Legislature(1995 - 1996)
04/26/1995 01:37 PM TRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 218 - PROMPT PAYMENT OF TRUCKING SUBCONTRACTORS Number 028 CHAIRMAN DAVIS asked Representative James to give her testimony on CSHB 218. REPRESENTATIVE JEANNETTE JAMES, Sponsor of Committee Substitute for HB 218 agreed with Chairman Davis on the fact CSHB 218 cannot be completed this session and the Transportation Committee is the place where it should reside during the interim. She stated this bill was filed upon the request of the Alaska Independent Truckers Association to provide for their prompt payment. She explained recent experiences with brokers as subcontractors has caused great distress due to an inability of the truckers to receive prompt payment. Representative James said this is not only an economic issue, but a safety issue as well. To solve the problems experienced, several things must take place. The truckers must organize their own contract and billing system, which they are doing to support their claim for statute change. Subcontractors currently have statute support for prompt pay. She indicated that the employees are covered by labor laws but this statute support does not include the owner-operators of trucks. REPRESENTATIVE JAMES indicated that the independent truck owners who hire out themselves and their trucks for construction and other short term jobs, need to be able to depend on prompt payment for their services in order to maintain their trucks and to guarantee safe operations on the highways and roads. This legislation is specific to trucking, owner-operator as defined in Section 2, (d), (6) of the bill and does not extend to any other segment of small businesses. The truckers are instituting a system of semi-monthly billings. This legislation would make those billings payable within 14 days which is a reasonable length of time. Representative James asked to quote former Representative Ron Larson, who said "some of my friends tell me this and some of my friends tell me that, then I agree with all my friends." She explained this has been one of those bills that has been somewhat of a separation between some of her friends, because she generally supports trucking as not only a way of life, but as an important part of our economic activity. She said her husband had done a lot of trucking before they came to Alaska. He now drives a school bus. He has a brother that has been in the trucking business most of his life. She stated her point was that she has been exposed to the trucking industry for many years. She said the problem with independent truckers regarding these issues is not an independent truckers problem as much as a problem with the category called brokers. Representative James indicated she was not saying we should not have brokers, but there should be responsible brokers. She explained they fill a need in the construction industry when there are extra trucks needed. A broker shows up and hires the individual trucker to perform an overall trucking responsibility. The subcontractors, in statute, are given a prompt pay and are supposed to be paid in seven days after the prime contractor receives payment. The laborers working on a certified payroll, such as state jobs, must be paid and there are certain guarantees to this. She indicated there was nothing in statute to owner- operators of trucks. They cannot be treated as labor because they are not labor; they have their own truck and cannot be subcontractors because they are not part of the bidding process. By putting some provisions in statute for the owner-operators of trucks, it gives them some clout. She commented that payment to these truckers such as long haul truckers is generally twice a month. She added the truckers she has talked with would be happy to be paid once a month, but 120 days is too long of a time period to go without payment. There is a division between the long haul truckers and the Alaska Independent truckers. She said she felt bad about this and felt there should be no distinction. She supported the idea of working on this issue during the interim and would be happy to listen to any other solutions. She said the bottom line is that we cannot have people driving on the highways and roads, hauling material such as gravel and not being able to get paid. They need to be paid so they are able to keep up the maintenance required on their trucks. She added the truckers who are in the larger businesses might feel if the smaller truckers don't have enough money to be in business, they should not be in business. She said "these truckers got to where they are because there aren't jobs." The reason they have this is because there was not enough labor to be performed by truckers, so they are trying to create their own jobs. She said providing HB 218 for the public and legislative process is an excellent way to bring the problem to the forefront. She said she would be happy to answer any questions. CHAIRMAN DAVIS announced there were a number of people on teleconference and asked for testimony from Robert Eakman from Anchorage. ROBERT EAKMAN asked if Mr. Richard Strahl could testify first. CHAIRMAN DAVIS said, yes. RICHARD STRAHL, President, Alaska Independent Truckers Association stated he has been a trucker in Alaska for 34 years. He supported HB 218. He indicated at the present time they are not in the contract and need this bill and need to be recognized. He made reference to the fact if they work for a broker, they only work directly for a general contractor they need to be recognized as a entity in the contract which would give them a right to ask a broker (indisc.), to ask the general contractor, the Department of Transportation & Public Facilities (DOT/PF) and an engineer out on the site and have to ask where their money is. He was pleased with the billing part and stated it was good for everyone to have their own billing (indisc.). This entitles us to attempt to go through the system to get our money when working for a general contractor or through a broker for a 30-day period and have not received payment. He expressed concern for expedient ways of collecting their money and the fact that the general contractor or the broker will not be around at the time the job is over or if there is the situation where the general contractor is losing money, or the broker is taking that money and using it in other areas for other trucking activities. At the present time, they don't have the opportunity to go to the broker, to the general, or the DOT/PF and find out where the money is passed through, or if it is passed through. The general (indisc.) is to stay out there in your truck for 60-90 days. He remarked it is a scary situation when your truck (indisc.) and someone goes out of business or leaves town and you are left without payment. He made reference to the comment made earlier regarding smaller businesses being able to financially handle themselves. He stated as an individual and a one truck owner-operator or for an owner-operator with a couple of trucks, most everyone's credit is set up on a 30-day situation; that is for fuel, tools and maintenance repairs. He said they need this money in order to pay these people promptly. He said people are very quick at cutting off credit with individual truckers compared to a large general contractor or company. On the job if a person is burning $80 to $90 worth of fuel a day, that means their running a lot, there is a lot of wear on tires, and there are other expenses. He emphasized the need for getting the money where the truckers can pay and keep their credit in force. Currently, there are a lot of general contractors that will pay promptly and have been doing so for years but do not always get the contracts. Through the bidding system they may not get any work this year. If they do, there are only so many people that can work for them. He said so you end up with some of the other contractors who seem reliable enough and pay their bills and gave the contract to a broker because they had hoped to (indisc.) their own costs. He said they can do their job and promise to pay his own truckers and carry out his part of the contract. Where the system falls down is not following through to the independent broker and in many instances (indisc.) without his money for long periods of time. He felt HB 218 would help to close that gap and give people a normal period of time to pay their bills. Number 239 CHAIRMAN DAVIS asked Mr. Strahl to explain the involvement of the broker. He asked for confirmation that a general contractor gets a job and has the independent trucking agency submit estimates and quotes to work that particular job. MR. STRAHL explained from his experience, usually the general contractor is required to bid on a highway job, an inspector will be required to come on site, there will be a certain amount of yardage to be moved, so much asphalt they want and the brokers will give the general contractors bids on doing this work, either by an hour or by a tonnage rate. If this works for the general contractor and he's successful in getting the job and he hires that broker, they already have a set price. At that time, the general contractor knows what price he can do the trucking for because he has a price on it. If it is a reliable broker, he will be able to supply the amount and types of trucks needed to do his job. Some of the advantages, from the general contractors standpoint, as far as getting the right trucks and the amount of trucks, when they are needed, are that you know the price going into the job and that it won't change. Number 277 CHAIRMAN DAVIS asked for confirmation that of all the trucking operations on that job that the broker has submitted, does the general contractor pay the broker? MR. STRAHL said yes (indisc.) contractor with the general contractor the broker (indisc.) the type of materials, if the contract calls for D-1 gravel and the asphalt and the borrow A and borrow B. It would be stated in the contract. Also, the broker is a subcontractor at that time. CHAIRMAN DAVIS asked how the independent truckers are licensed? MR. STRAHL said an independent trucker at that time (indisc.) signed the contract with the general contractor with 10 different trucks, the broker will call 10 of his people and say 10 of his independent owner-operators have turned in paperwork to him, he will call them and ask them to work on a job. He will dispatch them according to the general contractors needs at that time. CHAIRMAN DAVIS asked again what kind of license was needed by an independent trucker. He made reference to it being a business license, but under what SIC code. The trucker is not considered a subcontractor from his understanding. BOB EAKMAN, General Manager, Alaska Independent Truckers Association of Anchorage, interjected and said no he is not a subcontractor. There are two separate codes that use (indisc.) license and one other. He stated he did not have the codes in front of him. CHAIRMAN DAVIS asked Mr. Eakman for his testimony Number 292 BOB EAKMAN, General Manager, Alaska Independent Truckers Association of Anchorage, stated the two most important issues this bill addresses is the recognition and safety which were detailed out in a letter dated April 20, 1995, to Chairman Davis. If the truckers are not paid in a reliable and timely manner, they do not have the necessary means of maintaining their trucks, except to dig into their savings if they have any, or talking someone into giving them credit for 90 to 120 days. He reiterated his comments on safety being one of the biggest factors. The other part of this bill is it provides the truckers with a law to go in other directions, where they do not have that now. Currently, the majority of the work is done on a verbal contract basis. He said it was not uncommon to receive late night phone calls or calls while they are in their trucks. He then stated it is not practical for the trucker to sign a contract every time he has to haul a load. Half the time the state does not know what the jobs are going to be until their let. He said there was no real way for a contract to be signed between a broker and an independent owner-operator for every job for the entire year. He said it was just not practical. He added the fact that the subcontractor or broker did not get his paperwork turned in on time, should not have any bearing on whether the trucker is paid or not. Number 340 FRANK DILLON, Executive Director of the Alaska Trucking Association, explained the association is opposed to HB 218. He stated they represent both long and short haul truckers. They represent all kinds of truckers from all areas of the state from Annette all the way to Barrow and from Dutch Harbor to Tok. They have members who operate one truck and members who operate more than 100 trucks. He stated they have discussed this issue and are in favor of having people pay promptly for their trucking services in a timely manner. MR. DILLON remarked what has brought this bill forward is, understandable frustration about the length of time that it takes to receive payment. He stated dump trucking in Alaska is not what it used to be; the world has changed and as with any evolution those that can adapt, survive and those that don't, go extinct. Not many construction truck owner-operators are able to survive any more just operating their truck during Alaska's short trucking season. Virtually every owner-operator must have other sources of income such as a working spouse, outside winter work, snow hauling for about half the rate in the winter through the municipalities or some other way to make a full-time living and to be able to provide for a modest family income. Because market forces of supply and demand would have underwritten and changed the way the market takes place, he did not see where any of the proposals that have been brought forward so far are going to change the situation as it exists. MR. DILLON continued to explain what is really hurting the independent truckers in this state are the independent truckers themselves. He said he would illustrate this point by using the analogy that the trucking industry is like bookends. On one end, you have people who do what he refers to as hobby trucking. These are truckers who are basically financially secure, in their late 40s or 50s, have decided they want to go into the trucking business because they have always wanted to give it a try for the sense of freedom or exhilaration of operating a truck. The hard work and just the idea of having to make a living at it are not necessarily considerations because as they have indicated to him they don't really need the income from the trucking business. He then made reference to the other bookend where there is a group of people who are usually younger, 23 to 26, and are not concerned about the big picture and the long term. They have older, used trucks and lend themselves out to work. If they are making what they consider a reasonable rate, this is fine. He said this appears to be more of a temporary employment scheme than a career. MR. DILLON continued that in between these two bookends there are a lot of people who are truly trying to make a living operating a construction truck in the state of Alaska. It is difficult because of an oversupply of trucks and because of the shrinking budget. He then stated the specifics of the bill. First, he understands the need to be paid before services rendered in a timely manner. This is not a problem that exists in only the owner-operator level of the trucking industry. It is unusual for any truck service provider to be paid in less than 45 days. The normal amount of time is about 45 to 50 days. There are existing contracts within this state with major oil companies that provide for trucking payments to be made within 90 days. These are on amounts of money in the millions of dollars and for trucking services provided in the millions of dollars worth of revenue a year. The idea of being promptly paid is not solely a problem for the owner-operator. If someone doesn't pay the trucker for the services, some of the remedies are they are re-billed, send a letter of reminder, turn the issue over to a collection agency or litigate the circumstances to try and recover the money. MR. DILLON said if HB 218 passes, those remedies would still exist for a owner-operator trucker who has not been paid. Even though there is talk about force of law he said what escapes him is, in terms of statutory adjudication of litigation or action going out to collect the money, how HB 218 helps. It only applies on state funded jobs which may be the majority of the aggregate and dirt hauling in the state, but it is not all of it. There is a lot of private sector jobs that this would not address. HB 218 also excludes people who have the Interstate Commerce Commission (ICC) authority from the ability to take advantage, if there is an advantage in this bill. He asked to make a correction on the issue of what has been said regarding ICC carriers already having a prompt pay bill that requires them to be paid in a specific amount of time. He said this statement is not true. The ICC requires that the trucking company that provides the service send the bill to the shipper within seven days of providing that service. It is an obligation that is placed on the trucker to bill. No where is it stated that the shipper has to pay that bill in any specific amount of time. That is a misconception that is widely held with people who have not worked for the ICC. He stated HB 218 uses the language regarding oral contract sales. He stated as far as he was concerned this may be legal, but it is impossible to prove without going to court. He said when it is your word against someone else's, it is rarely arbitrated. He said it has been suggested from the Alaska Trucking Association (ATA) for years that there be hauling agreements to be signed at the time the person goes to work, even if it is just something that has to be carried by the driver of the truck. He indicated this would mean people would have to change their business to a certain degree but it would be a positive change. He reiterated his opposition to CSHB 218 because it does not provide any revenue. He said what they would like to do is get together with all involved players in the interim and figure out if there is a way to improve the situation for the owner-operator independent truckers. Mr. Dillon said he was available for questions. Number 433 REPRESENTATIVE JEANNETTE JAMES said she appreciated Mr. Dillon's offer to work on this through the interim session. KAREN CHASSE stated she supported CSHB 218. Her husband has been a trucker in Alaska for over 23 years and owns and operates a trucking business. She said they have always run their trucks as a business. She stated trucking is their livelihood and is their only source of income, supporting them and their two children. They pay taxes and carry a million dollar insurance policy. They have their own invoices with daily contract terms written on them which are signed everyday by the job foreman. She explained if they have 10 jobs a day, then they would write up 10 separate tickets for each job they are dispatched to. She bills everyone and hand carries the statement along with the ticketed invoices to the contractor's office on the first day of every month. She noted even after doing all this, they do not get paid any faster than the truckers that do not bill. Charging by contract does not work with these contractors and brokers. They still pay when they feel like it and not a moment sooner. MS. CHASSE said they were not present today to ask for any special favors or request any state money or grants. Their only request is that they are paid in a timely manner by the contractors and the truck brokers. She added she did not understand how anyone can be in opposition to this bill. If they are, is it because the contractors don't have any intentions of paying their bills. Or do they need to use the truckers' money to run their own business? She questioned if this is because they have bid too low on one job and have to use other funds until they can bid on another one. She said if anyone opposes this bill, what exactly are they opposing. They seem to be opposing the fact they will be getting paid. Truckers work for different contractors and brokers all the time; sometimes changing job sites two or three times a day. They simply go where they are needed when a contractor or broker calls for more trucks. The contractors have been taking advantage of the owner-operator for years; they have been controlled for so long that most of the truckers are afraid to ask for their money for fear of being blackballed. The truck brokers are too scared to ask for the money for the same reasons. If the broker puts pressure on the prime to get paid, then the prime will just call a different broker. She said she knows how it feels to be blackballed because it happened to her simply because she asked for her money. She said she waited four months to get paid, she called the (indisc.) and went over the broker's head. She was then called into the office the next day and was blackballed by that contractor and was never allowed to work on that job again simply because she asked for her money. She said the system works on fear and intimidation. MS. CHASSE said some of us are tired of living this way. She said she needs a steady cash flow to run their trucks and pay commission, as well as money to pay their insurance, fuel and other personal bills. She said she needs a regular income to care for their children. She indicated three people have died in the last two years due to unsafe equipment. Someone was killed by a truck that had no brakes. A fellow trucker was killed because his truck was literally held together with chains. When the chain broke, his load shifted and came through the back of the cab. She said she can only guess that these truckers just did not have the money to fix their own trucks. MS. CHASSE said it took a lot of courage to testify on this particular issue. Some other people said they would have liked to testify on this issue but they have been threatened by some of the brokers. One guy told her that his broker said even if this bill passes, they still won't pay him any faster and if he doesn't like it, then that's too bad. It is a pretty bad situation when so many owner-operators are scared of being blackballed that they will run unsafe equipment on the road and apply for welfare before running the risk of speaking out on this issue. She asked for the committee's help. All other subcontractors that work for the prime are covered in certain spec books that clearly outlines all aspects of the particular jobs. It also specifies when a prime must pay each one of these people. Independent truckers and owner-operators have never been recognized in the spec books and the only way this loophole can be stopped, is by passage of this bill. She then asked for questions. Number 490 CHAIRMAN DAVIS stated he wanted to take testimony from Soldotna next. CATHERINE THOMAS of Kenai expressed concerns for the fact that a lot of the expense is coming down to the public in the end (indisc.) increase the cost of every project. She said she did not understand why this was such a problem. Her business history is as a long haul trucking company, (indisc.) owner-operator, truck broker and construction company that hires independent operators and truck brokers. She explained state or federal contracts have always been tied to the contract that she has with the government. Those are issued down to the subcontractor. Normal procedures nowadays with that particular contract with the subcontractor is tied back to the state pay schedule and the government contract or prime contract. Once payment is received they are required to pay within five to seven days. If the owner-operator independent truckers negotiate with their brokers to have the same guidelines or same type of subcontract privileges, this scenario is eliminated. They have every right under the Public Information Act or Freedom of Information Act to request to see a copy of the contract indicating when the pay schedule has been issued. She stated normally the subcontractor and the contractor require release of liens for moneys received. This is normally done pay schedule by pay schedule. The only thing that she sees happening with CSHB 218 if it passes is it removes more responsibility from an independent operator to ensure that his contractor is providing him with the same contract requirements that the prime has. If the prime contractor or the broker for the independent trucker borrows money from the bank to pay the independent trucker, that cost of money will be passed on back to the state government and will increase the price of these projects. Most of their contracts are paid within 30 days. She asked if there were any questions. Number 532 REPRESENTATIVE JAMES asked if Ms. Thomas worked mostly as a prime contractor or a subcontractor? MS. THOMAS stated she worked as both. REPRESENTATIVE JAMES asked for confirmation that she hires independent owner-operators, and acts as a broker. In other words, if there is a need for more owner-operators she would call them in for that particular job. MS. THOMAS reiterated her comments in working both areas because of her status as a women in the business, sometimes she has taken the trucking portion of the contract. She said she would consider herself a truck broker. REPRESENTATIVE JAMES asked what type of arrangement does she have with the operator-truckers for payment. MS. THOMAS explained that she requires a copy of the prime contract that her prime contractor has with the state. She ties her terms of condition to that contract, if they process her pay estimate and have a check in her hand within five to seven days after they have received their money. She also can request in that contract that they notify her when they have received that check. Her subcontract to her owner-operators -- and she issues them subcontracts and it's tied right back to that and they have a right to look at any of those contract documents as far as she was concerned. REPRESENTATIVE JAMES stated Ms. Thomas made mention of having to do a lien release when, for example, the prime contractor is paying the subcontractor. Representative James asked if it stated anywhere that the subcontractor has paid their bills. MS. THOMAS said under the certified payroll Davis Bacon Act, the forms that go in on every public project such as the Title 36 project, they are required to furnish the state Department of Labor with a list of anyone that they would have a contract with on that particular project. REPRESENTATIVE JAMES asked if Ms. Thomas includes owner-operators of trucks on that certified payroll. MS. THOMAS said yes, she does. Her prime contractor requires a lien release from each of her independent truckers saying they have been paid for a portion of the project and a copy of the Title 36 certified payroll form, that she is required to provide the state with. Number 566 CHAIRMAN DAVIS said he would now take testimony from Anchorage again. BILL EVANS, Eagle Equipment in Wasilla, stated he has been trucking in Alaska for years. He said it was not just a money issue anymore, but a safety issue as well. He said there have been people that have been killed. He commented that the sad part is who is going to be next. He asked if it would be a load of school bus kids or someone's family member. He said they can't get their money and can't fix their equipment. He stated they have tried to go up the ladder and ask the people they work for where their money is. But they won't even talk with them, because they didn't hire them. He commented that a few weeks ago he just got his money from a person he worked for last July. He said when he has to pay his insurance every month, his fuel bill, his tires every month, and everything else, it is on a 30-day payment schedule and he can't survive on those kinds of conditions. He said something has to be done for the independent operator to get their money so the trucks can be properly maintained. He said it boils down to a life or death situation regardless of the chain of command and they are not getting their money. It is a real safety issue. He noted he has equipment that he is unable to put on the highway because he has not been able to get his money to maintain his truck. He added anyone who opposes this bill does not understand the safety issues involved. Number 596 CHAIRMAN DAVIS asked Mr. Evans if the payment he received was from a contractor or a broker? MR. EVANS said it was from a broker. CHAIRMAN DAVIS took testimony from Ms. Chasse again from Anchorage. MS. CHASSE said she was speaking with Mike Miller before he left and he's a general contractor and he told her the way it works is they bill on the first and the fifteenth of the month. It takes them approximately 6 to 20 days tops to get paid. It then takes seven days before they can issue a check to the broker. The maximum time to receive a check is 27 days. She said she did not understand why they were not getting paid if this is the normal procedure. REPRESENTATIVE JAMES asked if Ms. Thomas was still on line in Soldotna. She stated that Ms. Thomas indicated in her testimony that people who work for a subcontractor or a prime contractor have the privilege of seeing the contract that they are working under. She asked if these independent operator trucks, such as Mr. Evans, would be able to get a copy of the contract of the person he is working for? MS. THOMAS stated the prime contract with the city, state or the federal government will dictate whether it is a 2 week billing or a 30-day billing. When the trucker signs a contract with the truck broker or the prime contractor, that can be a term he negotiates for. The state or the municipality issuing the prime contract is required to provide a copy of the contract. In between the subcontract there may be a term of negotiation, she corrected herself and said the ability to see it may be a term of negotiation, but many prime contracts will require that all the subcontracts become part of the privileged information that the municipality can provide. Number 620 CHAIRMAN DAVIS said he would hold HB 218 through the interim in order to work on several aspects of the bill with the involved parties such as Richard Strahl, Robert Eakman, Frank Dillon and Ms. Thomas. He said he didn't think that people would not be sympathetic to the fact that someone is not receiving payment in a timely manner. He felt everyone agrees that independent truckers or anyone, for that matter, needs as well as should, receive payment in a timely manner. He asked for people in attendance to consider an option or way of getting independent truckers designated or licensed as subcontractors so they would fall under existing statute which might be a possibility with some additional language included in the bill. He also referred to Ms. Chasse's comment of why would anyone not favor this bill. He explained incorporating something into law, specifically to a small group is a pretty big step. If there is opportunity for alternative methods to get a problem taken care of, he would like to approach it from that angle through the interim. TAPE 95-17, SIDE B Number 000 REPRESENTATIVE JAMES said she had been talking with Mr. Dillon on various solutions of truck safety. She felt if we are going to be working on how these people get paid, then we also should address some kind of provision for safe trucks on the roads. She said we are saying now that the safe trucks that are not there because the owner-operators are not getting paid and she wanted to know that they are going to be there even when they do get paid. She agreed with it being a safety issue. She said we could let these people economically go and find another job, if our concerns, as a state, were just to be sure they received payment, but the issue of safety must be addressed as well. CHAIRMAN DAVIS stated HB 218 will be held for the interim.