Gov. Gretchen Whitmer announced reforms to the state contract bid process she says will protect Michigan businesses from being undercut and workers being underpaid.
Through the Department of Technology Management and Budget new protocols will require bidders on state government contracts to disclose their labor and environmental records, information on their economic impact in Michigan and certification that the business has properly classified.
On a Zoom call announcing the change on Thursday, April 15, Whitmer was joined by members of the Michigan Council of Carpenters and Millwrights Michigan Businesses.
Tom Lutz, Executive Secretary-Treasurer of the council, said the Michigan legislature’s repeal of the Prevailing Wages on State Projects law in 2018 has opened the door to dishonest business practices, in particular companies using subcontractors to lower bids by not offering standard labor rates or health benefits and avoiding payroll taxes.
In 2019, Attorney General Dana Nessel created a taskforce to investigate new complaints of payroll fraud. Her office estimated $107 million in tax revenue is lost each year from businesses illegally misclassifying workers or paying them off the books.
“People look around and they wonder where did all those good jobs go,” Lutz said. “They didn’t just magically disappear or go away. Good jobs go away because good companies cannot compete when the rules are stacked against them.”
John Marinelli, Director of Commercial Contracting Corporation, was among the business leaders who shared stories of work that went to out-of-state bidders who lowered the price by using subcontractors. Marinelli estimated his company loses $15 to $20 million in revenue by being outbid by companies skirting the law.
“These reforms matter to our businesses and our workers,” he said. “Michigan families and Michigan-based businesses cannot afford this race to the bottom.”
Ron Slaght, owner of Diversified Construction Specialists, said his company lost a significant amount of work within school districts the first summer after the Prevailing Wage was repealed because companies paying lower wages replaced them.
He and others lamented that many of those projects still end up being finished by Michigan-based companies when the lowest bidder runs out of money, material or its labor force leaves for the next job.
“When you don’t pay good workers a fair wage, you don’t get a good product at the end of the day,” he said. “We know this because quite often we get the phone call at the end of the project to come in and fix what that original company did or didn’t do.”
Slaght added that companies not paying for health benefits or fair wages are forgoing an employer’s responsibility to their employees. In turn this cost Michigan’s healthcare system if medical costs cannot be paid by an injured subcontractor, he said.
“We do love competition,” Slaght said of the bidding process. “We just want it to be fair competition.”
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