When off-site employees specially produce fabrication or prefabricated products for use in a public works project, should they be paid prevailing wages? In California, the answer is yes.

In a letter Opinion dated March 4, 2003, the Director of the Department of Industrial Relations decided that workers, employed by a certain heating and air conditioning sheet metal contractor (who was performing certain off-site fabrication work in conjunction with the construction work) was deemed to be employed on a public works project. That meant that the employees working on that off-site fabrication shop would have to be paid prevailing wages.

Chuck Cake, acting director of the Department, determined that prevailing wages must be paid to the employees of contractors and subcontractors engaged in the off-site fabrication or prefabrication of items specially produced for public works projects -- if they are advertised for bid after the date of the determination is posted on the Department's website.

In this case, J.R. Barto Heating, Air Conditioning, Sheet Metal, Inc. (Barto) was doing off-site fabrication in conjunction with a laboratory addition to a college in San Luis Obispo. Among other things, ductwork was to be fabricated according to field measurements. The ductwork was called out on the plans and drawings. Barto did the off-site fabrication of the ductwork in its own shop. The shop was not established for any particular project, but was utilized for various residential, commercial and public works projects. The shop fabricates materials not only for Barto's own projects, but also for sale to other contractors and occasionally for the general public.

The Director stated that what is significant is the definition of "public works." It includes construction done under contract and paid for all or in-part by public funds. Workers employed by the contractors or subcontractors doing this work are deemed to be employed on public works projects. The director analyzed other prior cases, one from the Federal Government's Davis-Bacon Act and some from other states. The Director agreed with other states that there is no reasonable dispute that the off-site fabrication of items for on-site installation is "construction." It is within the scope of the term "constructions services."

The courts reasoned that the purpose of the prevailing wage statutes, which is to "protect employees from substandard wages that might be paid if contractors could recruit labor from distant cheap-labor areas," would be best served by requiring payment of prevailing wages for off-site fabrication performed in the execution of the contract for public works. Work is covered if the prefabricated item is produced especially for the public works project; it is not covered if the item fabricated is merely a standard product for sale on the general market.

Accordingly, the Director set out the following test for coverage: workers employed by contractors or subcontractors are employed in the execution of a contract for public work when they are engaged in the off-site fabrication of items produced specially for the public works project and not for sale on the general market.

Where a contractor is producing products both for its own projects and for sale on the general market, the test for whether a prefabricated item is specially made for the public works project turns on factors such as: whether the item was produced in accordance with the plans and specifications of the architects and/or engineers for the project and/or on shop drawings based thereon such that the item differs from a standard, generic item.

Even standard, generic items would be considered produced specially for the public works project if they were modified to meet the specific requirements of that project. In this case, there is no question that some of the items prefabricated by Barto employees were produced specially for this project.

When off-site employees specially produce fabrication or prefabricated products for use in a public works project, section 1772 requires that they be paid prevailing wages. This is in accord with the proposition recognized in California that prevailing wage laws are to be liberally construed in furtherance of their purposes.

"This article was originally posted on ww.reevesjournal.com."