Earlier this year, the United States Department of Labor issued the most comprehensive updates to the Davis-Bacon and Related Acts in more than 40 years. The final rule went into effect on Oct. 23. Originally enacted in 1931, Davis-Bacon and its subsequent amendments apply to nearly all federal projects for the construction, alteration, or repair of public buildings or public works.
At its core, the act established minimum hourly wages and fringe benefits to be paid to various types of workers based on their trade or occupation and on the prevailing wages and benefits in the area where the work is performed. Even if a company does not work on federal projects, it may still be impacted by these changes if it performs work on a federally funded state project.
The changes to the act are indeed comprehensive, but several directly affect construction contractors.
Changes to ‘prevailing wage’ and ‘secondary locations’
At the outset, the DOL revised the definition of “prevailing wage” to use the rate of wage paid to at least 30 percent of the workers in the classification of the area where the work is performed as the prevailing wage, if there is no majority of workers paid the same rate.
The previous rule based the prevailing wage on the wage paid to a majority of workers. Also, definitions of “secondary locations” and “site of the work” were revised to include locations that are either established specifically for a Davis-Bacon project or are dedicated exclusively, or nearly so, to the job for a specific period of time (i.e., weeks, months, or more).
These changes will likely lead to higher wages in more rural locations. The changes also allow the DOL to adopt state or local prevailing wage rates as the prevailing rates under Davis-Bacon.
Restrictions on ‘material suppliers’
The DOL also revised the definition of “material supplier” to include the adoption of stricter criteria for determining whether an employer is a “material supplier” and therefore not subject to the Davis-Bacon updates.
Under the new definition, a material supplier’s work on the project must be: 1, limited to the supply of materials, articles, supplies, or equipment, which may include pickup in addition to, but not exclusive of, delivery, and which may also include activities incidental to such delivery and/or pickup, such as delivery, drop off, and waiting time; 2, performed from a facility or facilities established before opening of bids or, if it was established after bid opening, may not be dedicated exclusively, or nearly so, to the performance of a covered contract; and 3, associated with a manufacturing facility whose materials, articles, supplies, or equipment may not be located on the primary or secondary construction site.
Requirements effective by ‘operation of law’
The rule changes also make the updated requirements effective by “operation of law.” This means that, even if an agency fails to include required Davis-Bacon clauses in a contract, contractors are still required to pay prevailing wages. Thus, contractors may have to pay back wages to workers on such projects even when the contracting agency failed to include a Davis-Bacon contract clause or wage determination in the contract. To alleviate the financial strain this could place on contractors, the department is also adopting regulations that require the contracting agency to reimburse contractors for back wages they must pay to their employees due to the contracting agency’s failure to include the appropriate contract clause or wage determination in the contract.
Expansion of ‘prime contractor’ definition
The DOL also defined “the term ‘prime contractor’ (to) mean any person or entity that enters into a contract with an agency. For the purposes of the labor standards provisions of any of the laws referenced …, the term prime contractor also includes the controlling shareholders or members of any entity holding a prime contract, the joint venturers or partners in any joint venture or partnership holding a prime contract, and any contractor (e.g., a general contractor) that has been delegated the responsibility for overseeing all or substantially all of the construction anticipated by the prime contract. For the purposes of the provisions…, any such related entities holding different prime contracts are considered to be the same prime contractor.”
This change raises concerns that owners of a prime contractor could be held liable for revised Davis-Bacon violations.
Subcontractors liable for sub-tier subcontractors
The new rules also make upper-tier subcontractors liable for failures by lower-tier subcontractors to pay prevailing wages required by Davis-Bacon. The DOL explained that this change “is intended to place liability not only on the lower-tier subcontractor that is directly employing the worker who did not receive required wages but also on the upper-tier subcontractors that may have disregarded their obligations to be responsible for compliance.”
This responsibility requires upper-tier subcontractors to pay back wages on behalf of their lower-tier subcontractors and subjects upper-tier subcontractors to debarment in appropriate circumstances (i.e., where the lower-tier subcontractor’s violation reflects a disregard of obligations by the upper-tier subcontractor to workers of their subcontractors).
Annualization of fringe benefits
The updates codify the requirement to engage in “annualization” of fringe benefit contributions. According to the DOL, the requirement “prohibits contractors from using fringe benefit plan contributions attributable to work on private projects to meet their prevailing wage obligation.”
The final rule includes an anti-retaliation provision to increase enforcement and compliance and give workers additional remedies, including reinstatement of employment, front pay, back pay, interest, and damages. Also, updates apply to the standard Davis-Bacon posters, including anti-retaliation information.
Contractors with questions about the changes should consult with an attorney experienced in Davis-Bacon rules, prevailing wage, and public procurements.
Chris Slottee and Paige Spratt are Schwabe, Williamson & Wyatt shareholders.
This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.