The Repeal of the Common Construction Wage Statute and the Enactment of New Public Works Requirement The Repeal of the Common Construction Wage Statute and the Enactment of New Public Works Requirement

The Repeal of the Common Construction Wage Statute and the Enactment of New Public Works Requirements

As first seen in Building Excellence July 2015.

House Bill (HB) 1019, signed by Gov. Pence on May 6, 2015, repealed Indiana’s common construction wage statute and made numerous modifications and additions to the various public works statutory requirements. In addition, the approved state budget bill (House Bill 1001) subsequently modified portions of HB 1019 and its new public works requirements.  To further complicate matters, some of these public works changes go into effect on July 1, 2015 while others don’t become effective until July 1, 2016. The purpose of this article is to attempt to briefly summarize some of the more significant changes and the additional requirements that were made to the public works requirements by HB 1019 and HB 1001. 

 
Repeal of the Indiana Common Construction Wage Statute
 
Initially, the repeal of Indiana’s common construction wage statute is effective for all public works contracts that are awarded after June 30, 2015. Accordingly, any public works contracts that were awarded on or before June 30, 2015 will still need to comply with the common construction wage statute.  In addition, public agencies (except INDOT when Ind. Code 8-23-9 applies) are precluded from establishing or mandating compliance with a wage scale for a public works contract unless federal or state law provides otherwise.
 
Impact of the New Public Works Requirements on Public Owners
 
The new public bidding requirements apply to all “public agencies” constructing public works projects. The term “public agency” is broadly defined under HB 1019 to include a state agency, state educational institution, county, municipality, township, school corporation, body corporate and politic created by statute, as well as certain established conservancy districts, fire protection districts, departments of aviation and local airport authorities. However, the term public agency doesn’t include the Indiana Department of Transportation (INDOT). In addition, it should be noted that these new public works requirements for public agencies do not apply to public works projects that are to be constructed under Indiana’s design-build statute (Ind. Code 5-30), the construction manager as constructor statute (Ind. Code 5-32) and the operating agreements statute (Ind. Code 5-23-4)—though the repeal of the common construction wage and the preclusion against establishing a wage scale (unless federal or state law provides otherwise) applies to all.
 
Notable requirements for public works contracts awarded after June 30, 2015 include:

  1. Public agencies must state within or incorporate by reference the substance of the various new public works requirements set forth in Ind. Code 5-16-13 into its public works construction contracts. 
  2. Public agencies may not enter into a public works contract with a contractor unless the contract contains: (i) a provision requiring the contractor to enroll in and verify the work eligibility status of newly hired employees through E-verify; and (ii) a provision that a contractor is not required to verify the work eligibility status of all newly hired employees of the contractor through E-verify program if E-verify no longer exists. 
  3. Public agencies may not enter into a contract with a prime contractor unless the prime contractor signs an affidavit that it doesn’t knowingly employ an unauthorized alien. 

Notable requirements for public works contracts awarded after June 30, 2016 include:
  1. If the public agency “reasonably suspects” that a prime contractor or a subcontractor, whatever tier, has violated the new public works requirements of Ind. Code 5-16-13, the public agency “shall” take certain statutory prescribed actions depending on the type of violation. 
 
Impact of the New Public Works Requirements on Contractors and Subcontractors
 
For those public works projects being constructed by public agencies (once again, excluding those projects being constructed under Ind. Code 5-30, 5-32 and 5-23-4), the prime contractor and its subcontractors, whatever tier, also have additional public bidding requirements that they must now comply with. 
 
Notable requirements effective for public works contracts awarded after June 30, 2015 include:
  1. The prime contractor only (and not subcontractors) must self-perform work of at least 15% of the total contract price.
  2. The prime contractor and all subcontractors, whatever tier, must maintain general liability insurance of at least $1,000,000 per occurrence and $2,000,000 in the aggregate.
  3. The prime contractor and all subcontractors, whatever tier, must submit to the public agency the E-verify case verification number for each individual required to be verified before that individual begins work on the public works project.  
  4. The prime contractor and all subcontractors, whatever tier, cannot pay cash to any of its employees for work performed on the public works project.  
  5. The prime contractor and all subcontractors, whatever tier, must comply with the federal Fair Labor Standards Act of 1938.
  6. The prime contractor and all subcontractors, whatever tier, must be in compliance with the workers compensation requirements of Ind. Code 22-3-5-1 and Ind. Code 22-3-7-34. 
  7. The prime contractor and all subcontractors, whatever tier, must be in compliance with the unemployment compensation system requirements of Ind. Code 22-4-1 thru 22-4-39.5.   
  8. The prime contractor and all subcontractors, whatever tier, must be in compliance with the requirements for drug testing of its employees set forth in Ind. Code 4-13-18-1 thru 4-13-18-7.
 
Notable requirements effective for public works contracts awarded after June 30, 2016 include:
  1. The prime contractor and all subcontractors, whatever tier, prior to performing any construction work must be qualified by either the Indiana Department of Administration or INDOT. 
  2. For public works by local governmental entities under Ind. Code 36-1-12, the prime contractor and its subcontractors shall comply with the requirements for drug testing of its employees set forth in Ind. Code 4-13-18 if the estimated cost of the public works contract is at least $150,000. 
  3. The prime contractor and all subcontractors, whatever tier, must preserve its payroll and related records for three years after completion of the project work and such records must be open to inspection by the Indiana Department of Workforce Development. 
  4. If the prime contractor or any subcontractor, whatever tier, employs 10 or more employees then such prime contractor/subcontractor must provide access to a training program applicable to the tasks to be performed in the normal course of the employee’s employment. 
  5. If the prime contractor or a first tier subcontractor employs more than 50 journeymen, such prime contractor / first tier subcontractor shall participate in an apprenticeship or training program that meets the standards established by or has been approved by any of the following: U.S. Dept. of Labor, Bureau of Apprenticeship and Training. the Indiana Department of Labor, the Federal Highway Administration or INDOT.
 
Conclusion 
 
Public owners, as well as those prime contractors and subcontractors who work on the public works projects, will need to be vigilant in order to comply with these new public works requirements—especially since many of these requirements will become effective as soon as July 1, 2015. This vigilance will include public owners needing to update their construction contracts by July 1, 2015 (with a further update again by July 1, 2016). In addition, prime contractors and subcontractors, whatever tier, that intend to perform work on public works projects will, among other things, want to be sure to promptly commence the process in order to become qualified by INDOT or the Indiana Department of Administration (if they aren’t already) in order to perform work on public works projects by July 1, 2016.
 
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
 
Gary Dankert and Steven Jones are partners with Ice Miller LLP. Ice Miller's Construction practice group (www.icemiller.com/construction/) is ranked as a National Tier 1 Practice in U.S. News & World Reports' Best Law Firms. Dankert and Jones practice construction law with a focus on assisting clients in preparing and negotiating construction and design contracts as well as handling construction disputes. Dankert can be reached at gary.dankert@icemiller.com or (317) 236-2203 and Jones can be reached at steven.jones@icemiller.com or (317) 236-2436.
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