Publicly funded construction projects can offer valuable
opportunities for contractors. However, if you're interested in such a job, be
sure to fully understand the wage requirements before bidding.
The federal Davis-Bacon Act (DBA), along with similar state laws
often called "little DBAs," generally requires contractors on covered projects
to pay laborers and mechanics locally prevailing wages and fringe benefits.
Federal regulations that took effect in 2023 changed several important rules,
though a later court order temporarily blocked certain provisions. Let's review
the essentials.
Prevailing wage calculations
The U.S. Department of Labor (DOL) determines prevailing wage
rates for worker classifications in particular geographic areas and types of
construction. For applicable jobs, you must identify the wage determination
incorporated into the contract, properly classify workers, and pay at least the
applicable wage and fringe benefit rates.
Under the methodology generally used before the 2023 regulations, the DOL first
determined whether more than 50% of workers in a classification received the
same wage rate. If they did, that rate was considered prevailing. Otherwise,
the DOL generally used a weighted average.
For wage determinations issued or revised under the 2023
regulations, the DOL reinstated a method used before 1982. That is, it still
begins by determining whether most workers receive the same rate. If not, the
DOL now uses a rate received by at
least 30% of workers in the classification. If no rate meets that
threshold, it uses a weighted average. This methodology may produce higher
prevailing wages for some classifications and locations.
Fringe benefit accounting
A prevailing wage generally consists of a basic hourly rate and
a fringe benefit amount. You may satisfy the fringe benefit requirement by
paying cash, providing qualifying benefits or using a combination of the two.
Creditable benefits may include:
- Health,
long-term disability or life insurance,
- A retirement
plan, and
- Certain paid
leave.
In some cases, providing benefits can be more cost-effective
than paying the entire fringe amount in cash.
The 2023 regulations also codified the DOL's long-standing
annualization principle. Subject to limited exceptions, the hourly credit for
benefit plan contributions is calculated based on all hours an employee works
during the year — including hours on both DBA-covered and noncovered projects.
As a result, you could receive less credit than expected for
benefits provided to an employee who divides time between public and private
work. And you may need to make up the difference through additional benefits or
cash wages.
Covered projects and workers
The regulations address DBA coverage beyond work performed at a
project's primary construction site. Depending on the circumstances, coverage
may extend to certain secondary sites, including locations where prefabricated
or modular components are produced specifically for a covered job.
The rules also address energy infrastructure projects, work
involving portions of buildings, and certain demolition, remediation and
removal activities. In addition, the DBA rules may apply to some flaggers,
survey crew members and other employees working away from the primary site if
their duties are sufficiently connected to a covered job.
Bottom line: Don't assume that an employee falls outside the DBA
rules merely because the person's work takes place off-site or involves
transportation, surveying or support services. Transportation work requires a
particularly careful, fact-specific analysis.
Important regulatory update
In June 2024, a federal district court issued a nationwide
preliminary injunction preventing the DOL from implementing or enforcing three
portions of the 2023 regulations. The affected provisions address:
- The
distinction between materials suppliers and contractors or subcontractors,
- DBA coverage
of contractor-employed delivery truck drivers who spend more than minimal
time at a covered worksite, and
- The automatic
application of DBA requirements to covered contracts when the government
contracting agency mistakenly omits the required clauses.
The remaining provisions continue to apply. Although the
injunction remains in effect as of this writing, consult current DOL guidance
and, if necessary, legal counsel when evaluating suppliers, delivery drivers or
contracts that don't expressly include DBA requirements.
Potential cost of noncompliance
The consequences of noncompliance may include liability for
unpaid wages and fringe benefits, withholding of contract payments, contract
termination, and debarment from future federal contracts. Additional penalties
may apply under related laws or in cases involving falsified certified
payrolls, false statements or other misconduct.
The regulations also prohibit retaliation against workers who
report possible violations or participate in an investigation. When pursuing
state- or locally funded work, you should separately determine whether the
project is subject to another prevailing-wage law. State and local requirements
may differ significantly from federal rules.
Build compliance into the bid
Keep DBA compliance in mind when considering federally funded
construction projects. Evaluating the requirements early can help you prepare
more reliable bids, establish appropriate payroll and recordkeeping procedures,
and reduce costly surprises. Contact us for help evaluating all the financial
details.
