A recent case gives us guidance as to how prevailing wage laws will apply to P3 projects on the state level. While this case wasn’t really a public-private partnership project, it did involve extensive negotiations and agreements between public and private entities. The project included financing and construction from both public and private sources, so the principles of a P3 project closely align. The case comes to us from California, and the California test for whether prevailing wage laws apply closely resembles the federal one.
Prevailing Wage Laws and P3 Projects
Prevailing wage laws require that workers on public projects are paid the prevailing local wage– meaning, similar work performed on private project would pay a similar wage. For federal projects, the Davis-Bacon Act institutes this requirement. Many states have passed similar legislation, and these laws are often called “Little Davis-Bacon Acts” (which is similar to the relationship between the Miller Act and Little Miller Acts).
Not too long ago, we discussed whether the Davis-Bacon Act applies to P3 projects (it depends!), and now we have an opportunity to discuss whether prevailing wage laws will apply to state P3 projects, too. Every state’s laws will be different, but this case showed us that the California approach is similar to the federal one. Again- this case did not actually involve a P3 project, but the relationship between the public and private parties was similar to that of a public-private partnership.
Background
Here’s the full text of Cinema West v. Christine Baker.
Cinema West (“Cinema”) contracted to put a theater in Hesperia, California (“the City”) under a complex agreement with the City. The City “conveyed” a piece of land to Cinema for fair market value, but the City also bound itself to build a parking lot and water retention system to be used by Cinema. Further, City approval was required for Cinema’s designs, the City was to build a pad on the land prior to Cinema’s construction, and the City was going to handle zoning and environmental compliance work. Altogether, the cost to the city exceeded $1.5M. These costs were passed along to Cinema, but in the form of a 10-year forgivable, interest-bearing loan and a one-time payment of just over $100,000. The agreement stated the City wasn’t providing any financial assistance to Cinema and that Cinema was paying fair market value.
The Issue
The International Brotherhood of Electrical Workers (“Workers”) instituted an administrative proceeding with the Department of Industrial Relations (“Department”) claiming that Cinema’s project was subject to California’s prevailing wage laws. Naturally, Cinema disagreed. The Department sided with the Workers, requiring prevailing local wage on the project. Cinema appealed the decision to no avail.
Cinema then took to the courts and filed a complaint in state court. That court, too, found in favor of Workers, so Cinema appealed to the California 2nd District Court of Appeals (“the Court”).
The Court of Appeals
To decide this case, the Court took an approach very similar to the federal approach. The Court looked to determine whether the City was a party to the construction project for a public work and whether public funds were used.
Public Work
Cinema contended that the City was not a party to the project. Instead, Cinema argued, the the City’s construction of the parking lot was a separate project. The court disagreed, noting City’s much deeper involvement (i.e. planning and coordinating the construction of the lot and theatre, an easement provided by the city, and the extensive costs incurred by the city for the parking lot). Also, the Court noted that the parking lot was referred to as a lot for the theater in a vast number of communications surrounding the project. Considering the parking lot as a part of Cinema’s project, the Court determined that the City was indeed involved in the construction project.
Public Funds
Next, the Court looked to determine whether this was a public work. As you may recall from the federal Davis-Bacon post, whether public funds were used is a key factor in this determination. Cinema argued that, “not a penny of public funds was received by Cinema West in connection with the construction of the Theater.” The Court was not swayed. The Court again noted that the City put an extensive amount of money into the project – primarily, in the parking lot and water retention systems.
Takeaway
At least in California, prevailing wage laws will often apply to P3 projects. Much like the project in this case, P3 projects intertwine public and private efforts to produce a final product. The test in California appears to be pretty similar to the federal one, albeit with some different terminology. When a California project is for a public work and public funds are used, the state’s prevailing wage laws will apply.
Head over to our California Resources for more on construction payment in the Golden State. Not in California? We’ve got you covered.
