• California Court of Appeal Affirms That Certain Types of Public Contributions Do Not Make Development a "Public Work" Under Former Version of Statute
  • February 6, 2006 | Author: Matthew W. Holder
  • Law Firm: Sheppard, Mullin, Richter & Hampton LLP - San Diego Office
  • Greystone Homes, Inc. v. Cake37 Cal. Rptr. 3d 183 (2005) The California Court of Appeal recently affirmed a 2004 Supreme Court decision that impacts when prevailing wages need to be paid on projects where the contract was signed before January 1, 2001. At issue in Greystone Homes, Inc. v. Cake, 37 Cal. Rptr. 3d 183 (2005), was whether a 134-unit housing development project constituted a "public work," and thus required the payment of prevailing wages. The awarding body for the project was the Pleasant Hill Redevelopment Agency (the "Agency"). The Agency had contributed three forms of public funds to the project:

    1. it had conveyed one parcel of property (out of 29 total parcels used) to the developer for use in the project
    2. it paid a $200,000 "Traffic Impact Mitigation Fee" to the developer, and
    3. it reimbursed the developer for upwards of $2.5 million in land acquisition costs. The total estimated cost of the project was $31.3 million.

    The Court of Appeal in Greystone Homes ruled that the above payments did not make the project a public work, and hence prevailing wages did not need to be paid. The critical issue was the meaning of "public work." At the time the contracts were signed in 1999, California prevailing wage law defined "public work" as "construction, alteration, demolition, or repair work done under contract and paid for in whole or in part out of public funds ..." An amendment to the statute was added in 2000 (effective January 1, 2001), which expanded the definition of "construction" to include "work performed during the design and preconstruction phases of construction including, but not limited to, inspection and land surveying work." At all points in time, the law was clear that prevailing wages only had to be paid on "public works."

    The Court of Appeal held that because the Agency's three contributions of public funds were not for costs associated with "construction, alteration, demolition, or repair work," the project was not a "public work." As for the conveyance of the parcel of land, this was for the land upon which the homes were built. It was not a payment for actual construction costs. As for the Traffic Impact Mitigation Fee, this was intended to cover costs arising as a result of the construction (heavier traffic), not for actual construction itself. Lastly, the reimbursement amounts were expressly earmarked as being for the developer's land acquisition costs -- not actual construction costs.

    The Greystone Homes decision closely followed the Supreme Court's decision in City of Long Beach v. Dept. of Industrial Relations, 34 Cal. 4th 942 (2004), which held that "surveying" work on contracts signed before the effective date of the 2000 amendment did not constitute a "public work" that required the payment of prevailing wages. It must be emphasized, however, that the Greystone Homes and City of Long Beach decisions, and their limited definition of "public work" under California prevailing wage law, is only relevant to projects where the contracts were signed prior to January 1, 2001. For any project with contracts signed after that date, the more expansive definition of "construction" found in the current statute would be applied.

    Nevertheless, the Greystone Homes case is another example of what is sure to be a growing source of disputes in the construction industry. When does public assistance transform an otherwise private project into a public work? The point of transformation can be critical to the viability of the project. Because prevailing wages that must be paid on a public work are often much higher than those that are paid on a private work, a determination that an otherwise private project is a public work could have disastrous consequences to the developer. Indeed, the costs of paying the prevailing wage would be likely to far exceed the value of the incentives or assistance that were provided by the public entity in the first place. The Greystone Homes case highlights what is sure to be an important battlefield between pro-union groups and the development community.