The New Jersey Prevailing Wage Act (N.J.S.A. 34:11-56.25 et seq.) has long required contractors and subcontractors to pay a minimum “prevailing wage” to laborers, craftsmen and apprentices employed on public works projects. The New Jersey Department of Labor sets the prevailing wage for a specific New Jersey region based on the collective bargaining agreements established for a particular craft or trade in the locality in which the public work is performed.
General contractors and subcontractors on public project must pay these wage rates and provide certifications, identifying the employee, hours and wage as part of their applications for payment. Failure to pay the required wages can lead to termination from the project, and suspension from qualification as a public contract. Workers who believe themselves to be underpaid can seek enforcement through the New Jersey Department of Labor, and depending, up on whether they work for a general con tractor or high tier subcontractor, file lien and claims upon bonds.
New Jersey had extended prevailing wages to insulation, duct work and other mechanical system and plumbing components. On March 18, 2019, New Jersey further extended the prevailing wage obligation to work on the custom fabrication “either of components or structures pre-fabricated to specifications for a particular project of public work or of other materials finished into components without further modification for use in a project of public work or for use in a type or classification of a project of public work.” This change is effective immediately.
Offsite Fabricators Before the New Amendments
New Jersey has long recognized that offsite fabricators can be “subcontractors,” but used different tests for the fabricator’s status depending upon which public construction status was being applied. New Jersey courts review the classification of a fabricator as a “supplier” or a “subcontractor” whose work was conducted offsite, often under the Municipal Lien Law and Public Works Bond Act. The classification as a supplier or as a subcontractor is significant under those statutes, since lower tier subcontractors are more likely to qualify to file liens and bond claims than suppliers to subcontractors.
In Unadilla Silo Co. v. Hess Bros., 123 N.J. 268, 287-88 (1991), the case involving highway noise barriers, each of which was custom built to the exact terrain at the spot along the highway where general contractor would ultimately place them. The New Jersey Supreme Court held the custom fabricators to a public project should be deemed “subcontractors”, rather than “suppliers” for the purposes of the New Jersey Municipal Lien Law and the New Jersey Pub lic Works Bond Act. It, therefore, recognized that the firm building the noise barriers was entitled to sub-subcontractor status and qualified to file a lien.
The Supreme Court never discussed whether this “subcontractor” paid its employees prevailing wages for constructing the noise barriers. Instead, New Jersey Supreme Court adopted a “functional standard” for determining how a vendor/fabricator should be classified under these statutes including the following factors: “(1) whether the material supplier agreed to perform a definite and substantial part of the same work that the general contractor was obligated to perform; (2) whether the work was performed according to plans and specifications in the original contract; and (3) whether the materials required off-site fabrication prior to installation at the job site.”
The New Jersey Department of Labor separately addressed how fabricators should be regarded under the Prevailing Wage law through a set of regulations, set out at N.J.A.C. 2:60-2A.1. These regulations re quire prevailing wages to be paid: (1) for fabrication at the work site, or (2) for offsite work by employees of a general contractor or subcontractor of the project on that contractor’s premises, unless part of a pre-existing commercial operation. These regulations does not in corporate, nor even make a reference to the criteria which the Supreme Court under Unadilla held should be used to judge whether a fabricator was a supplier or manufacturer under the Municipal Lien Law and the Public Works Bond Act.
The New Jersey Department of Labor’s regulation, instead, is largely (but not completely) consistent with the prevailing wage law applicable to federal work projects, under the Davis Bacon Act. Under Federal law, a supplier is not covered by prevailing wage requirements and the test of whether a firm is a “supplier” does not rest on whether the product was custom fabricated. Instead, a company is a “bona fide material supplier” if it sells supplies to the general pub lic, if the fabrication plant was not established specially for the particular public works contract, and the plant is not to be located at the project site. H. B. Zachry Company v. United States 344 F.2d 352 (Ct.CL. 1965)
Uncertainty Under the New Legislation
New Jersey’s recent amendment to the Prevailing Wage law neither incorporates the pre-existing regulation, nor the Unadilla criteria. Instead, it establishes two new tests: (1) whether the item was custom fabricated to the specifications of the public work project or (2) whether the item can be installed without further modification. These new tests do not depend upon where the fabrication takes place, nor whether the fabricator otherwise is active on the work site. The Department of Labor has not rescinded or modified the existing regulation. However, presumably the Legislature intended to supersede the New Jersey. Department of Labor’s pre-existing, more restrictive regulation to expand the scope of prevailing wages.
It, therefore, remains unclear how far this new legislative standard extending prevailing wage cov erage will apply. Read literally, the March 2019 amendment would apply to nearly every feature built for and then delivered to a public project, from high way exit signs to the stage curtains at a high school auditorium. These items are not purchased from stock, but are manufactured based upon shop draw ings designed to conform to architect’s drawings and bid specifications. Yet, there is no evidence that any one previously considered such items as being subject to prevailing wage laws.
For instance, in the case of highway signs such as those directing drivers to specific exits, each sign is manufactured and printed for a particular point in a roadway, However, those sign manufacturers do not customarily pay prevailing wages. In fact, many use prison labor, often below minimum wage rates.
Nor does the new statutory amendment define what the phrase “installed without further modification” means. Does a highway exit sign become “further modified” when it is installed upon the support?
Out of State Fabricators
Often, highway signs and many other commonly fabricated components are fabricated in other states and delivered to the project. In some cases, there may be no New Jersey fabricators for a product/ component at all. The out-of-state fabricators tend to operate in right-to-work states. Whether New Jersey could enforce prevailing wage requirements against an out of state fabricator is unclear. In Eisenmann Corp. v. Sheet Metal Workers Int’l Ass’n Local No. 24, 323 F.3d 375, 377 (6th Cir. 2003), a federal court found that a prevailing wage agreement in a commercial Project Labor Agreement was enforceable against a non-union fabricator because the purpose was to protect against a temptation to undermine the project labor agreement by outsourcing to offsite non-prevailing wage firms. In other cases, courts have found that attempts to force non-union vendors who have no presence at a job site to pay union rates, to be an improper attempt to pressure or punish the firm (and its employees) for being non-union.
Even to the extent that the New Jersey Prevail ing Wage statutes are enforceable, in principle, against out of state fabricators who have no union employees, there remains the practical problems of enforcement against an out of state company. There is the further question of what region’s un ion rates apply. Should union wages in New Jersey or Texas apply to the fabrication of precast glass reinforced panels created in Texas? Finally, as a policy matter, the impact of requiring out of state fabricators to pay prevailing wages (especially if based upon New Jersey union rates), would be to raise the costs of public construction projects, but without directly benefiting New Jersey employees.
In many cases, it is hard to even identify what prevailing rate would apply. The amendment, read literally, would apply to customized items for which there is no direct equivalent to a New Jersey prevailing wage rate. Going back to the example of highway signs; should their fabrication be considered subject to the prevailing wage for sheet metal workers? for ironworkers? for electrical workers? The New Jersey Department of Labor, has yet to identify prevailing rates for such “offsite work.”
The unknown scope of the new statute is revealed by Legislature’s inability to estimate its cost. As the bill made its way through the New Jersey Legislature, the Office of Legislative Services tried, but was unable to estimate the cost. Instead, it issued a statement that the change “may result an indeterminate, likely insignificant, increase in State and local units’ expenditures” depending upon the difference, if any, between the costs of contracts that are not subject to prevailing wage requirements and the costs of con tracts that are subject to prevailing wage requirements. See N.J.Leg, Sess, 218, Legislative Fiscal Estimate to Sen. Bill No. 2454. This vague state ment was insufficient to address the problem that it will be necessary to determine which con tracts and supply contracts are subject to the law, even before determining whether those contracts are implicitly based upon different rates.
Tips for Bidders and Contractors
The New Jersey Department of Labor and Workforce Development’s Division of Wage and Hour Compliance provides an electronic application for official Prevailing Wage Rate Determinations. Through this computer portal, public body officials or their representatives can apply for and download an official New Jersey Prevailing Wage Rate Determination applicable to their project, which then should be published along with other bid specifications. It is unclear whether the State will identify which fabrication activities within this process are now subject to prevailing wages. Bidders (and qualified subcontractors) may wish to raise these questions themselves during the process.
Another problematic aspect of the Prevailing wage Amendment was the Legislative statement that it is to take effect “immediately.” There is no clarification as to whether the intent is to apply the new standards to custom fabricated components of already on-going contracts. Such application might lead to severe price escalations by vendors of components to be supplied to the project. Contractors, subcontractors and suppliers should review the price escalation, change in law and change order terms of their contracts, proposals and purchase orders carefully to see what costs they may be hit with, and what claims they may make themselves.