By Heather Frisch & Brenda Radmacher

Contractors and subcontractors bidding on California’s largest public works projects will soon face a new labor-cost risk: the wage rates they are required to pay may change after they submit their bids. California’s prevailing wage rules generally set the minimum pay for workers on public works projects based on the type of work and the project’s location. Under Assembly Bill 1198 (“AB 1198”), updated prevailing wage rates may apply during construction to public works contracts awarded or advertised for bid after July 1, 2027 if the awarded value of the prime contract is $35 million or more. On those projects, the wage rates that applied when the project was first advertised may not remain the same throughout the work.
For contractors pursuing infrastructure projects that take several years to complete, this is not just a payroll issue. A change in required wage rates can affect the cost of work already priced in a bid. Contractors will need to consider that possibility when estimating labor costs, setting aside funds for unexpected costs, obtaining subcontractor prices, and negotiating contract terms that address price increases or changes to the work. Those terms can determine whether the contractor or the public agency awarding the contract bears the additional cost. Contractors will also need processes in place to track wage changes and their effect on project costs.
A Quick Refresher: California’s Current Prevailing Wage Rule
California generally requires workers employed on public works projects to receive at least the prevailing wage determined by the Director of the Department of Industrial Relations (“DIR”) for the applicable type of work and project locality.
Under current Labor Code section 1773.6, if the DIR identifies a prevailing wage change during a quarter, it must make the updated rate available to the awarding body. The updated rate, under current law, does not apply to contracts already advertised for bids.
This gives contractors greater pricing certainty: the wage determination in place when the project is advertised generally governs the contract, subject to its terms and any scheduled wage increases.
AB 1198 changes that rule for certain large public works contracts.
What Changes Under AB 1198?
AB 1198 was approved and chaptered on September 27, 2026, as Chapter 513 of the Statutes of 2026. The legislation amends and replaces Labor Code section 1773.6 and adds section 1773.65.
The new provisions take effect on July 1, 2027.
If the DIR identifies a local prevailing wage change during a six-month period, the updated rate will apply on its effective date to public works contracts awarded or advertised for bids after July 1, 2027, if the awarded value of the prime contract is $35 million or more.
On these projects, contractors cannot assume that the prevailing wage rates used to price their bids will remain unchanged throughout construction.
The $35 Million Threshold Applies to the Prime Contract, Not Individual Subcontracts
An important detail for both prime contractors and subcontractors is that AB 1198 measures the $35 million threshold based on the “awarded value of the prime contract.” The statute does not establish a separate $35 million threshold for individual subcontracts or purchase orders. The legislative analysis likewise describes the new requirement as applying when the awarded value of the prime contract is $35 million or greater.
That distinction matters to subcontractors. A subcontractor does not fall outside AB 1198 merely because its own subcontract is worth substantially less than $35 million. If, for example, a specialty contractor performs a $2 million subcontract on a covered $100 million prime contract, the relevant statutory threshold is the value of the prime contract, not the $2 million subcontract.
Accordingly, subcontractors bidding comparatively small portions of large infrastructure projects should determine whether the overarching prime contract is subject to AB 1198 and consider the possibility of prevailing wage changes when pricing their work.
For prime contractors, this reinforces the need to address post-award prevailing wage changes when negotiating and administering subcontracts and other downstream agreements. For subcontractors, it makes the value and status of the overall prime contract an important diligence point when bidding work, particularly on long-duration projects where their work may not begin until years after the prime contract is awarded.
AB 1198 also contains an exception for certain affordable-housing developments in which 100 percent of the units, excluding managers’ units, are subject to the affordability restrictions or subsidies specified in the statute. For those qualifying projects, new Labor Code section 1773.65 generally preserves the existing treatment of subsequent determinations.
One Open Question: What if Change Orders Push the Contract Above $35 Million?
AB 1198 leaves an important question unanswered for projects that begin below the statutory threshold but grow during construction.
Consider a prime contract initially awarded for $33 million that later increases to $38 million through change orders or other contract modifications. Is it now a $35 million-or-more contract for purposes of AB 1198?
The statute does not expressly address that situation.
Notably, AB 1198 uses the phrase “awarded value of the prime contract.” The Legislature’s use of “awarded value” provides a reasonable textual basis to argue that the $35 million threshold is measured by the value of the prime contract at the time of award, rather than its adjusted value following subsequent change orders. The Senate analysis uses the same “awarded value” formulation but does not specifically address a contract that crosses the threshold during construction.
Keeping this in mind, contractors should be cautious about treating either interpretation as settled. Further DIR guidance, legislative clarification, administrative interpretation, or judicial decisions may ultimately be needed to resolve how the threshold applies when post-award modifications cause the contract amount to exceed $35 million.
Until that question is clarified, contractors with contracts initially awarded below but near the $35 million threshold should consider documenting the original awarded value, tracking cumulative changes, and evaluating significant modifications that cause the contract amount to cross the statutory threshold.
The Bigger Issue May Be at Bid Time
The most significant effect of AB 1198 may arise before the project is ever awarded.
On a large, multi-year public works project, labor for some crafts may be performed years after bid day. Contractors will therefore need to evaluate the possibility that the prevailing wage rates used to develop their estimate will not necessarily remain applicable throughout performance. Ultimately, this may involve some amount of analysis of past changes to the DIR’s prevailing wage determinations or even a little bit of guessing by the estimators assembling the bid.
The practical exposure will depend on the project’s duration, anticipated labor sequencing, geographic location, and the point in the schedule at which particular crafts and classifications are expected to work. A rate change affecting a trade scheduled to complete its work during the first six months presents a different pricing risk from a change affecting labor-intensive work scheduled three or four years into construction.
Before bidding a covered project, contractors should consider:
- When particular crafts will perform their work. Exposure may be different for early civil or demolition work than for a labor-intensive trade scheduled several years into construction.
- Wage-escalation assumptions. Consider how the possibility of future prevailing wage changes should be reflected in labor forecasts, contingencies, or other pricing assumptions.
- Prime-contract risk allocation. Review whether the contract addresses post-award wage increases, changes in law, price escalation, change orders, notice requirements, or potential equitable adjustments.
- Subcontractor pricing. Consider whether subcontract bids are fixed for the duration of the work or contain escalation assumptions, exclusions, qualifications, or limited bid-validity periods.
- Prime and subcontract alignment. Contractors should understand whether the downstream allocation of prevailing-wage risk matches the risk the prime contractor has accepted upstream.
- Projects near $35 million. Contractors bidding projects below but close to the statutory threshold should consider the unresolved question regarding later change orders that cause the contract amount to exceed $35 million.
- Schedule changes and delay. Contractors should evaluate the potential labor-cost consequences of work occurring later than contemplated in the bid schedule.
- Project controls. Before construction starts, identify who will monitor new DIR determinations and how applicable changes will be communicated to payroll, project management, subcontract administration, and project controls.
AB 1198 thus gives sophisticated contractors another reason to bring estimating, contracting, payroll, project controls, and legal/compliance personnel together before the bid is submitted, rather than treating prevailing wage compliance as something that begins after award.
Practical Takeaway for Subcontractors: Look Upstream Before You Price the Work
AB 1198 presents an equally important bidding issue for specialty contractors.
Subcontractors should not assume that AB 1198 is irrelevant simply because their subcontract or purchase order is less than $35 million. Again, the statutory threshold is based on the awarded value of the prime contract.
Before pricing work on a large, multi-year public works project, subcontractors should consider:
- Confirming the awarded value of the prime contract and whether the project is subject to AB 1198;
- Identifying when their work is expected to occur and evaluating the possibility that an applicable prevailing wage determination could change before or during performance;
- Reviewing bid assumptions and subcontract language concerning responsibility for post-award prevailing wage increases;
- Reviewing applicable notice, change, escalation, and claim provisions affecting increased labor costs;
- Monitoring applicable DIR determinations during performance rather than relying solely on the prevailing wage information available when the subcontract was priced; and
- Coordinating promptly with the prime contractor when a new determination potentially affects the subcontractor’s work.
For a subcontractor whose scope will not begin until two or three years into a major infrastructure project, these issues can be particularly important. A fixed-price subcontract based entirely on prevailing wage rates known when the subcontract was bid may present very different cost risks if applicable rates subsequently increase and the subcontract does not address who bears that additional cost.
For both prime and specialty contractors, then, AB 1198 is not merely a payroll issue. It is a bid and contract-risk issue.
Don’t Miss the 20-Day Petition Deadline
AB 1198 also creates a procedure for reviewing a changed rate applicable to a particular contract.
A contractor, awarding body, or representative of an affected craft, classification, or type of work affected by a rate change on a particular contract may challenge the new determination by filing a verified petition with the DIR within 20 days after publication. The petition must assert that the rate was not determined in accordance with Labor Code section 1773. A copy must also be filed with the awarding body within two days after the petition is filed.
That distinction is important. The petition process is not simply an opportunity to challenge a new rate determination simply because it increases the contractor’s costs or was not anticipated in the bid. The focus of a petition is on the determination process and whether the rate was determined in accordance with section 1773.
The DIR must then investigate or hold a hearing, and generally issue a final determination, within 20 days after the petition is filed, unless the DIR, the awarding body, and all interested parties agree to a longer period. A determination issued by the DIR becomes effective 10 days after issuance and remains effective until modified, rescinded, or superseded.
Because the statutory petition period runs from publication of the new determination, rather than when a contractor happens to discover it, contractors on covered projects should establish a reliable monitoring and escalation process.
AB 1198: Contractor Compliance Checklist
Before Bid
- Determine whether the project will potentially fall within AB 1198.
- Identify the anticipated crafts, classifications, and applicable prevailing wage determinations.
- Document the wage assumptions incorporated into the estimate.
- Consider potential rate changes when developing labor forecasts and contingencies for multi-year work.
- Review how the proposed contract allocates the risk of post-award wage increases.
- For projects near $35 million, document assumptions concerning the statutory threshold and possible contract growth.
Before Contract Execution and Subcontract Buyout
- Review prime-contract provisions addressing escalation, changes in law, notice, changes, and potential adjustments.
- Determine which party bears the financial risk of a post-award prevailing-wage increase.
- Address changed prevailing wage determinations in subcontract and applicable purchase-order terms.
- Ensure subcontractors understand when the underlying prime contract is subject to AB 1198.
- Establish responsibility for monitoring DIR determinations.
During Project Performance
- Monitor DIR’s published determinations for applicable classifications and localities.
- Record publication, issue, and effective dates for potentially applicable determinations.
- Immediately route potentially applicable changes to payroll, project management, project controls, subcontract administration, and legal/compliance personnel.
- Monitor contracts initially awarded below but near $35 million if subsequent changes cause the contract amount to cross the statutory threshold.
- Preserve any separate contractual notice and claim rights relating to increased costs.
When a Potentially Applicable New Determination is Published
- Immediately calendar the 20-day petition deadline.
- Preserve the determination and evidence of its publication date.
- Confirm whether the changed rate applies to the contract and affected craft or classification.
- Determine promptly whether there is a factual and legal basis for review under Labor Code section 1773.
- If review is warranted, prepare and file the verified petition within 20 days.
- Provide the awarding body with the required copy within two days after filing.
- Track DIR’s resulting determination and effective date.
- Separately preserve any applicable contractual notices, claims, or requests for adjustment.
The Bottom Line for Large Public Works Contractors
AB 1198 is relatively narrow in scope, but the projects it affects are not. For large public works contractors, the statute changes an important premise underlying bid preparation: the prevailing wage determination used to price the project may not remain the operative determination throughout construction of the project.
For prime contractors, that risk should be considered when estimating the work, negotiating the prime contract, buying out subcontracts, and administering the project.
For subcontractors, the key is to look upstream. A $2 million subcontract can still be performed on a prime contract subject to AB 1198, making the value of the overall prime contract and the allocation of future wage-cost risk important considerations before fixing the subcontract price. The new provisions become operative July 1, 2027, giving contractors time to revisit their bid assumptions, subcontract forms, escalation provisions, project controls, and procedures for monitoring DIR determinations before the new procedure begins.






