Prevailing wage scams steal from taxpayers

Jan. 11, 2013

By Katy Grimes

In what strange world do janitors get paid $45 per hour? In California, the land of the prevailing wage.

The dirty secret is that janitors often are not really getting paid $45 per hour, but the taxpayers are being charged this amount on public works projects.

Designed to help the worker, the prevailing wage was created to set a minimum hourly rate paid on all public works projects, primarily for construction workers. But the classification has been expanded and greatly abused.

One contractor’s saga

I recently met with a Southern California contractor who has owned a final construction cleanup business for more than 25 years. Final cleanup on government construction projects is always the last task in the project, and usually takes place within days of the occupants moving in, depending on the size and scope of the cleanup. The contractor said that the work he and his crews do includes cleaning the construction dust off of walls, washing and polishing floors, cleaning windows and mirrors, power-washing all surfaces, wiping down fixtures and hosing down the roof and parking lots.

He is hired as a subcontractor by large general contractors on all kinds of public works construction projects: school construction sites, police department construction, state, city and county office buildings and the like.

However, this contractor is in a pickle. There is no Department of Industrial Relations prevailing wage classification for this specific type of janitorial work. He said the going rate in the private sector for a basic janitorial job is between $10 and $15 per hour. But the Department of Industrial Relations states that the prevailing wage rate is $45 per hour for construction-project janitors.

Kevin Dayton, an expert on Project Labor Agreements and prevailing wage issues, told me that because vacuuming up the sawdust at a construction site is considered part of a construction trade, the DIR considers such work within the work assignments listed in the applicable collective bargaining agreements of the union, the Southern California District Council of Laborers.

Although there are slight differences between prevailing wage laws in Northern and Southern California, they generally are the same. Dayton explained, “For Northern California, the state-mandated total straight time hourly ‘prevailing wage’ rate for a journeyman in the Laborers Group 4 trade classification applies to the following: ‘Final cleanup on building construction projects prior to occupancy only. Cleaning and washing windows (new construction only), service landscape laborers (such as gardening, horticulture, mowing, trimming, replanting, watering during plant establishment period) on new construction.’

“Under Section 1773 of the California Labor Code and Title 8, Subchapter 3 of the California Code of Regulations, the State of California determines ‘prevailing wage’ rates in most cases by obtaining the union collective bargaining agreements for each trade in each geographical region of the state, adding up all of the payments indicated in these agreements, and declaring the total to be the ‘prevailing wage.’”

He added, “In negotiating their collective bargaining agreements, construction trade unions actually enjoy a kind of quasi-regulatory authority, because their final agreements are the basis for the state-mandated construction wage rates. They are loath to compromise this power.”

The contractor I met with said he’s in trouble because the general contractors which hire him calculate the prevailing wage rate of $45 per hour in their bids to the government, but refuse to pay him that rate. He said the general contractors have been charging the state, and ultimately the taxpayers, $45 per hour for janitors on public works projects, but only pay their subcontractors $10 to $15 per hour for their final clean up janitors.

The contractor told me the labor compliance program of the DIR is cracking down on him for not paying the prevailing wage of $45 to his employees. Then he is punished and forced to abandon final cleanup jobs, and charged back the cost of the replacement final cleanup crew, at prevailing wage rates. He said that he is not only out of a job, but he then has to pay the additional cost of the final cleanup to the general contractor.

This contractor said he follows the letter of the law in running his business, and makes sure all of his employees are paid properly and legally through his payroll service. But when a general contractor refuses to pay him the legal prevailing wage rate for his crew, he cannot pay his employees the prevailing wage rate either.

Legislation to fix this mess

Assemblyman Curt Hagman, R-Chino Hills, announced last week he has introduced legislation to address this problem, but only after trying to work directly with the Department of Industrial Relations himself to no avail. He said that the DIR will not discuss the prevailing wage classification problem, and continually referred him to the DIR website.

Hagman told me that if the prevailing wage actually worked in California, employees would be getting paid the prevailing wage. “But the system is broken and is being abused,” Hagman said. He said that the $45 per hour prevailing wage for janitorial cleanup is just one example of why public construction projects in California cost so much.

Hagman said some contractors pay the janitorial employees between $10 and $15 per hour to perform the final cleanup, then pocket the difference. “On the books it looks as if everyone is making a ton of money, but the worker is not getting the pay or benefits they are legally entitled to,” he said.

Hagman’s bill would require the Department of Industrial Relations to establish a new specific group classification for final cleanup laborers, and set appropriate prevailing wages.

Prevailing wage limits competition

A 2010 Cato Institute study concluded the purpose of prevailing wage laws was to limit competition, as well as provide significant benefits to labor unions. These policies come at the expense of taxpayers, who are forced to pay far more for projects that require prevailing wage mandates.

“Those laws mandate that on government construction projects, the labor component will not be subject to competitive bidding; rather, the wages paid to the various classes of construction labor are set by government officials at rates determined to prevail in the job site’s locality—typically, prevailing union wages,” wrote Cato author George Leef. “Labor wages and benefits are thus removed from competition by operation of law.”

Déjà vu all over again

Almost one year ago exactly, in the first committee hearing of the New Year, the Assembly Labor and Employment Committee killed two prevailing wage reform bills by Assemblywoman Shannon Grove, R-Bakersfield. AB 987 and 988 would have reformed and updated state prevailing wage laws by changing the calculations for prevailing wages, and would have allowed local governments to determine their own prevailing wage policies.

“The reforms in these bills are bold and significant steps to reviving our dire economy and putting Californians back to work,” Grove said at the hearing on the bills.  “Forcing citizens to pay amounts for projects beyond what the local free market would otherwise dictate is a misuse of taxpayer dollars.  Unfortunately, the powerful union interests benefit at this taxpayer expense.”

At wit’s end

The contractor I met with is at his wit’s end, and rapidly losing business because he can no longer play the prevailing wage game. He took matters into his own hands, and together with two other subcontractors met with several general contractors’ project managers, recording the meetings. In a video I saw posted on YouTube, the project manager admitted that, as the general contractor, he cheats on the prevailing wages for public works projects.

One of the project managers said that it doesn’t matter what the rate per hour is as long as the subcontractors provide invoices that match. “I can give you a contract, and you will have to price everything out, or you give it to me right now on a Purchase Order. You are set up as my water guy,” the general contractor told the final cleanup subcontractors.

When asked what the prevailing wage for the final cleanup workers was, the project manager just shrugged, and never answered. This happened several times with different project managers during the videos.

In another segment of the video, the general contractor’s project manager explained that the subcontractor can change his invoices as long as the general contractor is able to claim that “the bulk of the work falls into the other category.”

Changed invoices

The final clean up contractor I met with said that, for many years, he has been told to change his invoices to take out the work detail, and just include one total price.

But he said that not only is the re-invoicing illegal because it ignores the prevailing wage rate, his crews are often scheduled to work on weekends when overtime is supposed to be paid. Overtime for a final cleanup worker makes the $45 per hour rate go to $63 per hour for time-and-one-half, and $78 per hour on a Sunday.

“We are often told to come in after hours and on weekends,” he told me. “I don’t want to be followed around by the unions; I just want the industry to be cleaned up. The prevailing wage is messing up the industry.”