The U.S. Department of Labor (DOL) announced it has finalized its new rule relating to the Davis-Bacon Act (DBA). This rule goes into effect 60 days after it is officially published in the Federal Register. The final rule will have far-reaching consequences, including its potential impact on those seeking a "bonus credit" under the Inflation Reduction Act (IRA).
Background on the DBA's relationship to the IRA tax incentives can be found in Holland & Knight's previous alert, "The Inflation Reduction Act's Labor Rules for Energy Tax Credits and Carbon Capture," Sept. 29, 2022. Background on guidance issued by the U.S. Department of Treasury and Internal Revenue Service on the IRA's labor provisions is available in Holland & Knight's previous alert, "60-Day Clock Is Ticking on Prevailing Wage, Apprenticeship Requirement," Dec. 21. 2022.
Higher Prevailing Wages Likely
At first glance, the final rule appears to embrace most of the substantial changes from the proposed rule. Those changes include several that will likely result in higher prevailing wages, including:
- Importantly, the final rule lowers the threshold for setting the prevailing wage. The rule reduces from 50 percent to 30 percent of workers to be paid a particular wage for that to become the prevailing wage. This will likely raise prevailing wages in certain locations where the union pay scale is less prevalent.
- The same process is used for fringe benefits: If 30 percent or more of workers receive a certain fringe benefit (rather than 50 percent), then that is the prevailing fringe wage rate.
- Prevailing wages can be calculated on a multicounty or highway-district basis, rather than on a county basis.
- The final rule eliminates the prohibition on mixing and matching rural and metropolitan data to determine wage rates.
- Prevailing wages as determined by a state or local government can be adopted by DOL in certain circumstances.
Updating the Prevailing Wage
Changes to the final rule regarding how and when prevailing wages are updated include the following:
- The final rule expressly adopts DOL's guidance that prevailing wages need to be updated whenever a contract is extended or is modified to include newly scoped substantial construction work.
- The final rule requires annual prevailing-wage updates to long-term, indefinite contracts, such as indefinite delivery/indefinite quantity (IDIQ) contracts, schedule contracts, and long-term operations and maintenance contracts. Task orders under such contracts need to include the most recent prevailing wage.
- The final rule provides that prevailing wages are deemed to be included by operation of law even if not included by the contracting agency. Consistent with current practice, however, contractors are entitled to compensation for retroactively required prevailing wages.
DBA Coverage Expansion
The final rule expands DBA coverage in a number of ways, including:
- The final rule expressly includes certain new-technology projects as DBA-covered work: solar panels, wind turbines, broadband installation and installation of electric car chargers. The addition of these categories is relevant under the IRA.
- The final rule codifies DOL's guidance that demolition work is covered when it is done in order to clear the way for new construction.
- The final rule clarifies that certain prefabrication work is DBA-covered.
- The final rule makes liable for underpaid prevailing wages not only the prime contractor itself, but also the controlling shareholders or members of any entity holding a prime contract, or participants or partners of any joint venture (JV) or partnership holding the contract.
Whistleblower Protection
The final rule contains a new anti-retaliation provision. Whistleblowers who are retaliated against are entitled to "make-whole relief," including reinstatement, back pay and compensatory damages – which in other contexts DOL has argued should include damages for emotional distress and similar relief.
Conclusion
Holland & Knight will continue to monitor these developments and will provide further analysis on changes to the Davis-Bacon Act, including how those changes impact IRA tax incentives.
