Compliance or confusion? Six important lessons have been learned about the implementation of Labor Compliance Programs since the passage of AB 1506, which introduced districts to new state requirements and more state agency oversight of school facilities projects.

About a year ago, AB 1506 (Chapter 868, Statutes of 2002) initiated a hailstorm of speculation about increased school facility costs and impediments to funding approval. There was a perception that school construction would grind to a stop. AB 1506 introduced school districts to new state requirements and more state agency oversight. Labor Compliance Programs must now be approved by the Department of Industrial Relations.

AB 1506 requires districts using funds from Proposition 47 and this year's Proposition 55 to initiate and enforce, or contract with a third party to initiate and enforce, a Labor Compliance Program for school facility projects.

A year into the program we realized that the sky did not fall, and AB 1506 is becoming part of the school administrators' nomenclature. How did the apprehension of 2003 evolve into the reality of 2004? The simple answer is education. For a while it seemed that you could not attend a professional association meeting without receiving a briefing on labor compliance and prevailing wage. School administrators learned that the labor compliance mandate was not as onerous as expected. This article addresses six LCP implementation lessons learned over the past year.

Lesson 1: Construction trades have discovered school facilities

School facility projects, like other public works, have long been required to pay prevailing wages to trades workers. In essence, prevailing wage is a statutory requirement that all workers on a public work be paid the wage rate that the greatest number of similar trades workers earn.

Prior to recent legislative action, complaints and investigation of failure to pay construction workers the appropriate rate on a school project were the responsibility of the Department of Industrial Relations. Some labor advocates argued that DIR was inadequately staffed to perform sufficient reviews and investigations, particularly as the $25 billion school facilities bonds were being considered in the Legislature. Requiring an LCP for school projects shifts the burden for monitoring pay rates from the state DIR to the local school district.

In 2001, AB 1402 (Chapter 421, Statutes of 2001) required a Labor Compliance Program for districts wishing to use the new "design-build" construction delivery method. As the AB 16 (Chapter 33, Statutes of 2002) school facilities bond deal came together in 2002, the construction trades focused on school facilities.

During the negotiations, two important changes were made to the school facilities program. First, the requirement of a Labor Compliance Program for school facilities was added by amendments to AB 1506. Second, the membership of the State Allocation Board was expanded to include a person appointed by the governor, and Gov. Gray Davis appointed a regional director from the State Building and Construction Trades Council of California. In addition, the SAB's Implementation Committee now also includes a representative from the State Building and Construction Trades Council.

One important amendment to AB 1506 at the end of the 2002 legislative year created an alliance between school districts and the Construction Trades Council. On Aug. 29, AB 1506 was amended to require the State Allocation Board to increase the per-pupil student grant amounts to accommodate the state share of Labor Compliance Agreements by July 1, 2003.

However, law and politics do not always converge. While the implementation committee and the State Allocation Board drafted regulations to implement this provision, the recall intervened. Those proposed regulations were suspended for six months on Nov. 17, 2003 by Gov. Schwarzencgger's Executive Order S-2-03.

The Office of Public School Construction immediately requested an exception as provided for in the Executive Order, but the exception was denied. As a result, the statutory requirement to adopt and implement Labor Compliance Programs remains in place, but state funding does not.

The lesson is that while school administrators have gained an important ally in the building trades, facility funding issues remain contentious.

Lesson 2: Understand a third party provider's interests before signing a contract

The Legislature may not have been aware that it was creating a cottage industry when it approved AB 1506. The use of a third party administrator eased the burden on districts without sufficient staff.

There are a number of options that have emerged for school districts and county offices to implement Labor Compliance Programs. All of these options are viable and driven by specific local needs. Whatever option is selected, administrators should be cognizant of the interests of the provider beyond their own. Many of those approved by the DIR to date are affiliated with construction trade unions. Others are individuals with experience in some aspect of school finance. Some are construction firms including general contractors.

Districts should also be cautious in hiring firms with LCP experience in cities and counties, but no experience in working with school budgets and Office of Public School Construction audits. The complexity of school finance and special rules for facility construction accounting and auditing should caution school districts against paying to be used as guinea pigs.

Third party providers should be capable of acting as independent agents of the school district. Contractors that hire building trade employees and report prevailing wage data on your project or other district projects may have potential conflicts of interest. Some providers may have more limited experience with the full range of a school district's construction management role than others. Independence and broad construction experience are important in both the auditing functions and site investigation functions of an LCP.

Lesson 3: Know the full costs of LCP services

Pricing for services may be fluid for some time. With the suspension of the SAB funding regulations, it is difficult to predict what will ultimately be available. However, administrators should be aware that the SAB proposal would allow an increase in the grant amount to cover the state's share of LCP costs. The proposal is an adjustment of a sliding scale, with a minimum flat rate for the smallest projects.

While costs may vary depending on the size and complexity of a project, you should know up front what you will be paying for and what rates you will be charged. Districts should take a hard look at the variety of services included. Some proposals do not include enforcement costs. Enforcement activities include the withholding of payments to contractors, document preparation and bearings. These costs can vary substantially and will likely involve attorney time.

Some county offices and other cooperatives have developed plans to prevent layoffs by assigning LCP duties in the light of budget cuts. Some providers are willing to provide services in a manner that both cuts costs and saves jobs in this tough budget environment. Such providers will train administrators or other staff to provide the level of service a cooperative is comfortable with, and then contract to provide the remaining services.

Such cooperation may result in the more efficient utilization of public employees, significant cost savings and better enforcement of each agency's LCP. It may also permit district and county offices to pool purchasing power and cut the best deal possible with an LCP provider. The critical component of a successful LCP is your labor compliance officer, whether a school district administrator or a third party consultant.

Related professional services may also include legal advice on the adoption or implementation of a program, legal representation for implementing the enforcement provisions of the labor code, or advocacy before state agencies and the Legislature to address unique district conditions. Consultants hired to provide a plan or services should have a mechanism in place to ensure that they keep their plan and services current in the midst of a rapidly changing regulatory environment.

Lesson 4: Tell all contractors and subcontractors about job classifications

The basic requirement to pay a trades worker the entitled wage seems straightforward. But Employee Craft Classification identification is open to misinterpretation. This issue is complicated because the prevailing wage depends on both the geographic region in which the work is performed and the precise description of the worker.

The smaller the contractor, the more complicated the issue can become. With a small firm or a small job a single individual may perform a variety of tasks. The level of job classification detail needed by a contractor may vary greatly from that of the Department of Industrial Relations, which identifies the level of prevailing wage to be paid by job category.

As an example, a contractor may submit an employee as a "journeyman" with no further description. Or, contractors may submit classifications that they have been using in-house that have no relationship to the prevailing wage classifications. Contractors that work primarily on federal projects may use the federal wage classifications.

Once more, providing information to the contractors early in the process will mitigate the occurrence of this type of problem. Identifying Prevailing Wage agency resources gives the contractor an easy way to determine the appropriate classifications. Stressing to the contractor that the first date of the legal advertisement for the project (call for bidders) establishes the applicable date for the wage determinations often clarifies a number of improperly used classifications.

By educating a contractor on the proper way to classify workers, a labor compliance officer minimizes disputes. Exceptions result when an employee changes work responsibilities or a new employee starts work on a project. Ongoing reviews of project documentation alert the LCO to discuss these issues with the contractor to stay in compliance and avoid deficiencies.

Lesson 5: Maintain an FAQ on apprenticeship issues

Apprenticeship compliance by far leads the list of confusing and misunderstood LCP requirements. Apprenticeship is complicated by not only the above classification issues, but by the number of years an individual has in a recognized apprenticeship program.

The Labor Code and the applicable LCP provide documentation and direction to contractors on this issue. The California Apprenticeship Council is a good resource to get the determinations for the majority of the issues that may arise in this area. However, a clear understanding of the requirements by your labor compliance officer will assist the contractors in grasping the intent and letter of the regulations.

Educating contractors early in the process of the expectations, interpretations and applications of the apprenticeship standards greatly reduces the occurrence of conflict or non-compliance. Maintaining a frequently asked question file on apprenticeship issues makes it easy to have that documentation readily available.

Lesson 6: Require bi-monthly Certified Payroll Reports

Certified Payroll Report monitoring is the other significant item of confusion by contractors and districts. The process for submittal of the CPRs, the format and the information they contain are as varied as the participants in the project.

Contractors unfamiliar with LCPs are used to submitting their payroll reports on a monthly basis to a district administrator. District administrators have had flexibility in dealing with CPRs in the past.

An efficient LCP requires that CPRs be submitted at a frequency of once every two weeks. This provides for timely review, compliance verification or discrepancy resolution. This frequency should be stipulated at the pre-construction meeting to ensure that the information is disseminated to the largest group possible.

Furthermore, the method of CPR submittal should be determined at that same time. Due to concerns about timeliness and confidentiality, the most effective process is for the prime contractor to submit all of their CPRs and those of their subcontractors directly to the LCO at the identified frequency.

The format of CPRs is allowed to vary by law. However, the content of the CPRs and the certification are specified. Contractors are not always accustomed to providing all of the Labor Code required information. Simple information such as the project name and number are often omitted. Because of the multiplicity of projects in which individual contractors participate, this information is critical to the LCP provider.

Review of the CPR content at the preconstruction meeting informs the contractors of the importance of content and provides an opportunity to discuss the impact of incomplete CPRs. But the education process does not stop at the pre-construction meeting. Contact with noncompliant contractors to resolve the missing CPR information is a timely method of resolution. This informal contact will require a CPR resubmittal, but does not impact contractor payment or project funding.

The partnership is just beginning

The partnership between school leaders and trade labor is just beginning. Both need an ongoing supply of adequately paid and well-trained school construction workers. Both need the Legislature to continue to recognize the need for bonds to build and modernize school facilities.

While many saw payment of prevailing wage as straightforward, this past year's implementation of AB 1506 has highlighted some complexity. The potential for conflicts, the ability to increase school facility grants to pay for LCPs, the wide range of job classifications, apprenticeship experiences and geographic rates--along with dramatic variations in contractor sophistication--may teach school administrators new lessons in appreciation of their own district's wage and benefits tables.

For those who have not yet begun facility construction under AB 1506, there are a number of articles and resources available to understand the details of LCP contents. The Coalition for Adequate School Housing has developed a Labor Compliance Programs Recommended Practices Handbook that is available to school districts. Other resources are available on the C.A.S.H. website: www.cashnet.org.

Former ACSA staffer Ernest Silva is a partner with Murdoch, Walrath & Holmes, which provides consulting and advocacy services for school districts in the areas of facilities and capital expenditures. Roland Williams is a labor compliance officer for Harris & Associates, which provides construction and program management services for school districts.