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MILLER & STARR
REAL ESTATE NEWSALERT
ARTICLE
CONTRACTOR BEWARE: THE FINE LINE BETWEEN “PUBLIC
WORKS” AND “PRIVATE PROJECTS” UNDER CALIFORNIA’S
PREVAILING WAGE LAW
By Stephen J. Fowler*
Main Article, Volume 20, Number 4
Reprinted in part from
Volume 20, Number 4, February 2010
(Article starting on page 259 in the actual issue)
The line between projects subject to the prevailing wage require-
ments, and those which are not, is not always as bright as it might
seem. Although prevailing wage laws apply only to “public works,” the
definition of a public works project extends to otherwise private con-
struction or development projects that are “paid in whole or in part
out of public funds.” Under most circumstances, a real estate devel-
opment or construction project receiving public assistance is subject
to prevailing wage requirements, unless one of the statutory excep-
tions to the prevailing wage law applies. Project labor costs at prevail-
ing wage rates may be significantly higher than anticipated and may
quickly surpass the cost benefit conferred by the public assistance. An
unwitting contractor, subcontractor or material supplier may find itself
in violation of California’s prevailing wage law, and subject to a pre-
vailing wage and penalty assessment, fines, lawsuits and disciplinary
action, and may be barred altogether from bidding on future public
works projects.
It behooves all parties involved in the construction or development
process to be aware of the many different forms of government assis-
tance that can fundamentally change the nature of a project from a pri-
* Stephen Fowler is a shareholder specializing in construction, project development and
complex commercial litigation in the Walnut Creek office of Miller Starr Regalia.
Main Article u Volume 20, Number 4 MILLER & STARR REAL ESTATE NEWSALERT
2 © 2010 Thomson Reuters
vate to a public work. This article provides an overview of California’s
prevailing wage law, including a discussion of the definition of “public
works” for prevailing wage purposes, and a discussion of the many dif-
ferent forms of government assistance that can result in coverage under
the prevailing wage law. Through a better understanding of the prevail-
ing wage law, including, in particular, when the requirement to pay pre-
vailing wages is triggered, an owner, developer, contractor and subcon-
tractor can better evaluate and anticipate the true cost of construction
at the outset of a project, whether or not less expensive alternatives to
public funding exist or whether a project can be structured in ways to
minimize the impact of prevailing wages to the overall project.
I. OVERVIEW AND PURPOSE OF CALIFORNIA’S PREVAILING
WAGE LAW.
Statutory and Regulatory Framework: The conditions of employ-
ment on construction projects financed “in whole or in part by public
funds” are governed by California’s “prevailing wage law,” which is set
forth in the Labor Code, Division 2, Employment Regulation and Su-
pervision, Part 7, Public Works and Public Agencies.1 The Director of
the Department of Industrial Relations (the “Director”) is authorized
to establish rules and regulations for purposes of carrying out and en-
forcing the prevailing wage law, and for punishing offenders.2 Those
rules and regulations are found in the California Code of Regulations,
Title 8, Subchapter 3, Payment of Prevailing Wages Upon Public Works.3
The Director has quasi-legislative authority to carry out its duties under
the prevailing wage law, which may include case-specific determinations
of wage rates4 and coverage issues,5 and the issuance of civil wage and
penalty assessments as necessary to enforce the law.6 An interested party
may request that the Director, or its duly authorized representative, de-
termine coverage under the prevailing wage law regarding either a spe-
cific project or type of work to be performed which that interested party
believes may be subject to or excluded from coverage as public works
under the Labor Code.7 An awarding body, a prospective bidder, or its
representative, or any representative of any craft, classification or type of
worker involved in a public works project may also petition the Director
to review a prevailing wage rate determination on the grounds that it was
not determined in accordance with applicable law.8
In addition to the discussion found in the case law addressing pre-
vailing wage issues, the Department of Industrial Relations (“DIR”)
MILLER & STARR REAL ESTATE NEWSALERT Main Article u Volume 20, Number 4
© 2010 Thomson Reuters 3
publishes with frequency the Director’s determination letters address-
ing project specific coverage and rate issues. The Director’s determina-
tion letters are available on the DIR’s website.9
While the Director’s project specific determinations are considered ad-
visory, and are not legal precedents,10 the California courts nonetheless
recognize that they must accord substantial deference to the Director’s
interpretation and enforcement of the prevailing wage law.11 Further, the
Director’s determinations offer insight and guidance to the participants
involved in the public works projects on a myriad of prevailing wage is-
sues. Care must be taken to ensure that any past determinations have not
been superseded by subsequent legislation, administrative action or court
decision. In the event of an inconsistency between a statute, regulation or
court decision and a public works coverage determination letter, statu-
tory, regulatory, or case law is controlling.12
California courts also will look to federal law under the Davis-Bacon
Act as guidance in interpreting California prevailing wage law because
the two schemes share similar purposes.13
Prevailing Wage Rates Broadly Apply To Public Works Con-
tracts: The prevailing wage law provides that workers on public works
contracts be accorded the same working conditions and wages that
prevail in private industry. In that regard, “prevailing wages” must be
paid to those employed on “public works” that are performed by a pri-
vate contractor and “paid in whole or in part by public funds.”14 Public
works contracts awarded to private contractors must include stipula-
tions requiring contractors and subcontractors to pay their employ-
ees no less than the applicable prevailing wage rates, as determined
by the Director.15 The obligations to pay prevailing wages, however,
flow from a statutory duty, and operate independent of any contractual
agreement or stipulation.16
The Purpose Of The Prevailing Wage Law Is To Establish And En-
force Minimum Labor Standards For Public Works: The overall pur-
pose of the prevailing wage law is to protect and benefit workers on pub-
lic works projects. The legislature has declared that it is the public policy
of California to vigorously enforce minimum labor standards to ensure
employees are not required to work under unlawful conditions, and to
protect employers who comply with the law from those who attempt to
gain competitive advantage at the expense of their workers by failing to
meet those standards.17 Accordingly, California’s prevailing wage law is
intended to protect employees from substandard wages that might be
