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5.6. SR 02-13-2006 City of Elk River REQUEST FOR COUNCIL ACTION Agenda Section Meeting Date Worksession February 13, 2006 Item Description Discussion of Prevailing Wage Ordinance Item Number 5.6. Prepared by Lori Johnson, City Administrator Reviewed by Introduction This item is on the agenda for Council discussion following a presentation by Amy Bodnar at Open Mike in December requesting that the city adopt a prevailing wage ordinance. Discussion The City of Elk River is covered by prevailing wage laws through the Federal Davis-Bacon Act and the State of Minnesota's prevailing wage law for all projects funded in whole or in part by federal or state funds. Projects not covered by prevailing wage laws are building and improvement projects funded by the city. Therefore, the adoption of a local prevailing wage ordinance would apply only to projects not already covered by prevailing wage laws such building projects (library, street office expansion, YMCA) and to public improvement (street reconstruction, overlay, sewer lining) projects. Consideration of a local prevailing wage ordinance is a policy decision weighing the benefits of requiring prevailing wages against the additional costs. First, what are the benefits of having a local prevailing wage ordinance? During Ms. Bodnar's presentation, quality of work and on time completion of projects were stated as benefits as well as payment of higher wages to residents working on city projects. As far as quality of work and timely completion ofprojects, the city has specifications and requirements as part of the bidding process to ensure that the city receives quality work that is completed on time whether the project is a prevailing wage project or not. Please see item six in Terry Maurer's memo for more detail on this issue. Second, what are the additional costs? Most of the additional costs come from the labor portion ofthe contract, either in the form of higher pay, additional benefits or both. Another minor cost increase comes from increased engineering overhead to administer and enforce the local ordinance. Again, see Mr. Maurer's memo for more detail on estimated cost increases. Further, even though prevailing wage is not required on all public improvement projects, some contractors pay prevailing wage anyway. This may be due to the type of contractor involved or where the contractor is from. The city is required to accept the low responsible bidder. This process ensures that the contractor is qualified to complete the project whether or not prevailing wages are paid. Finally, if the Council wants a local prevailing wage ordinance, enforcement and applicability ofthe ordinance need to be discussed. For instance, there are many small projects that would be more severely impacted by the ordinance that the Council may want to exclude; this could be done by setting a $50,000 or $100,000, for example, project cost threshold before the ordinance applies. Financial Impact Project costs would increase for city building and improvement projects not currently covered by state or federal prevailing wage laws. Attachments . Memo from City Engineer Terry Maurer. . A guide to Minnesota's Prevailing Wage from the Minnesota Department of Labor and Industry. Action Requested The Council is asked to discuss whether it wishes to impose a local prevailing wage ordinance on projects not currently covered by federal and state prevailing wage laws. Council Action Motion by _ Second by _ Vote Follow Up 13065 Orono Parkway Elk River, MN 55330 January 30,2006 Ms. Lori Johnson City Administrator City of Elk River 13065 Orono Parkway Elk River MN 55330 RE: PREVAILING WAGE ISSUE Dear Ms. Johnson: As requested, I have researched the issue of using prevailing wages on the City of Elk River's utility and street infrastructure construction. Based upon my research and analysis, I would offer the following comments: 1. The City of Elk River is already required to follow prevailing wage law on any projects funded by Federal or State dollars. This would include a project using Municipal State Aid funds. From a cost of construction standpoint, I would estimate that this would cover approximately half of the projects that we competitively bid. Over the past few years, these types of projects would have included the TII 169 pedestrian bridge, the East Elk River Tyler Street road and storm sewer construction, 17 5th Avenue reconstruction project, and the TII 10 and Main Street intersection reconstruction project. 2. Generally, the City of Elk River sees union contractors doing underground sanitary sewer, water and storm sewer construction. This has been true on the recently completed Northstar Business Park, the underground portions of the 2005 and the 2003 street reconstruction projects. 3. Generally, the City of Elk River sees non-union contractors bidding street paving. Primarily two contractors have received the vast majority of street paving contracts; either Bauerly Companies or Universal Enterprises of Mid-Minnesota, Inc., both from the St. Cloud area and both non-union contractors. 4. Other types of construction that are typically part of our improvement projects such as concrete curb and sidewalk or landscaping can be a mix of union and non-union Phone: 763.635.1000 Fax: 763.635.1090 www.cLelk-river.mn.us contractors, depending on where they are from. Generally, contractors from the St. Cloud area tend to be non-union; contractors from the metropolitan area tend to be UIllon. 5. Two recent examples of the potential costs due to a prevailing wage law were the Northstar Business Park project and the 2004 Street Overlay project. With the Northstar Business Park project, prevailing wage was added to the contract by change order after the bid was originally awarded. This was done due to a grant the Economic Development Department received to help pay for the improvements which required the use of prevailing wages. The negotiation with Northdale Construction, the general contractor, resulted in an additional cost of $22,290.90 to add prevailing wage to the original bid of $645,415.33. Keep in mind that Northdale Construction is a union contractor; therefore, adding prevailing wage did not require them to pay their employees more. The change order was basically for the increase salary for non-union contractors and for the required documentation for prevailing wage. The second example is the 2004 Street Overlay improvement, which is essentially just street paving. The low bidder on that project was Universal Enterprises, a non-union contractor, in the amount $447,907.50. The second place bidder was North Valley, Inc., a union contractor. Their bid was approximately $37,000 (8.2 percent) more than the low bidder. 6. With regard to the claim that prevailing wage law provides for higher quality construction while reducing delays and overruns, I believe that claim is not borne out in the area of utility and street construction issues. Generally speaking, we would receive bids from the same group of contractors for these types of improvements, whether or not prevailing wages are required on the project. The only contractors that may not participate would be relatively small subcontractors who may choose not to deal with the regulations for reporting and the increased pay for prevailing wage law. On the flip side, I do not believe that adding prevailing wage requirements to all street and utility contracts in the City of Elk River would reduce competition. I do believe that the competition level would remain constant. The quality would be similar to that which we have experienced in the past. The cost could increase, depending upon the type of project. 7. Things for the City Council to consider if they are to adopt a prevailing wage ordinance are some of the hidden overhead costs which would come with it. Prevailing wage law typically requires the contractor to have a display board posted at all job sites. There is also typically a requirement for the general contractor to provide payroll documentation to ensure that prevailing wage law is met. Finally, there is a requirement for the City to verify that prevailing wage law is met by reviewing the submitted documentation and verifying it through on-site employee interviews. 8. The other area that would need consideration would be with regard to how to deal with violations of the prevailing law ordinance. Currently, with Federally or State funded projects, issues of violation are dealt with by MnDOT and/or the Minnesota Department of Labor and Industry. If the City adopts a prevailing wage ordinance for all other projects other than Federally or State funded, I believe the City will need to be S:\Engineer\2006 Letters\0130 061tr LJ Prevailing wage. doc actively involved in dealing with violations and/or investigating claims of violation of the City ordinance. This could result in a significant expenditure of staff time on certain projects. 9. If the City were to adopt a prevailing wage ordinance, I would recommend that an exception be made in the ordinance to continue to allow the Street Department and/or Wastewater Department to hire local contractors for miscellaneous small budgeted projects. Examples would be with the recent fall rainstorms, our Street Department has hired a local contractor to provide minor storm drainage improvements in several locations throughout the City. Similarly, small contracts are issued for dealing with the drying, hauling and/or land applying of sludge from our W astewater Treatment Plant. To allow these to continue to attract bids from local contractors, I would suggest that a threshold be set under which the prevailing wage ordinance would not apply. If you have any questions regarding any of these comments, please contact me. Sincerely, ~pI~ Terry J. Maurer, PE City Engineer S:\Engineer\2006 Letters\0130 061tr LJ Prevailing wage.doc ...f./) en ~;-; B::; . co..!!:!.......... V ro (J) E 0 V +-' E ~ C Q) r--: 0 C "'tJ zLn COUl......1' ::J;-;'-::Jr-t f./) L- -eLn CJ) .....,....." OJ -- OJ CO eo..-l 't en-:j:jr-t C "'tJ OLn 'C C a.i Ul v - c:::Ln .0;: 1:l.o r--: C -- en c co co 's ::J I' N .- Wz Ul > en Ul r-t ~ CO CO :tl::E .- Q) ll1l 0 CO ~ "ii:l5.COCOUl 0 U) W - Ul Q) 0 > >--' J:: co co 1:l ...... N +-' ~ ~ :J 0'......1:l Q)::J L- eo eo E~Q)"'-:U OJ OJ 0 ....Ja.. co Q)1:l Q)...... "'0 o.CC1:lU) .c M~ Ul C Q)'- co 1- :E .- ...... Ul ...... :J CO Vf./) I- ::E .!:: g ~ 01 Q.. .....J v OJ ~ .!!! u ~ <( ............1:l C o .... 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