTATIVE BRIAN PORTER asked Ms. Bannister which statute provides the mechanism for contractors and subcontractors to be paid. MS. BANNISTER replied it is AS 36.90.200 through 290, which details contractual and payment requirements for public construction contracts. REPRESENTATIVE PORTER asked if it required a contract. MS. BANNISTER replied she thought a written contract was required. She added the provisions are different; it goes into more detail than HB 218. Number 297 REPRESENTATIVE PORTER observed an agreement is difficult to enforce without a written contract. Number 305 CHAIR JAMES noted one reason people would become independent owner-operators is because they have not been able to get a job elsewhere, and this would allow them to sell their skills for short jobs and get a paycheck which wouldn't be available to them as employees. She added if these people could be identified, there would probably be a different category of business license for them. Number 347 REPRESENTATIVE GREEN inquired whether a small general contractor could use a chit with blanks to fill in. MR. EAKMAN said it could be done, using a "boiler-plate contract." The problem occurs when a contractor calls with an immediate need for the trucker's service and there is no discussion of wages; this constitutes a verbal contract, which is defensible in Alaska, yet almost impossible to enforce. Number 383 CHAIR JAMES mentioned the requirement to fill out a W-9 form, adding the general contractor should require the contract and other information to be filled out at the same time. Number 398 MR. EAKMAN said what happens is truckers end up on a certified payroll, and they should not. Number 409 REPRESENTATIVE SCOTT OGAN said he is an independent contractor himself and has been one for 20 years. He does not want the state making statutes which would require the contractors with whom he does business to pay him in 14 days; he believes he has enough business finesse of his own to be sure he has contracts and doesn't want the state involved. It would set a dangerous precedent and start other business people asking for the same protection. There is a certain amount of risk in owning a business, along with the rewards. He added he will not be able to support the bill. Number 442 REPRESENTATIVE CAREN ROBINSON asked if they were talking about public or state contracts. MS. BANNISTER said they were dealing with contracts in general. CHAIR JAMES added that HB 218 as currently drafted does not just relate to public contracts. Number 455 JACK WIEGELE, Vice President, Alaska Independent Truckers Association, testified via teleconference in favor of HB 218. He stated he has been an owner-operator since 1979, hauling gravel, and he helped draft HB 218. He said it is simple: they need to be paid in a timely manner. The 30, 60, 90, and 120 day payments are not adequate. The whole community should be behind this bill. Number 491 CHARLES HIGHT, Master at Arms, Alaska Independent Truckers Association of Anchorage, testified via teleconference. He said he had been in business since coming to Alaska, and this bill will help truckers support their families by being paid promptly. He added that truckers who ask for payment are afraid they will be black-balled and not called for the next job, and they can't stay in business being paid in this manner. Number 516 RANDY CARR, Chief, Wage and Hour Administration, Alaska Department of Labor, testified via teleconference. He said he had no statement to make but was available to answer questions. Number 527 MONTY MONTGOMERY, Assistant, Executive Director, Associated General Contractors of Alaska, testified via teleconference in opposition to HB 218, stating a prompt pay act is already in effect requiring a contractor to pay within seven days after he is paid. It is poor business practice to respond to a request to work without discussing a commitment of money or time. He added there is no reason a contract can't be sent by FAX machine and signed in advance. Number 553 CHAIR JAMES asked what are the options if a contractor does not hire an independent owner-operator, stating it appears the only choice is to rent a truck, which requires payment in advance, and to hire a driver by payroll, who also gets paid regardless of whether the contractor gets paid. She asked if this was correct. MR. MONTGOMERY replied this was correct. Number 565 STEVE TROSPER, Business Representative, Teamsters Local 959, testified via teleconference. He stated Local 959 supports the bill and also supports the independent truckers who generally are not union members. He raised the issue of safety and noted that when money isn't coming in, safety isn't given enough attention. He added union owner-operators are routinely paid twice a month on their truck expenses and twice a month on the payroll and the independent operators should be given the same consideration. Number 582 JAY EVANS, Owner-Operator, Alaska Independent Truckers Association, testified via teleconference in support of HB 218, saying that independent truckers fall between the cracks under current law and they are just asking for a fair shake. The general public expects the truckers to give them a fair shake, be courteous on the road and have their equipment in safe operating condition. The truckers are more likely to be able to do that if they have received their money in a timely manner. Number 598 BILL EVANS, Owner-Operator, Alaska Independent Truckers Association of Anchorage, and with Eagle Equipment, testified via teleconference in support of HB 218, stating he can't pay his bills if he is operating with a credit situation, nor can he operate safely if he can't get his money. He added this is a real problem for many truckers besides himself. He said he is 100 percent in favor of HB 218. Number 618 ROXANNA HORSCHEL, Vice-Chair of the Legislative Committee of the Associated General Contractors (AGC), and owner of Acme Fence Company in Anchorage, testified via teleconference in opposition to HB 218, though she is absolutely in favor of everyone getting paid in a proper amount of time. She stated she has problems understanding how the state can regulate payment; would the state have inspectors to insure contractors issue a pay check 14 days after receiving an invoice? She said a legal document of some sort needs to be used. She added independent truckers get paid much more than an employee, to cover wages for possibly 30 or 60 days, money to pay their truck payments and insurance, as well as money to support their families. As an independent business person, she knows her capital is eaten up not just for 30 or 60 days but for the entire first year of being in business. She would like to see a formal contract utilized rather than a statute passed to clean up the situation. Number 649 MS. HORSCHEL added that she was the one who put through the prompt payment bill, and she is very sensitive to people who don't get paid on time. In state contracts, the state makes sure the language is appropriate in the contract before a subcontractor is approved. Number 669 CHAIR JAMES asked, if a subcontractor who is not approved under a state contract is not allowed to be hired, how can the independent truckers be hired without approval. MS. HORSCHEL replied that was her point, because she did not know how the state could approve or regulate an independent trucker without a contract. CHAIR JAMES said she did not ask the question to determine how the state would regulate the contract, but as to whether the independent truckers were approved to be on the job in the first place. MS. HORSCHEL replied this is done through brokers, who have a contract with the prime contractor and in turn call out the truckers. So the truckers are almost like employees because they are told where to be and when to be there, though they do have to have their own insurance and maintain their own trucks. She added again that a formal contract, stating what and when they will be paid, is needed between the truckers and their brokers or their prime contractors. Number 702 CHAIR JAMES said it appears to her, if the independent truckers were identified by statute, the only leverage they would have would be to write a letter to the contractor or to the state if the 14 days came and went without their getting paid. This would then be self-enforcing because the contractor would not want these letters sent to the state. TAPE 95-23, SIDE B Number 000 MS. HORSCHEL agreed this could encourage prompt payment, but she stated that option exists currently. She referred to a situation where such letters were written and it still took a long time for the trucker to get the money owed him. She reiterated that without a contract any agreement would be almost impossible to enforce. If a trucker wants to be independent and get more than the hourly wage required in the Davis Bacon Act she thinks that is wonderful, but a formal agreement is needed to allow them an avenue with the state to insure payment. Number 089 CHAIR JAMES asked Ms. Horschel if the brokers would qualify as subcontractors on a state job. MS. HORSCHEL said yes, they do fall under that category. The truckers who now "fall between the cracks" can go to work for a broker who can collect under the prompt payment bill, but the truckers themselves cannot collect under the prompt payment bill. Number 113 CHUCK DAVIS, Owner-Operator, Alaska Independent Truckers Association of Anchorage, and Owner of Davis Transport Ltd., testified via teleconference, stating there is a lack of understanding about how the owner-operators do business with the contractors and subcontractors in Alaska. Truckers do not have FAX machines in their trucks. They are called on cellular phones in their trucks and respond sometimes four or five times in one day without an opportunity to negotiate pay rates or pricing. Their business is sporadic and volatile, and prime contractors take advantage of this by stringing them out for three or four weeks without paying them. Even if they do reach an understanding for a pay rate, it sometimes changes during the course of a job. Number 174 CHAIR JAMES asked Mr. Davis if he hired out to a broker. MR. DAVIS replied he did, even though he tried to avoid it because of the difficulties of collecting payment. CHAIR JAMES asked Mr. Davis to explain what a broker is. Does he have his own trucks too? Is he paid by a percent of what the trucker makes? MR. DAVIS replied it is very complex. The idea is for a general contractor to be able to make one phone call and get up to 50 or 60 trucks. Brokers exist mainly to assure fulfillment of minority quotas on state jobs; a broker can exploit a minority partner to fill the quota. CHAIR JAMES asked if a special license is required to be a truck broker. MR. DAVIS said he was not aware of one. Number 210 MICHAEL SWALLING, President of Swalling Construction, testified via teleconference in opposition to HB 218. He is a private subcontractor and has been in Alaska 30 years. He stated the prompt payment bill eliminated a lot of problems with payment of subcontractors. He can see where independent truckers fall into a crack in the application of that law, but the bill could require him as a subcontractor to pay the trucker before he himself gets paid by the prime contractor. Though the independent truckers have raised some valid issues, he does not believe HB 218 is the mechanism to solve the problems. It is clearly special interest legislation which creates more problems than it solves. Number 225 CHAIR JAMES commented again that if subcontractors were not hiring independent truckers, their only other option would be to rent trucks, paying cash in advance, and put the driver on payroll which requires prompt payment. She said she is not planning to move the bill out today, adding she has had conversations with the Associated General Contractors who are willing to help draft a bill which is more palatable to everybody. Number 244 REPRESENTATIVE PORTER said he could not support the bill in its present form. He has problems with the idea of a different standard for prompt payment for truckers versus contractors. If a trucker wants to be in an independent business, then he or she should expect the standard business practice of a "net 30." He said he recognizes the safety issue but would like to solve that situation within existing legislation pertaining to subcontractors. He added that going beyond that amounts to negotiating a labor contract or a business agreement through statute, and he does not like to do that. Number 269 CHAIR JAMES clarified that the prompt pay provision requires payment seven days after the contractor gets paid, so it is not "net 30." Number 276 REPRESENTATIVE OGAN said he knows of no contractor who gets paid earlier than 30 days. MR. EAKMAN said it is his understanding that in the trucking industry most prime contractors require payment every two weeks, and the state generally prefers to pay every two weeks. REPRESENTATIVE ED WILLIS inquired if this legislation plows new ground, or are there statutes in other states to cover this. MR. EAKMAN replied that some states have a Public Utilities Commission to handle this; other states are not regulated at all. MR. DAVIS suggested that owner-operators need to be recognized as an entity; they could get a truck check once a month and a regular payroll check as an employee, like the Teamsters do. If they can't be listed as employees, maybe they could be listed as subcontractors. Number 349 CHAIR JAMES repeated that she will be working with the AGC and will carry HB 218 over to next Tuesday's meeting. She added for the record, a summary of a telephone call the day before from Ms. Marie Wilson, 591 West 67th Avenue, Anchorage, objecting to HB 218 because of the difficulty in enforcing it. Number 365 CHUCK DAVIS added that people don't realize owner-operators operate on a very marginal percent of profit, 2 percent to be exact, and it is very hard to have any working capital between long payment periods. It is difficult to get contracts in writing because each job is different; some are by the ton, some are hourly, some are by the load. Some operators who complain about this are asked to leave. CHAIR JAMES said after 35 years in accounting she understands all the problems experienced by owner-operators. She said they fall through a crack, though they fill a niche and provide a valuable service not available any other way. She added she does not have an answer but is willing to work with everyone involved to find a solution which addresses safety while allowing people with "the American Dream" to get started with a small initial investment. She recognized they must be careful not to change any existing labor laws. She held the bill over until next Tuesday.