California Requires Mid-Project Prevailing Wage Increases on Public Works Contracts of $35 Million or More

On September 27, 2026, California Governor Gavin Newsom signed Assembly Bill 1198 (AB 1198), amending California Labor Code section 1773.6 and adding section 1773.65. Operative July 1, 2027, the amended section 1773.6 changes a long-standing feature of California prevailing wage law for the largest public works contracts: unless successfully challenged, new prevailing wage determinations will apply on their effective date to any covered contract that the awarding body awards, or for which it publishes notice to bidders, after July 1, 2027, if the awarded value of the prime contract is $35 million or more.

Under current law, a new determination by the director of the Department of Industrial Relations (DIR) does not apply to a contract once the awarding body has published the notice to bidders. To date, contractors generally have been able to price and pay a project at the prevailing rates in effect at the time of the bid, subject to predetermined increases included in the published rates at the time of the bid. For covered contracts, AB 1198 removes that certainty. Contractors and subcontractors on those projects should expect wage rates to change during performance.

Although AB 1198 takes effect January 1, 2027, its substantive provisions do not become operative until July 1, 2027. The current version of section 1773.6 remains operative until that date and will sunset on January 1, 2028.

Which Contracts Are Covered?

AB 1198 applies when all the following conditions are present:

• The contract is a public works contract subject to California’s prevailing wage law;
• The awarding body awards the contract, or publishes notice to bidders, after July 1, 2027;
• The awarded value of the prime contract is $35 million or more; and
• The project is not a qualifying affordable housing development.

Because the threshold turns on the value of the prime contract, a subcontractor on a covered project is subject to the new rule regardless of the value of its own subcontract. On privately developed projects that qualify as public works, such as those that public funds partly finance, the developer’s prime construction contract will likely be the measure of the threshold. Subcontractors should ensure they understood the scope and value of the prime contract because liability for unpaid prevailing wages attaches even if the subcontractor did not know about a rate increase.

The exemption for affordable housing is narrow. It applies only to housing development projects in which a deed, regulatory agreement, or other recorded document restricts 100 percent of the units, excluding managers’ units, as affordable housing for persons and families of low or moderate income, as defined in Health and Safety Code section 50093, or in which a qualifying housing subsidy agreement covers those units. For those projects, new section 1773.65 preserves the existing rule: a new determination does not apply to a contract once the awarding body has published notice to bidders or awarded the contract. Mixed-income projects do not appear to qualify.

How Mid-Project Rate Changes Will Work

The amended statute refers to determinations issued during any “semiannual period,” replacing the current reference to a quarterly period. DIR already issues general prevailing wage determinations twice a year, on February 22 and August 22, effective 10 days later. Contractors should therefore remain cognizant of DIR-issued determinations that may materially change prevailing wage obligations under existing contracts.

Because AB 1198 operates at the determination level, it reaches every craft and classification in a determination that applies to a covered project. Apprentice rates and employer payments tied to the journeyworker rate likely will move with the underlying determination. AB 1198 does not amend Labor Code section 1773.9, which governs predetermined increases. On covered contracts, however, a new determination will apply mid-project whether or not the increase falls under the predetermined-increase rules.

A New 20-Day Petition Process

AB 1198 also creates a procedure to challenge a new determination on a particular contract:

• Who may petition. Any contractor, awarding body, or representative of a craft, classification, or type of work affected by a rate change on a particular contract may file a verified petition with the director.
• Deadline and grounds. The petitioner must file the petition within 20 days after publication of the new determination, must set forth the facts on which the petition is based, and may challenge the rate only on the ground that the director did not determine it in accordance with Labor Code section 1773. The petitioner must file a copy with the awarding body within two days after filing the petition.
• Review and decision. After notice to the petitioner, the awarding body, the recognized collective bargaining representatives, and other persons the director deems proper, the director must investigate or hold a hearing and issue a written determination within 20 days, or within a longer period on which the director, the awarding body, and all interested parties agree. That determination is final.
• Effective date. A determination that the director issues will take effect 10 days after issuance and remain in effect until the director modifies, rescinds, or supersedes it.

Because the 20-day period runs from publication rather than from the date a contractor learns of a change, contractors will need to monitor each new determination to preserve the ability to challenge it.

Enforcement Exposure

AB 1198 creates no new penalties. A contractor that fails to pay an updated rate on a covered contract will face the existing public works enforcement framework, including a civil wage and penalty assessment under Labor Code section 1741, penalties of up to $200 per worker per day under section 1775, overtime penalties under section 1813, liquidated damages equal to unpaid wages under section 1742.1, and potential debarment under section 1777.1. Separately, Senate Bill 909 (SB 909), which the governor also signed this year, increases several of these penalty amounts.

Prime contractors should also consider the effect on their liability for subcontractor violations. Under section 1775(b), a prime contractor may avoid penalties for a subcontractor’s underpayment only if it includes required contract terms, monitors certified payroll, takes corrective action, and obtains the subcontractor’s affidavit. Mid-project rate changes will increase the practical burden of that monitoring.

Important Questions Remain

DIR has not yet issued guidance specific to AB 1198. Among the issues likely to require administrative or judicial interpretation are:

• Whether the new rule applies if the awarding body publishes notice to bidders before July 1, 2027, but awards the contract after that date;
• How the threshold applies if change orders move a prime contract above or below $35 million after award;
• How “awarded value of the prime contract” applies to design-build, construction manager at-risk, multiple-prime, job order, and task-order contracts, and to procurements without a bid notice;
• Which rate governs payroll while a petition is pending, given that the director’s decision does not take effect until 10 days after issuance;
• How the new petition process interacts with the existing review procedure under Labor Code section 1773.4; and
• Whether the new rule reaches projects subject to prevailing wage requirements under other statutes, such as streamlined housing approval laws.

Practical Steps for Public Works Contractors and Developers

Before July 1, 2027, contractors, subcontractors, and developers that bid or perform large California public works projects should consider strengthening their processes in the following areas:

• Confirm coverage at bid. Determine whether the awarded value of the prime contract is $35 million or more, when the awarding body noticed or awarded the contract, and whether the affordable housing exemption applies. Subcontractors should confirm the value of the prime contract before pricing their scope.
• Price escalation risk. Account for potential rate increases over the life of a multiyear project, because the statute does not allocate the cost of mid-project increases.
• Review contract and subcontract terms. Evaluate change-in-law, escalation, notice, change-order, and flow-down provisions to allocate the cost of determination changes up and down the contracting chain.
• Monitor new determinations. Assign responsibility for tracking each February and August determination and for evaluating any petition within the 20-day period.
• Update payroll and certified payroll processes. Apply new rates on the effective date of a determination, including within a pay period and for change-order and time-and-materials work, and confirm that certified payroll records reflect the rate in effect when the work was performed.
• Strengthen subcontractor oversight. Confirm that prime contractor monitoring and corrective-action procedures account for mid-project rate changes.
• Document contract value. On contracts near the threshold, retain records of the original awarded value and cumulative change orders.

Bottom Line

AB 1198 does not change which projects are public works, but it changes how long a bid-date wage rate governs the largest of them. Beginning July 1, 2027, contractors on public works contracts of $35 million or more should expect prevailing wage rates to change during performance and should build that expectation into bidding, contracting, payroll, and oversight.