Contractors Who Violated Wage Law Face Prosecution

Responding to criticism that the city failed to adequately punish contractors who underpay workers on federally funded earthquake repair jobs, housing officials said Wednesday that they will turn over the most egregious violators to prosecutors for possible criminal charges.

A Times article reported last month that housing officials had uncovered numerous cases of contractors who failed to pay “prevailing wages” for repair work as required by law, but none of the cases were turned over for prosecution.

In response to the article, housing officials met with the city attorney’s office last week to come up with a plan to turn over the most flagrant violations for possible criminal prosecution.

Those violations will include cases in which workers were underpaid by a total of more than $20,000, contractors repeatedly underpaid workers and the violations were clearly intentional.

“I am committed to put an end to the rampant fraud that exists in this area,” City Atty. James K. Hahn said in a letter to Councilman Rudy Svorinich Jr., chairman of the council’s housing committee.

The prosecution plan was one of several changes that the housing department has recommended--and in some cases implemented--in response to complaints about “prevailing wage” violations.

But during a meeting before Svorinich’s panel Wednesday, Gary Squier, the city’s housing director, said an internal audit of the earthquake loan program uncovered additional problems that made it impossible to ensure that property owners and contractors paid prevailing wages “in all cases.”

The controversy centers on 17 cases in which contractors violated the federal Davis-Bacon Act by failing to pay local prevailing wages to 157 workers on federally funded repair jobs. In many cases, the workers earned about half of the wages required by federal law. The cases were uncovered by the housing department.

But housing officials have said the contractors showed no criminal intent and therefore were not turned over for prosecution--even though the city attorney’s office insisted that laws were clearly broken and that some of the most egregious violators should be prosecuted.

Instead, housing officials forced the contractors to pay the shortchanged workers nearly $240,000 in back wages.

The department is investigating an additional 22 cases involving 163 workers.

Most of the city’s earthquake repair loans include a 15% grant to help contractors pay prevailing wages. Contractors are also required to sign documents promising to pay prevailing wages.

Squier said that an internal audit found that a team of housing officials assigned to monitor the prevailing wages laws was severely understaffed.

Because of the staff shortage, the housing department continued to provide funding for three projects after the compliance unit determined that the contractors had failed to pay prevailing wages.

In two cases, he said, contractors were awarded the 15% grant when the project was not required to pay prevailing wages.

Although federal policy had required the housing department to interview 10% of the workers on repair jobs to verify wage compliance, Squier said the department had only been interviewing 2%. He said that figure has since been increased to 6%.

“I’d like to push that [percentage] higher,” he said.

In addition to creating a procedure to pursue criminal charges, Squier said the department has hired additional staff and outside investigators to improve the monitoring of prevailing wage laws.

Squier said he will also ask the City Council to adopt an ordinance to prohibit contractors who blatantly violate the prevailing wage laws from getting city contracts or loans in the future.