Jennifer L. Dauer, Partner Diepenbrock Elkin Gleason LLP

"Skilled and Trained Workforce" Recovery Plans

As recently discussed, amendments to Public Contract Code sections 2600 et seq. adopted in Assembly Bill 3018 (AB 3018) increased risks to contractors on public works jobs constructed using design-build, lease-leaseback, and certain other best value contracting methods. Many general contractors and subcontractors are struggling to find sufficient journeypersons who are graduates of approved apprenticeship programs to meet the requirements. Even some unions have been unable to supply sufficient graduates. Notwithstanding these difficulties, the building trades continue to push legislation expanding skilled and trained workforce requirements into other contracting areas, and the statutory requirements already provide for an increase in required journeyperson graduate percentages in 2020.

Given these challenges, many contractors and subcontractors are falling short of monthly journeyperson graduate requirements. Those contractors are subject to a penalty of up to $5,000 for the first month’s violation and up to $10,000 per month for each additional violation within a three-year period. Further, public owners must withhold payment of 150% of the value of the work for the contractor missing the target (presumably the occupation in which a shortfall exists if the contractor has more than one occupation). The withhold remains until the contractor submits an acceptable plan to substantially comply with the requirements in the relevant occupation(s) by project completion. We have received many questions from public owners, general contractors, and subcontractors about what should be included in a plan. No statute or regulation provides guidance, but the following elements are recommended guidelines for a plan to achieve substantial compliance.

1. Acknowledge the requirement. Different percentage graduate requirements apply to different occupations. Also, some contracts are for multi-year projects during which the graduate percentages increase. By acknowledging the requirement, the contractor indicates that it is aware of the goal it must reach, inspiring greater confidence in its ability to meet the obligation.

2. Explain the shortfall. This is not required, but may be the most critical plan contents. The public owner must send any report reflecting a shortfall in a given month to the Labor Commissioner to impose a penalty. Certain factors justify reducing the penalty, but nothing allows the contractor to argue how those factors (or others) apply to it until after the Labor Commissioner imposes the penalty. By then, the contractor has the burden to prove that the basis for the penalty is incorrect. Because the Labor Commissioner currently has nearly unlimited discretion, it may be impossible to meet that standard. Thus, the contractor’s only real chance to argue its case may be in its plan for recovery.

3. Provide a detailed explanation for recovery. Both contractors and public owners are struggling to identify the necessary level of detail. To some extent, the detail will be case-specific. However, simply stating that the contractor will make efforts to comply or increase participation in the future usually will be insufficient. Further, an element for reducing a penalty is steps voluntarily taken to remedy the violation. The contractor should consider the plan its opportunity to explain those steps to the Labor Commissioner as well as the public owner. Consider the following questions, if applicable, in preparing or reviewing a plan:

• • How much work remains? How many graduate journeypersons will the contractor need each month to perform that work and achieve substantial compliance? These may be the most critical questions to consider.
  • Does the contractor have graduate journeyperson employees that will be available in the future, such as by shifting them from another project or because they are returning from vacation or an illness?
  • What efforts will the contractor make to hire graduates, including any discussions with union halls or staffing companies to supply graduate journeypersons?
  • Does the contractor have apprentices who are expected to graduate during the project? If so, identify when the contractor expects the new graduates to be available.
  • If the contractor has fallen short before, what is the contractor doing differently, or why does the contractor believe that the same plan will achieve different results? This may be the most difficult question to address, but public owners likely will not continue to accept the same plan that has been unsuccessful without some explanation.

Contractors must provide an acceptable plan to achieve compliance before a public owner can release withholds due to failure to meet skilled and trained workforce standards. However, contractors should not view the plan as a nuisance to be provided as quickly and summarily as possible. Many public owners are sympathetic to difficulties the law has caused, but they also are under scrutiny for how they enforce the requirements. As a result, public owners will be hesitant to accept a summary plan. More importantly, the plan may be the contractor’s only opportunity to present its “case” for reduced penalties—or even to avoid suspension from public contracting—to the Labor Commissioner. Thus, contractors should carefully consider and draft the plan to protect their long-term interests as well as their immediate interest in payment.

For additional information about skilled and trained workforce requirements, lease-leaseback contracting, design-build contracting, or other government contracts matters, please contact:

Jennifer L. Dauer

jdauer@diepenbrock.com

916-492-5073