By Nell M. Hurley of Ernstrom & Dreste LLP
Originally published Spring 2023
At the end of 2022, New York amended its Labor Law, adding § 220-i which creates a new mandatory registration system for public works contractors and subcontractors to be run by the Department of Labor Bureau of Public Works (“DOL”). Proponents of the law claim that it will better guard the public fisc and workers from unscrupulous contractors who skirt applicable labor and other laws. While everyone supports that laudable goal, most in the construction industry agree that the law as initially passed1 was unlikely to expand such protections. It would, however, present risks to timely bidding processes, the use of design-build delivery systems, add administrative burden to contractors, subcontractors, public contracting entities, and the DOL, and likely run afoul of state bidding laws by prequalifying subcontractors. Indeed, leading construction industry groups and others found the scheme so flawed and duplicative that the Governor was strongly, but unsuccessfully, urged to veto the bill. Fortunately, Chapter Amendments were obtained addressing some of the most egregious of the new law’s deficiencies.2
Even with the significant improvements, the scheme remains troublesome, presenting costs and risks to contractors in meeting uncertain and complex registration processes, and the expansion of DOL’s power to prevent contracts and subcontracts based upon a new standard of “unfit to be registered.” The good news is that the system will apparently be slow in the making, with compliance deferred until December 2024.
Section 220-i applies to contractors and subcontractors for all New York public works, and for all covered private projects under the recently expanded prevailing wage laws.3 Each contractor/bidder must obtain and submit a registration certificate from DOL with its bid for a public project, or prior to commencing work on a covered private project. This requires the contactor to provide DOL with information and documentation regarding: its business entity, owners and officers; tax identification number, unemployment insurance registration number and workers’ compensation board employer number; proof of workers’ compensation insurance coverage; outstanding wage assessments, debarment history, final determinations as to any violations of labor, employment tax, workers’ compensation and workplace safety laws; apprenticeship program participation; and MWBE status. Subcontractors must likewise be registered and approved by DOL prior to commencing any work on such a project. Registration requires a $200 fee and must be renewed every two years. Failure to comply, including a contractor’s knowledge that a subcontractor is not registered before working, may result in a fine of $1,000. A private owner on a covered project is also obligated to ensure compliance or be similarly subject to the fine.
Under the new law, DOL must review information for every public works/covered project contractor and subcontractor to see if that entity is “unfit to be registered” due to an inability “to lawfully adhere to contractual obligations [under Article 8 of the Labor Law].”4 The statute says the determination must be made based on (1) a clearly documented history, or (2) an official record of past dealings, or (3) a present demonstrable inability to adhere to [Article 8 Labor Laws]. Current debarment, existing bid ineligibility,5 and failure to satisfy a previous wage violation are explicitly referenced as grounds for an “unfit” finding, though a contractor cannot be found “unfit” based solely on a debarment in the prior eight years or solely on the wage violations of subcontractors. Beyond that, the statute appears to allow wide latitude as to the meaning of “unfit,” likely to be fleshed out by DOL in forthcoming regulations.6 Notably, the statute is silent on whether DOL can or should make an “unfit” finding based upon “non-responsibility” grounds (beyond prevailing wage violations) which are currently left to post-bid qualification by the owner/public entity.
There are some procedural protections for registration applicants. Before DOL can find a contractor or subcontractor “unfit,” it must notify the entity in writing of the reasons for the proposed finding and provide the opportunity to cure or be heard. The contractor/subcontractor has 30 days to request the hearing or the proposed determination becomes final. A DOL proposed finding before bid could prevent contractor bid submission or, on covered private projects, delay contract/ subcontract work. In the event of a lapse in registration status (or a determination of “unfitness”) during construction, the contractor/subcontractor cannot be prohibited from completing the contract work. An “unfit” determination (not merely a notice from DOL of a proposed “unfit” finding) during contract performance will require the appointment of a monitor, at the contactor’s expense, to oversee the remaining work, and can result in the revocation or suspension of the registration. Questions about who can act as a monitor, and what specifically that role will entail, are unclear but may be addressed in DOL regulations.
Many rightly point out that information required by the new system has historically been addressed by post-bid responsibility determinations, weeding out the “unfit” through similar or more detailed disclosure forms and existing resources. For example, the State Comptroller’s office maintains the successful New York State Vendor Responsibility System (VendRep), and other available resources, providing most of the information as that to be required by DOL. Currently debarred contractors are plainly listed on DOL’s website, and DOL has data as to violations that could be shared with owners/contracting entities. Similarly, contractors found “non-responsible” by any State entity appear on the Office of General Services (“OGS”) website.
Perhaps more importantly, the DOL registration system raises concerns about how the new DOL pre-bid (or pre-work for covered projects) contractor vetting system fits into and affects the current public bidding process and contractors. A registration certificate is presented in the statute as a condition precedent to submitting a public works bid, or performing covered project work.7 A DOL finding of “unfit for registration” apparently results in a de facto “debarment” of the contractor, arguably on a lesser or at least different standard than historically required for debarment. How long does this “debarment” last? Where DOL issues a certificate, to what extent can that be relied upon by public entities for post-bid responsibility determinations? Contractors and public/covered contracting entities alike should stay apprised on this topic as DOL regulations are formulated and the details on “unfit to be registered” come into clearer focus.
1 S.5994 (Ryan)/A.1338-C (Magnarelli), now N.Y. Labor Law § 220-i.
2 Amendments to Chapter 827 of the Laws of 2022, S.838 (Ryan)/A.984 (Magnarelli), when approved, eliminate the problematic requirement that contractors submit registration certificates for all of its subcontractors at the time of bid, among other changes, addressing the issues around prequalifying subcontractors.
3 NY Labor Law §§ 224-a to 224-d. Generally, where total construction project costs exceed $5m and at least 30% of that comes from “public funds.” See our article “New Risks: Expanding Prevailing Wage Laws to Private Projects,” Ernstrom & Dreste, LLP ContrACT Construction Risk Management Reporter, Issue 30, Spring 2022, available on our Publications page at www.ernstromdreste.com.
4 Although the “unfit” determination provision focuses primarily on prevailing wage laws under Labor Law Article 8, it appears that violations of other Labor Law provisions, such as those under the new Construction Industry Wage Theft Act of Article 6, could also be considered, as well other laws related to worker protections.
5 Due to violations of workers’ compensation or prevailing wage laws.
6 Unlike a DOL debarment determination, there is no apparent duration specified on an “unfit” finding, so perhaps the contractor can reapply if it believes it has cured its “unfitness.”
7 Still unclear is the process for public entities receiving a bid lacking the certificate.
Nell M. Hurley is Of Counsel to Ernstrom & Dreste, LLP, a surety and construction law practice in Rochester, N.Y. Hurley is an experienced advisor, litigator, and negotiator in all types of surety and construction disputes and risk management situations. Hurley also writes articles on cases, topics, and trends of significance to surety and construction professionals and businesses. She can be reached at nhurley@ed-llp.com or 585-473-3100.