Legislature(2003 - 2004)
03/25/2003 01:32 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 111-PUBLIC CONSTRUCTION PROJECT REQUIREMENTS CHAIR BUNDE announced SB 111 to be up for consideration. SENATOR STEVENS arrived at 1:38 p.m. MR. ED FISHER, Deputy Commissioner, Department of Labor and Workforce Development (DOLWD), said SB 111 is designed to eliminate the requirement that contractors on public works projects submit weekly certified payrolls to the Department of Labor and Workforce Development. He continued: In place of the certified payroll, all the contractors and subcontractors will be required to file a notice of intent to perform public work along with a fee of $100. The notice would be on a form provided by the department and include identifying information about the project and the contractor and a statement that the contractor fully understands his or her responsibilities to workers under Title 36 and will comply with those requirements. The notice of intent would inform the department that each contractor is aware of the proper prevailing rates of pay. At the end of its project, each contractor or subcontractor would file with the Department of Labor an affidavit of compliance on a form provided by the department along with another $100 fee. That affidavit would state that the contractor has completed the work of the project and complied with the requirements of Title 36 with the regard to the payment of proper prevailing wages and resident's preference. The affidavit of compliance would provide an instrument for closure on projects and a sworn attestation of compliance with the act. The advantage to contractors would be that they would no longer have to file the certified weekly payrolls with the department. However, in most cases, when federal money is involved, certified weekly payrolls are already being filed with the contracting agency. This would eliminate the duplication of the filing of those certified payrolls. The payrolls would still be accessible for audit purposes in the event of a complaint or an investigation. The contracting agency would not be required to audit the payrolls, although the Department of Transportation/Public Facilities already performs certain tasks to satisfy federal grants on most of its projects. Presently, many contracting agencies do not make final payment on a project until they have clearance from the Department of Labor. Under this plan, that is the plan in SB 111, the department would check its files for the final affidavits and that would make the process of issuing a clearance much more responsive. Final payment could be released to the contractor sooner. This bill would enable the department to put its resources in the field rather than in the office filing paperwork. The expectation is that the fees will generate - and the savings from eliminating a clerical position would generate annual revenue of $115 million. CHAIR BUNDE said he was confused about the filing requirements and flexibility as any Little Davis Bacon project requires a weekly payroll filing. MR. FISHER replied that is true at present because Title 36 requires that the payroll information be filed with the Department of Labor. CHAIR BUNDE asked if SB 111 removes that requirement. MR. FISHER replied contractors would no longer be required to file a certified payroll with the department, but they would be required to file a certified payroll with their contracting agency. CHAIR BUNDE asked if the department has just been getting a copy of the paperwork contractors were filing with the federal agency. MR. FISHER replied that is correct and said the certified payrolls fill about 27 file drawers every year and amount to about 20,000 pieces of paper in a month. CHAIR BUNDE asked if a subcontractor who finishes a project in a day or two would still have to file and pay the two $200 fees, and whether the subcontractor would get paid before the main contractor filed his paperwork. MR. FISHER replied the intention of the bill is that the subcontractor would file payroll information. The department, upon receiving the affidavit of completion, would check its files and provide the proper release so that the subcontractor could be paid. CHAIR BUNDE asked if that would apply if a subcontractor worked one day or less. MR. FISHER replied that is correct as presently written. CHAIR BUNDE asked how the $100 fees equate to the cost of the work that would be done. MR. FISHER replied that the fee was not designed in terms of the cost. He stated, "It's a revenue generator." SENATOR SEEKINS pointed out the fiscal note contains a breakdown of 2300 projects with an average of five contractors per project. He asked Mr. Fisher if he could tell how large those projects were. MR. FISHER said he couldn't, but based on Southeast Alaska only, about 15 percent of the projects have a value of about $5,000; another 25 percent have a value of about $10,000 or less. SENATOR SEEKINS asked how long it would take the department to do the certification so people could get their final payment. MS. HALI DENTON, Acting Director, Division of Labor Standards and Safety, said they don't have a solid number for that because it's not something the department has had to keep track of before. She noted, "It's intended to streamline the process...." She said the division would be releasing the subcontractors as they filed their affidavits so they would not have to wait until the entire project is completed. SENATOR SEEKINS asked what percentage of a contract is normally held out for final payment. MS. DENTON said she would get back to him with an answer. SENATOR SEEKINS said he was concerned that on a small contract, for example a $5,000 contract, the whole amount would be withheld and none of the contractors or subcontractors could get paid until the department got to that point. He asked if the division has envisioned the final process and whether it would be based on the affidavit or whether the division would look at other documents to make sure that people had complied with the many Davis Bacon requirements. MS. DENTON replied that the affidavit is intended to be a sworn document. The division would look at that if problems surfaced and it would be auditing the payrolls. Absent any complaints, it would just reference the affidavit. MR. DON ETHERIDGE, Alaska AFL-CIO, said the AFL-CIO has concerns with the bill as drafted and wants to see the certified payroll requirement remain with the department. The fees should also be earmarked for the department so they can do this project right. The problem now is that the department doesn't have enough staff to follow up on complaints about certified payrolls. The AFL-CIO also wants to see a graduated fee instead of charging the same amount for a $5,000 contract or larger one. He explained that if you're trying to track down certified payrolls right now on the federal level, you don't know where you're going to find them. It could take forever. His members know when they are being paid the wrong amount; now they can go to the department. SENATOR FRENCH asked if the certified payrolls were going to stay with the contracting agency, which might be the Village of Hoonah or some other small agency. MR. ETHERIDGE replied that is correct. It could be any department of the state, municipalities, etcetera, and that is why it would be so hard sometimes to try and track them down. He also noted that many times contractors look at the certified payrolls to make sure their competitors are staying above board. SENATOR FRENCH asked if certified payrolls basically tell you if the appropriate wage is being paid to the appropriate individual under the Little Davis Bacon Act. MR. ETHERIDGE replied yes. CHAIR BUNDE asked a where the federal certified payroll goes and whether there is a central repository where people could access that information. MR. SCOTT JOHANNES, Association of Builders and Contractors, said he saw a lot of problems with the bill. One is the Village of Hoonah. Now the state knows how to review the payrolls and once this bill goes into effect, hundreds of agencies across the state, the village of Hoonah being one, will be responsible for doing that review. They don't have anyone on staff to do that. This new system will be less efficient and the person doing it will be less qualified. MR. JOHANNES second concern was the fee. Basically, the state is charging the contractor the fee on projects the contractors are doing for the state, so the state is charging itself and they're asking the contractor to pass it through. He surmised, "So they're going to increase the cost to themselves." SENATOR STEVENS asked if it would be of concern to him to have contractors investigated. MR. JOHANNES replied that until the department has certifications for everyone on the project, it is not going to be able to release the certification verifying that a subcontractor is in compliance so the subcontractor can get a final payment. SENATOR STEVENS asked if that would be any different than it is now. MR. JOHANNES replied yes. Currently, department staff is responsible for reviewing those and have the means to do it. CHAIR BUNDE asked if, under the current system, subcontractors are required to provide the certified payroll under the Davis Bacon Act and, if they don't, the major contractor would be held up from payment as well. MR. JOHANNES replied that is correct. MR. CHARLES WIEGERS, Associated Builders and Contractors, was opposed to SB 111 for many of the reasons already expressed. He said the department is shifting this effort to the contracting agencies and some are capable but some are already overwhelmed with the administration of contracts. In addition, the department is asking to derive revenues from this bill. He was skeptical that the $115 million the department intends to receive from the fees would be added on to the cost of construction [which the state would have to pay for]. Another concern he expressed with is the clearance of the final contract. He said if a subcontractor doesn't file, the general contractor's payment could be held up and the subcontractor might do it maliciously. MR. WIEGERS said another concern is that it removes enforcement from the process because the department will no longer enforce Title 36 wages. It is going to rely on a piece of paper. He added, "If someone is dishonest enough and disingenuous enough to pay less than prevailing wages on a project, I wouldn't put it past them to sign a certification saying that they did." He said he is aware of the large amount of paperwork because as a contractor he dealt with it. He suggested moving to an electronic submission to eliminate the huge volumes of paper. MR. TIM ROGERS, Legislative Program Coordinator, Municipality of Anchorage, said he has some concerns with the bill. First, municipalities will become the record keepers for the Department of Labor and they don't have the expertise to do that. He was also concerned about the fees, especially for smaller projects around $5,000. Two hundred dollars is a significant percentage increase on a smaller project. He also noted there is no provision for emergency work and his city is faced with a few million dollars worth of emergency work caused by a wind storm. There is no provision allowing the municipality to get a contractor to do the repair work immediately and the municipality would have to wait for the department to say it's okay to put a contractor on the job. This could cause significant problems for the municipalities in some cases. Municipalities also have to get the department to sign off before they can issue final payment. He explained they do have significant retainage, especially on the larger projects, and are required by state law to pay interest if there is any delay on the payment. He concluded by saying they wouldn't object if municipalities were exempted from this bill. SENATOR SEEKINS asked if municipalities are currently required to make sure their contractors are sending in the certified payroll affidavits. MR. ROGERS replied that he couldn't answer that, but would get the answer for him. MR. RAYMOND SMITH, Business Manager, INPAT, opposed SB 111 for the same reasons already given. He said, "The Department of Labor needs to monitor certified payroll. That's their job." He spoke of one contract that included the Loussac Library, the East High School Teen Career Center, and Anaktuvuk Pass Housing projects. He said if he reads this bill correctly, he would have to go to the Mat-Su Valley, the school district, and to find out who the housing authority is in Anaktuvuk Pass to monitor the certified payrolls. He contended: It's just not feasible. We have a clearinghouse here. That's where the certified payrolls are turned in. That's where interested parties can go to find them. It only makes sense, gentlemen, and we'd appreciate it if you would take a little more care in looking at this bill. I don't think it's right for the workers of Alaska. SENATOR SEEKINS asked if INPAT monitors the payrolls now. MR. ROGERS replied it monitors certain projects - some contractors and sometimes their own contractors. SENATOR SEEKINS asked for an estimate of the amount of time it took. MR. ROGERS replied that it takes about 20 percent of his organizer's time and about 7 percent of his own time. CHAIR BUNDE asked Mr. Rogers if he was aware of any federal government clearinghouse and whether folks would have access to that information. MR. ROGERS replied that the federal Department of Labor is and that one must write to Seattle to request copies of certified payroll. MR. SCOTT BRIDGES, Teamsters Local 959, told members: This bill as drafted is disruptive to workers because it seriously dilutes the practicability to enforce rights that are afforded under this body of law. By scattering compliance with Title 36 and other wage statutes, workers are placed in further jeopardy of losing earned wages to unscrupulous contractors. I don't know that any of us could accurately estimate the amount of loss to workers that exists today with the staffing levels that exist at the Department of Labor. At a time when economic pressures attack the worker at home with greater influence is greater than any other element of our society, this bill proposes to add a little more pressure to that. The bill suggests that it would eliminate a double recording requirement. There are many practical means of overcoming that particular problem, which is not quite so monumental to the individual contractor as some might have us believe. Eliminating a clerical position at the Department of Labor, which is also suggested by those who proposed this legislation, would further cripple the DOL's enforcement capability. At this time, after I have spoken with several of the enforcement officers with the Department of Labor, they have suggested to me that they get so many complaints but they're able to enforce only those that are pretty much slam dunk cases. They simply do not have the time in their work week to handle the load that exists today. In our state's effort to stimulate the stagnant economy, we need to be looking towards entrepreneurialism as an economic stimulus for greater growth rather than regulations of this type. With that entrepreneurialism we're going to get that economic growth and we'll have enhanced revenues that the state so drastically needs. I appreciate the time. I think that this bill is one that in its present form should go away and I would appreciate this committee's assistance in taking a much harder look at this. CHAIR BUNDE asked how he proposes to pay for the service so the state can continue to provide the same level of service. MR. BRIDGES replied that eliminating one clerical position was going to be a drop in the bucket in the suggested $115 million fiscal note. He suggested keeping the "$100 in and $100 out" and putting that money in the hands of the workers so they can spend it at the businesses in his community. Whatever taxes come in from those construction dollars would enhance the state's revenues even under the current tax structure. SENATOR SEEKINS noted that Mr. Wieger's earlier reference to $115 million was two decimal places off. The amount is $1.15 million. MR. BRIDGES said a clerical position would not account for much of that. MR. JOE SMITH, part owner of Gastineau Contractors, said he has concerns about shifting the recording of certified payroll from the Department of Labor to the contracting entities. For a company that bids on Davis Bacon jobs, it's important to have an agency monitoring their competition. A contracting agency might be less inclined to dedicate the resources needed to do the job as its hands are full administering the contract. They don't have the expertise or the motivation to monitor the certified payroll, which would be especially true of small jobs. MR. SMITH explained that $2,000 is the lower limit where Davis Bacon kicks in so a $200 in and out fee represents 10 percent of a job that size. A sliding scale makes a lot more sense. CHAIR BUNDE asked if he believes this is a valuable service and if a sliding fee scale was used, whether he would be willing to pay additional funds so the state could maintain the service. MR. SMITH replied he would. MR. THOMAS BOEDEKER, City Manager of Soldotna, said he is chairman of the Alaska Municipal League legislative committee. He noted the statute requires withheld money due a contractor to accumulate at a 10.5 percent interest if it's not paid within 30 days of billing. Right now municipalities are not earning anything near 10.5 percent on their investments. This bill would not let him make a final payment to a contractor that might be due because of a subcontractor or any number of other issues. Under this bill, a municipality would be required by law to pay 10.5 percent interest while it waited for the Department of Labor to resolve a dispute. TAPE 03-14, SIDE B MR. BOEDEKER also had concerns with the dispute resolution process itself, and asked what kind of disputes would trigger the process. He said right now the department enforces the prevailing wage law. There are a number of interpretations of what work is covered or not covered and the municipalities have neither the jurisdiction nor the expertise to deal with the interpretations the department has made. He found it difficult to believe that filing copies with the municipality only will allow the department to make its determinations. A burden would be placed on the municipality "to do all the leg work" every time an issue arises. He also expressed concern about how long the municipality would be required to keep the records. Contractors keep records while they are active and don't organize them to be researched after a job is closed. He concluded that an amendment is needed that says if a municipality is withholding funds while awaiting the department's certification, it is not subject to retainage interest. CHAIR BUNDE asked Mr. Fisher to look at the following issues: · Electronic submission of the information · A graduated fee · The interest concerns on retained payments · Emergency provisions · The state's need to generate revenue · The percentage of private versus state contracts He asked Mr. Fisher to provide the committee with feedback on those issues. SENATOR STEVENS also asked Mr. Fisher to look into the impact of exempting municipalities. CHAIR BUNDE said he also wants to know how one would access the federal repository's information if this bill becomes law. SENATOR SEEKINS said he would like to know if any other state requirements have to be met in addition to the certification of payroll before payout is made and how many reports the department currently receives on certified payrolls. He also wanted to know what the volume of the paper flow is and, as it comes in, whether the reports are filed with or without review. He further asked if the affidavit includes the same type of report that is filed weekly or whether it just states that prevailing wages were paid. SENATOR DAVIS asked if there are one or two filings between the department and the contracting agency. MR. FISHER said based on the bill, the expectation would be that the contractor would file a notice of intent to proceed, which would be accompanied by a $100 fee. When the project for that particular contractor was complete, that contractor would file an affidavit saying that he/she had paid proper wages and the contractor's portion of the contract was complete, accompanied by a $100 fee. SENATOR DAVIS noted a clerk's position costing about $30-$40,000 would be eliminated. She asked where the other money in the fiscal note would come from. MR. FISHER replied that the revenue generation would come from the filing fees. The cost savings of $40 to $50,000 are from eliminating the position. SENATOR DAVIS asked whether the bill is based on the model of the Little Bacon Davis Act. MR. FISHER responded that he just recalled they eliminated $67,000 from the budget for the clerical position. He didn't have an answer to how the act came into being. SENATOR DAVIS said the reason she brought that up is because SB 111 might be eliminating something that is required by the federal government. MR. FISHER replied that he is unaware of a requirement but would ask the question and get a response. CHAIR BUNDE held the bill and said he would share the information with the committee when it came back.