Substantial Changes to Federal Construction Contracts as a Result of DOL’s Davis-Bacon Act Overhaul

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Since the Bipartisan Infrastructure Law (BIL) was passed, approximately $6.23 billion in federal funding has been announced for Louisiana and over $15 billion for Texas. Without a doubt, these appropriations have the potential for a lasting impact on infrastructure in these states and will present substantial opportunities for our regional construction industry. As with most federally funded construction projects, much of the funding authorized by the BIL will require payment of Davis-Bacon prevailing wages. Therefore, if you are a contractor or subcontractor and you are planning on bidding on one of these projects (or any other federally funded project), you should be aware, on August 23, 2023 the U.S. Department of Labor promulgated new rules that substantially overhaul the Davis-Bacon Act prevailing wage requirements.[1] The new rules are set to go in effect October 23, 2023.[2]

Brief Overview of Davis-Bacon

The Davis-Bacon Act of 1931 requires contractors and subcontractors working on federally funded jobs to pay their laborers wages and benefits no less than what others locally pay their workers for similar projects. This is called the “prevailing” wage. A laborer’s prevailing wage is “based on the wages the Secretary of Labor determines to be prevailing for the corresponding classes of laborers and mechanics employed on projects of a character similar to the contract work” in that local area (40 U.S.C. 3142).

Failure of a contractor to pay or accurately report wages can result in not only financial liability but also debarment of up to 3 years from federal contracts. Considering last year the DOL announced that it was seeking to add 100 additional investigators to its team, it is fair to say the DOL will be taking its enforcement responsibilities seriously in the upcoming years.

Return to 30% Rule and Other Significant Updates to Davis Bacon Rules and Regulations

One of the biggest changes to the Davis-Bacon rules is DOL’s reversion back to the prior definition of “prevailing wages” that was in effect 40 years ago. Currently, if there is no single prevailing wage for the majority of workers in a specific classification in a given area, the DOL applies a weighted average to determine the prevailing wage (prevailing wage = the total wages for a specific classification of workers in an area divided by the number of workers).

Beginning October 23, 2023, the prevailing wage will be determined by the 30% rule. The 30% rule basically states if there is no single prevailing wage for the majority of workers, the prevailing wage is determined according to the wages paid to at least 30% of workers within a specific classification and within a particular locale. In plain English, the update will make the prevailing wage equivalent to the wage paid to at least 30% of workers in a given trade in a given locality, rather than the prevailing wage of 50% of workers. As a result, it is expected that prevailing wages will increase across the board for approximately 1.2 million construction workers across America performing work under federally funded projects. Without a doubt, contractors will face challenges in complying with the new standard and must take these increases into account when bidding on prevailing wage projects.

While the 30% rule represents one of the most significant updates, the August 23 rules span hundreds of pages of changes including definitions, recordkeeping, wage rate calculations, fringe benefits, wage determinations, and scope of coverage. The final rule adds an “operation-of-law” provision, meaning even if the contract doesn’t mention Davis-Bacon or provide wage determination, a contractor can still be held responsible for compliance. There are also new “anti-retaliation” provisions and expansion of the DOL’s debarment and withholding powers. There are provisions that make it clear that a prime contractor can be held responsible for a lower-tiered subcontractor’s violations. This article cannot possibly cover all the changes, but what is certain is the already complicated Davis-Bacon rules have become more complicated and contractors are bearing more of the risk.

Recommendations

With these sweeping changes on the horizon, it is imperative that an employer intending to contract or subcontract on a federal job understand these changes and protect himself.[3] Additionally, we recommend that you:

Review the project documents that you plan to bid on, specifically the contract and any terms and conditions, to determine if it is covered by the Davis Bacon Act. If so, make sure you have the correct wage determination for the project and account in your bid for the required wages and fringe benefits. Classifying each worker into the correct wage determination category is critical at this stage.
Make sure any benefit plan you use to satisfy fringe benefit obligations under the Davis Bacon Act complies with ERISA.
Provide employees with job assignments and monitor them to make sure they are performing in the designated job categories. If an employee is working in multiple job categories, make sure that you have a system to track work in each category.
Plan and record as if you know you are going to be audited. Use your legal counsel to perform internal audits to make sure you are in compliance.

At Laperouse, APLC, we are here to help you navigate these new waters whether it be reviewing your contract document, auditing for compliance, or assisting with a DOL investigation. If you have any questions, please contact us.

End of Advisory Bulletin

Reproduction of this advisory bulletin, in whole or in part, may not be done without the prior permission of Laperouse, APLC and acknowledgment of its source and copyright. This publication is not intended as legal advice. Rather, its purpose is to inform clients about legal matters of current interest. It is advised to seek professional counsel prior to acting on this information.

[1] The newly promulgated rules can be found by following this link, “Updating the Davis-Bacon and Related Acts Regulations.”

[2] It is understood that several groups intend to institute litigation in opposition to the rule, but currently we are unaware of any court issuing an injunction to prohibit these rules from going into effect.

[3] The following is a link provided by DOL comparing the current rules to the new rules: https://www.dol.gov/agencies/whd/government-contracts/construction/rulemaking-davis-bacon/dba-comparison-charts.