Public Project Contractors Cheating Workers, County : Labor: Investigators say flouting of ‘prevailing wage’ law in Orange County exploits employees.

Contractors working on publicly funded projects across Orange County are cheating their employees out of wages--and delivering inferior work to local governments, school districts and universities--by undercutting the state-required salaries for construction projects, state and local investigators charge.

“It’s a very serious problem in the construction industry in this area,” said Roger Miller, regional manager of the enforcement bureau of the state Division of Labor Standards. “There’s not enough monitoring of these projects, and, as a result, it’s getting worse all the time.”

In the past two years alone, contractors on more than a dozen public works projects in Orange County--including a graduate student housing complex at UC Irvine, a flood control channel in Tustin and a community center in Mission Viejo--have been cited for failing to pay the prevailing wage, according to records supplied by the state, labor-supported “cooperation committees” and the Center for Contract Compliance, a monitoring organization overseen by trustees representing union and management groups.

The center and the committees, which also are jointly funded by management and organized labor, investigate contract fraud allegations and then turn them over to the state, which can levy fines and press for felony prosecutions.

While many of the cases are for relatively small amounts, combined, the Orange County contractors could face millions of dollars in fines and back wages, records show.

State and federal laws require that contractors working on publicly funded projects pay a so-called “prevailing wage,” even if they can get other laborers to work for less. In Orange County, for instance, that means a carpenter is legally entitled to receive $27.15 per hour, a rate based on a variety of local market factors.

Some economists argue that prevailing wage requirements unnecessarily inflate the cost of publicly funded projects and contribute to inflation by prohibiting contractors from selecting the most economical source of labor. However, defenders of the principle--union leaders in particular--argue that it helps ensure that workers on public projects will be drawn from the local skilled labor force.

One result of contractors’ undercutting of wage laws, investigators and contract specialists contend, is that public agencies receive shoddy work on many of their tax-supported projects. Workers willing to accept low wages--undocumented immigrants, in many cases--take the place of more experienced carpenters, plumbers, plasterers and cement masons.

“These contractors are taking work that should be done by a $27-an-hour carpenter, and they’re giving it to a $7-an-hour worker,” said Steve Morley, the supervising investigator for one of the regional cooperation committees. “That means the public gets work done by someone not qualified to do the job.”

Framing goes in crooked, doors get hung incorrectly, windows stick. Sometimes projects are delayed as corrections are made, and hundreds of thousands of dollars--the exact amount is impossible to determine--are being squirreled away by fraudulent contractors who pocket the money rather than pay their workers the legal wage, investigators say.

“We’re losing a monstrous amount of money in lost taxes alone,” said Jim Lintern, director of the Center for Contract Compliance. “And we’re getting projects where the walls are a little crooked or the doors don’t quite fit. The workmanship is awful.”

And yet, those same investigators and others concede that little is being done about the problem. The cost and complexity of investigating the allegations has meant that fiscally strapped governments and school districts find it difficult to round up violators and protect the public’s interests.

What’s more, government agencies, unlike private businesses, are required to accept the lowest responsible bidder for a project. So even in cases where officials have some doubts about a contractor, there is great pressure to accept a low bid.

According to investigators, UCI has been one of the county’s worst victims. The university is grappling with a $10-million graduate student housing project that was completed four months late and bedeviled by construction problems, some of them merely cosmetic issues--tiny cracks on the exteriors of some buildings--but other more troublesome problems such as doors and windows throughout the complex that did not close correctly.

The contractor, Denver-based Alberici/Denver, has been cited for failing to pay scores of employees less than the state-sanctioned wage and has been assessed $750,000 in fines and penalties.

The investigators’ file on the project includes sworn statements by several employees testifying that they were not paid the required $27-an-hour as carpenters and were never told that they were entitled to those wages. One worker’s statement, signed on June 27, states that one of the project’s subcontractors paid him $12 an hour for his labor.

By the investigators’ calculations, that worker, who is Mexican and speaks little English, is owed nearly $6,000 in back wages for the project. That worker was not a credentialed carpenter but worked as one on the project.

“We’ve had some alleged violations,” said Len Farley, vice president of Alberici/Denver, which has relocated its operations to St. Louis. “As far as I know, we paid the prevailing wage to all of our workers. That’s not to say that some of the subcontractors, and there were 50 or 60 of them, haven’t varied from it.”

Farley confirmed that the company has been fined by the state but said executives hope to sit down with investigators and explain their side of the case. “I think the time for that is coming very rapidly,” he said. “It’s unfortunate that this has gone as far as it has.”

Leon M. Schwartz, the university’s vice chancellor for administrative and business affairs, declined to comment on the specifics of the Alberici case, but said the university has grappled with the question of prevailing wage on its projects.

“We are paying for our contractors to pay prevailing wage,” Schwartz said. “But violating that wage is clearly a mechanism for the contractor to take advantage of public work and public money.”

Indeed, the incentives for contractors to cheat are huge. If a contractor records payments of $27 an hour to his work force but only pays out $12, the difference can amount to thousands, even hundreds of thousands, of dollars of tax-free, illegally gained income.

While the Irvine case is a particularly notable one, other instances of wage violations under review by the Division of Labor Standards are spread throughout the county.

The main contractors at a Mission Viejo community center have been charged with $8,477 in wage underpayments, and the contractor who worked on the Trabuco Mesa Elementary School faces fines of $11,487 for underpayments there. Several projects at El Toro Marine Corps Air Station have been assessed fines as well.

And those are just a few of the cases.

State labor enforcement manager Miller said his office, which covers the area from San Luis Obispo to the Mexico border, receives “hundreds of cases a year.” And though he could not supply figures for Orange County alone, other investigators said dozens of cases crop up here annually.

One cooperation committee currently is investigating about 30 Orange County projects, said investigator Ed Heskett, who works with the local carpenters/contractors cooperation committee.

The Division of Labor Standards has 40 investigators to pursue all allegations of state labor law violations in Southern California.

“It’s catch as catch can,” Miller said. “We just don’t have the people to assign a whole office to check prevailing wage violations.”

Similarly, local governments sometimes become aware of the problem when their building inspectors tour construction sites. But verifying violations involves exhaustive checks of payroll records, interviews with workers and near-constant monitoring of the project.

For most public agencies, that’s more of a commitment than they can afford.

“It’s a tremendous task of surveillance,” Schwartz said. “None of the awarding agencies have the kind of inspection team it takes to be on top of this.”

J. R. Johansen, manager of the county’s Construction Division, agreed that monitoring the problem is a huge and often unmet challenge. “A sub will come in with some illegals and be there for a day or two, and then he’s gone,” Johansen said. “You’d need a sizable agency just to chase these people down.”

What complicates the problem for government agencies is the low-bid requirement, which makes it difficult to reject a proposal, even if officials are suspicious about the bidder.

So, many public agencies find themselves caught by bidding regulations. And the ironic outcome is that laws intended to guarantee that the public receives the best return on its investment may be encouraging just the opposite.

“The whole process is a very difficult one for us and for any public agency,” Schwartz said. “It’s brought some charlatans into the business who shop these jobs and pop in a low bid, then turn around and make it up by violating the wage laws. We have a responsibility to keep that from happen ing, but it isn’t easy.”

WAGE VIOLATIONS ALLEGED IN ORANGE COUNTY Contractors on the following local public works projects have been cited within the past Contractors on the following local public works projects have been cited within the past two years by labor officials who allege that they failed to pay the state-required prevailing wage to workers. Dozens of other local projects are under investigation, records show. Project, Location UCI graduate student housing Contractor Alberici/Denver Wage Underpayments and Fines $750,000 Project, Location Anaheim Convention Center, Anaheim Contractor subcontractor: W.J. Silbermann ** Wage Underpayments and Fines $15,099 Project, Location Anaheim Convention Center, Anaheim Contractor Taylor Woodrow Construction Wage Underpayments and Fines $9,705 Project, Location Flood control channel construction, Tustin Contractor ACL Construction Wage Underpayments and Fines $17,951 Project, Location UCI Medical Center outpatient facilities Contractor Gentosi Bros. subcontractor: High Performance Glass Wage Underpayments and Fines * $17,252 Project, Location Street and paving, Westminster Contractor Excalibur Contracting Inc. Wage Underpayments and Fines $11,786 Project, Location Trabuco Mesa Elementary School Contractor J-Mar Construction Co. Wage Underpayments and Fines $11,487 Project, Location UCI Engineering facility Contractor Bayside Builders subcontractor: S.P.C. Painting Wage Underpayments and Fines * $11,289 Project, Location Oso Viejo Community Center, Mission Viejo Contractor Gorham Co. Wage Underpayments and Fines $8,477 Project, Location Tustin Marine Corps Air Station Contractor Marathon Enterprises Wage Underpayments and Fines $6,743 Project, Location District office, Yorba Linda Water District Contractor J.H. Rives Co. Wage Underpayments and Fines $3,085 Project, Location Child care center/Children’s Museum, La Habra Contractor Smedley Construction Wage Underpayments and Fines $1,513 Project, Location El Toro Marine Corps Air Station Contractor Dorado Construction Co.*** Wage Underpayments and Fines $570 Project, Location Multi-modal transportation center, Irvine Contractor Camco Construction Wage Underpayments and Fines $334 * Contractor cited for actions of subcontractor ** Being contested *** Workers /penalties already paid Sources: State Division of Labor Standards, Carpenters/Contractors Cooperation Committee Inc., Center for Contract Compliance and various public agencies.