Dive Brief:

• California contractors acting as direct contractors on private construction projects will be financially responsible for any wages, fringe benefits and union contributions left unpaid by subcontractors and their sub-tiers, per a new law signed by Gov. Jerry Brown, JD Supra reported. The law encompasses all private contracts entered into starting Jan. 1.
• Direct contractors will not have to pay any penalties or liquidated damages that arise from a subcontractors neglecting to pay their employees, but the law will require direct contractors to monitor closely their subcontractors' payrolls.
• The law allows for direct contractors to withhold payment from any subcontractor that does not provide the required payroll records. To protect against having to assume any subcontractors' or their sub-tiers' unpaid costs, direct contractors should add indemnity language to their subcontracts.

Dive Insight:

When the California State Assembly passed the bill in September, the legislation led to pushback from some in the industry who said it would raise building costs at a time when the state is dealing with a severe housing shortage and is ill-equipped to handle already-high costs.

The new law's requirements will likely lead to a payroll documentation process similar to that required through the Davis-Bacon Act, which established prevailing wages on federally-funded projects. The Act was targeted by congressional Republicans earlier this year, but the Trump administration backed off any repeal effort. Even without President Donald Trump, the repeal, according to Politico, didn't have enough support to pass in the Senate.

According to a report from The Hill in June, the White House planned to include compliance with Davis-Bacon's prevailing wage requirements as part of the president's $1 trillion infrastructure plan. At the time, Transportation Secretary Elaine Chao said it was a necessary to ensure the administration would have Democrats on their side for infrastructure issues.

Some states have passed their own laws eliminating or limiting the use of prevailing wage regulations on state-funded projects, primarily as a way to appear more business-friendly and to encourage investment. Kentucky passed a law eliminating the requirement for contractors to pay prevailing wages on state projects earlier this year, and Michigan lawmakers are currently pursuing a similar law.