Friday, March 11, 2022: Biden Proposal to Update Davis-Bacon Is Designed To Increase Prevailing Wages for Workers on Public Construction Projects
The Wage-Hour Division of the U.S. Department of Labor (“WHD”) announced its intention to file a Notice of Proposed Rulemaking that will overhaul the regulations implementing the “Davis-Bacon and Related Acts.” The proposed changes, as currently written, seek to update the calculation of local prevailing wages and fringe benefits for employees working on federally-funded construction projects. Once the Notice of Proposed Rulemaking is published in the Federal Register (expected sometime this week), interested parties will have 60 days to publicly comment on the proposals.
Background Note: The Davis-Bacon Act, as amended, requires contractors and subcontractors performing on federally-funded or federally-assisted contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works to pay their laborers and mechanics no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. Congress has expanded these requirements by identifying numerous “Related Act” statutes to which the Davis-Bacon Act’s prevailing wage Rules apply. Currently, the WHD calculates “locally prevailing wages and fringe benefits” via a survey process and sets the prevailing rate if more than 50% of workers in the geographic area are paid at that amount. If the WHD fails to receive sufficient responses to its survey, the WHD averages the rates for a particular job in a specific area and uses the resulting “blended rate” as an alternative to the majority rate.
The proposed updates, which will have the practical effect of increasing the prevailing wage rate and increasing labor costs for construction contractors, can be summarized as follows:
- The WHD proposes a new methodology that allows the WHD Administrator to adopt state or local wage determinations as the prevailing wage rate when certain criteria are met. This allows the WHD to rely on state and local wage determinations which may be more current than those the WHD commissions.
- The WHD also seeks to allow the WHD to count “functionally equivalent” wage rates together to determine the prevailing wage if a CBA or written policy of the contractor can explain the variation. [Extrapolating and interpolating from wage rates above and below the true wage rate is almost always an erroneous and statistically created Frankenstein number in the same way that just because it is 40 degrees in Boston and 80 degrees in San Jose does not mean it is likely 60 degrees in St. Louis.]
- The WHD would return to the definition of “prevailing wage” used from 1935 to 1983 (the so-called “30% rule”) using a three-step process:
- First, adopt the majority rate if there is one.
- Second, if no majority rate, then adopt the rate paid to the greatest number of workers, provided it was paid to at least 30% of workers.
- Finally, if there is no rate that satisfies either the first or second step, then use a weighted average of the rates reported in the survey for a particular job in a specific area.
Thus, the practical effect is that more prevailing wages will be set by the top 30% of earners (which will be the union wage earners in city-center construction projects) since there is rarely a majority rate. Thus, defaulting to the average of all wage rates in the area will give way far more often to use of the 30% Rule than under the 50% Rule.
- The WHD also intends to change the scope of data it will consider to identify the prevailing wage in a given area by relying on wages paid by county, instead of by “city, town, village, or over civil subdivision of the State” that it currently uses. Additionally, the WHD intends to use surrounding counties should data in the specific county be insufficient.
- The WHD seeks to clarify the definition of “type of construction” to provide examples of work that would fall under the Davis-Bacon Act regulations. These examples (building, residential, heavy, and highway) would more closely mirror the examples the WHD currently uses in general wage determinations it regularly issues. Thus, WHD hopes to impose generalized terms to seek to reduce the number of construction projects which would otherwise fall outside of Davis-Bacon.
- The WHD also seeks comment from the public whether to expand the use of federal project survey data to determine the prevailing wage. Currently, the use of survey data is limited to instances where there is insufficient wage data to determine the prevailing wage.
- The proposed regulation would update how the WHD receives requests for project wage determinations to account for technological advancements, likely resulting in more wage determinations being issued on projects.
- The proposal also expressly provides a mechanism for the WHD to better update certain non-collectively bargained prevailing wage rates on a more regular basis. This reform seeks to address the current WHD budget reality that almost 46% of the nonunion-prevailing wage rates the WHD publishes cannot be updated more frequently than every 10 years, or more.
- The proposal refines and adds definitions seeking to clarify what projects and entities are subject to the Davis-Bacon and Related Act Rules.
- The proposal also revises regulations to clarify and supplement recordkeeping requirements for contractors, including preservation of payroll and other basic records, including worker contact information.
- The proposal would change contractual “flow down” language prime contractors must embed in contracts with lower-tier contractors supporting the federal contract to clarify responsibility for non-compliance and to note that the WHD could potentially debar those contractors which disregard their responsibility to comply with prevailing wage requirements.
- The WHD seeks to expand its authority to obtain certified payrolls by codifying its ability to obtain payrolls even in the absence of an investigation or other compliance action.
- The WHD proposes alterations to funding of fringe benefit plans and calculating the amount of credit a contractor may receive for contributing to a fringe benefit plan.
- Finally, the proposed regulatory changes seek to strengthen the remedial capabilities of the WHD by adding references to monetary relief and calculation of interest for restitution, adding new anti-retaliation contract clauses, and modifying notices for debarment proceedings.
The proposed changes will likely see a net increase in worker wage rates that will impact a construction contractor’s operating expenses.