Public Works

The Public Works section, which comprises 5% of the law and business exam, focuses on the specific requirements and regulations governing contractors involved in public projects. This includes understanding prevailing wage laws, bonding and insurance requirements, as well as adherence to various legal and procedural standards that ensure fairness and compliance in public sector construction. Mastery of this section is essential for contractors looking to work on government-funded projects, as it involves navigating strict legal frameworks and maintaining accountability in all aspects of the contracting process.

Public Works Contractor

A public works contractor refers to an individual who either places a bid or enters into an agreement to carry out work for city, county, state, or federal government projects. The compensation for employees of a public works contractor is a prevailing wage.

The below figure illustrates a timeline of obligations that a public works contractor must fulfill, following the review of a public works advertisement with the objective to place a bid. The timeline encapsulates all actions required to be completed prior to the submission of a sealed contract bid.

How to Become a Public Works Contractor?

To become a registered public works contractor with the Department of Industrial Relations (DIR), a contractor must satisfy the following conditions:

• All employees, including subcontractors if they're registered public works contractors, should be covered by workers' compensation.
• If relevant, the contractor should hold a valid license from the Contractors State License Board (CSLB).
• The contractor must have no outstanding unpaid wages or penalties owed to any employee or regulatory body.
• The contractor should not be prohibited from bidding or working by any state or federal authority.
• The contractor must not have a history of violating registration requirements.
• If there is a violation within a 12-month period, the contractor can become eligible for registration by paying an additional penalty.

Public Works Project Timeline

To register as a public works contractor or to renew an existing registration, one can proceed online via the DIR website. This process requires a payment of a non-refundable fee. A registration is valid from the month of July till the end of June and it is not subject to proration.

Bidding on Public Works Contracts

In California, legal requirements mandate that public entities must publicly solicit bids for certain contracts, primarily those related to construction undertakings. These entities publish advertisements inviting contractors to submit sealed bids and typically award the contract to the contractor who submits the lowest bid.

The Subletting and Subcontracting Fair Practices Act, also known as the Listing Law, safeguards against unscrupulous practices:

• Bid shopping: This occurs when a main contractor reveals a subcontractor’s bid to competitors in an effort to secure a bid lower than the one initially quoted to the project's owner.
• Bid peddling: This happens when a subcontractor, who did not win the initial bid, approaches the main contractor who won the bid and offers to lower their bid in hopes of being hired as a replacement.
• Bid rigging: This unethical practice involves several contractors collaborating to manipulate the result of a bid by either restraining competition or artificially inflating bid prices.

Note: A public entity might permit a main contractor to identify portions of subcontractor work up to one (1) day after the deadline. Also, if the public entity modifies its bid invitation significantly within three (3) days before the bid closing, the submission deadline must be extended by three (3) days.

Prequalification of Bidders

Public entities might require contractors to prequalify before they can submit bids for public works contracts. This process is used to assess potential bidders. Public entities can either create pre-qualification procedures specific to a single project or establish qualification procedures applicable to all bids from contractors for a one (1) year period.

When public entities establish pre-qualification procedures, they must adopt:

• A consistent system;
• A standardized scoring system;
• A procedure for appeals.

Bidding Requirements

Bid Security (Bid Bond)

It's common for a public entity to require contractors to provide a bid security at the time they submit their bid. This bid security needs to be made payable to the body awarding the contract and could range from a minimal amount of $100 to $250, up to 10% of the bid price (20% for federal contracts). The bid security can take the form of a bid bond, cash, a cashier’s check, or a certified check. If a contractor doesn't include the necessary bid security, their bid is deemed "non-responsive" and is summarily rejected. The bid security provides assurance that the bidder will honor the contract in accordance with their submitted bid. If the bidder fails to honor the contract, the bid security is forfeited to the public entity.

Performance Bond and Payment Bond

For state public works projects valued over $5,000 or other public works projects exceeding $25,000, the bidder is required to submit two surety bonds to the entity awarding the contract before work starts. The Miller Act mandates that for federal government projects above $100,000, a bid bond must be provided. Performance and payment bonds guarantee the contractor's ability to complete the job, and their value should be 100% of the contract's value.

• A performance bond, posted by the contractor, ensures that the work will be completed on schedule and to a satisfactory standard.
• A payment bond guarantees that all subcontract labor and materials will be fully paid for and must be kept until the warranty period ends.

The contractor is responsible for paying all bond premiums to a security agency, along with costs and incidental charges, typically ranging from 1-2% of the contract value, depending on the contract size and the contractor’s credit rating.

License Requirements

In California, public entities are obligated to state the required contractor’s license classification in their notices inviting bids. According to the law, the public entity awarding the contract must first confirm that the contractor possesses the appropriate license before awarding the contract. This verification can be done through the Contractors’ State License Board or by inspecting the contractor’s pocket license and a relevant statement signed by the contractor. Furthermore, all public works contracts must include requirements for soliciting minority/disability businesses.

Identification of Subcontractors

The Listing Law stipulates that public works contractors must provide a list of their subcontractors, including the subcontractor's name, office location, and contractor license number during the bidding process. These subcontractors will undertake contract work valued at more than 0.5% of the prime contractor’s bid or, for roadwork, $10,000 or more, whichever is larger.

Suppose the prime contractor does not specify which portions of the contract work will be performed by each subcontractor. In that case, it is assumed that the prime contractor will undertake those portions of work themselves. The law forbids the substitution of subcontractors without the approval of the awarding public entity. However, under the following circumstances, subcontractors can be replaced:

• Failure to Execute Subcontract – The listed subcontractor fails or refuses to sign a written contract for the scope of work at the bid price after given a reasonable opportunity to do so.
• Insolvency – The listed subcontractor becomes insolvent or receives an order for relief due to bankruptcy.
• Failure to Perform Subcontract – The listed subcontractor fails or refuses to fulfill its subcontract, or performs unsatisfactorily.
• Failure to Furnish Bonds – The listed subcontractor fails or refuses to provide a payment or performance bond as requested by the prime contractor in its sub-bid request.
• Clerical Error – The prime contractor proves that the listed subcontractor was included as a result of a clerical error.
• Unlicensed – The listed subcontractor does not hold the necessary license as required by the licensing law.
• Failure to Pay Prevailing Wages – The listed subcontractor is deemed ineligible to work on the project due to failure to pay prevailing wages.
• Not Qualified – The public entity deems the listed subcontractor not a responsible subcontractor.

Substitution of Sub-contractors

When a prime contractor proposes a change of a listed subcontractor, the responsible public body is obliged to notify the original subcontractor of this request in writing, stating the reasons for the proposed substitution, via certified mail. The subcontractor listed originally has a window of five (5) working days to raise written objections to the proposed substitution. If objections are received within this period, a hearing is scheduled, with the public entity required to provide a written notification of the hearing to the listed subcontractor at least five (5) working days prior to the hearing. During the hearing, the public entity will decide on the approval of the prime contractor’s substitution request.

When a prime contractor requests a substitution based on a clerical mistake, they must notify the public entity, the mistakenly listed subcontractor, and the subcontractor who was unintentionally left out, all within two (2) working days following the opening of the bid. The mistakenly listed subcontractor then has a six (6) working day period from the opening of the bid to submit written objections to the proposed substitution to the public entity and prime contractor. All parties involved: the prime contractor, the mistakenly listed subcontractor, and the unintentionally omitted subcontractor, have eight (8) working days from the bid opening to present affidavits to the public entity in support of their respective stances. A hearing will then be held by the public entity to decide on the approval of the prime contractor’s substitution request.

Violations of the Listing Law by a prime contractor may result in the public entity either terminating its contract with the prime contractor or imposing a fine on the prime contractor of up to 10% of the subcontract amount in question. The prime contractor could also face disciplinary measures from the CSLB.

Public Works

Public works can be defined as tasks involving construction, demolition, alteration, installation, or repair that are performed under a contractual agreement and are financed either fully or partly by public funds.

Public Works Advertising: Cal eProcure

Individual cities often use their websites to post "notice inviting bids" for local projects. Interested bidders can look for potential projects and submit bids on an individual basis. In the state of California, a unified program, eProcure, is used to circulate bid notices. Contractors can search for projects using various search parameters such as event name/ID, state department, contractor license type etc.

Prevailing Wage

A prevailing wage refers to the hourly rate (along with benefits and overtime) paid to workers on any public works project with a value exceeding $1,000. These wage rates are determined by the DIR to ensure fairness and consistency. It is a legal requirement for all contractors bidding on public works projects to adhere to these wage rates.

A particular wage is determined based on the craft, type of work, and prevailing wage rate in the nearest labor market. Occasionally, the body awarding the project may introduce a Labor Compliance Program (LCP), which removes the need for prevailing wages for public works projects valued up to $15,000 (for demolition, repair, or maintenance work), or $25,000 (for construction work).

The Davis-Bacon Act ensures that the same prevailing wages are paid to laborers working directly on a federal public works project valued over $2,000.

Liability Insurance

Public entities necessitate contractors and their subcontractors to produce proof of liability insurance, with the public entity listed as an additionally insured party. This insurance has to be in effect from the commencement and throughout the duration of the contract. One commonly observed set of minimum insurance limits for a public works project is displayed below.

Coverage

• Each Occurrence: $1,000,000
• Personal Injury Limit: $1,000,000
• Auto Liability: $1,000,000
• General Aggregate Liability: $2,000,000
• Completed Operations Aggregate (Products): $2,000,000
• Completed Operations Aggregate (Non-products): $2,000,000

Prior to the execution of the contract, the contractor must submit certification of this insurance and workers’ compensation for all employees to the public entity.

Warranty Provisions

Consideration of warranty provisions is essential in the context of both expressed and implied warranties. Typically, a construction project’s expressed warranty lasts one (1) year from the date of substantial completion. However, this expiry period does not extend to defective construction, which is treated as a contract breach and is governed by the four (4) year statute of limitations.

Withdrawal of a Bid

A contractor is allowed to submit a written request to the public entity awarding the project for the withdrawal of their bids prior to the final bid submission date. A contractor who has once withdrawn their bid may submit a new bid within the original submission deadline. Once the bids have been opened, certain submission errors may entitle contractors to relief, allowing the withdrawal of their bid without forfeiting their bid security, provided the awarding body agrees. If the awarding body does not consent to the bid withdrawal, the contractor has the right to sue for the recovery of their bid security without any claim of cost or interest.

Awarding Project to the Lowest Responsible Contractor

The lion's share of California public works contracts adhere to competitive bidding requirements, practices that ensure a fair chance for contractors participating in the bidding process and eliminate favoritism and corruption in the awarding of public works contracts. This bidding process typically involves contractors submitting sealed bids to a certain office before a designated deadline. After bids are opened and read out on the specified date, a minimum review period of twenty (20) business days is allowed unless otherwise stipulated, after which the public works contract is awarded to the responsible contractor offering the lowest responsive bid. Any contractors not registered and involved in bidding or being awarded a public works project may face a $2,000 penalty.

Apprenticeship Requirements

For public works contracts exceeding a value of $30,000, it is mandatory for each contractor and subcontractor to employ apprentices registered with the Division of Apprenticeship Standards (DAS), unless the craft or trade does not employ apprentices as determined by prevailing wage determination. Penalties for contravening these requirements are $100 per working day for the initial violation and $300 for each subsequent violation within a three (3) year period. The contractor may also face debarment for a duration of one year for the first violation and up to three (3) years for subsequent violations.

Note: Debarment is when the state or federal authorities deny a contractor the opportunity to bid on, be awarded, or perform work as a subcontractor on a public works project.

Certified Payroll Reporting

Besides utilizing the California DIR electronic certified payroll reporting system for most public works contracts, all contractors and subcontractors are obligated to submit certified payroll records (CPRs) to the Labor Commissioner. The records should include each worker's name, address, straight time, overtime (if applicable), social security number, work classification, and wages. Projects enforced by a Labor Compliance Program (LCP) are exempt from this reporting requirement.

Common Public Works Violations

Several commonly observed violations in public works include:

• Incorrect classification of workers;
• Fabricating work hour reports;
• Failure to report all employees;
• Forcing employees to return wages;
• Insufficient funding for benefits.

Consequences of Non-Compliance

Violations of public works laws come with the following potential penalties:

• Payment of due wages, along with interest and liquidated damages;
• Imposition of a financial penalty;
• Debarment, which can last up to three years;
• Criminal charges;
• Requirement to cover DIR’s investigation costs.

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