Compliance News | May 26, 2022

Construction Employers: Changes to Davis-Bacon Act Proposed

The DOL has issued a proposed rule that would amend the regulations issued under the Davis-Bacon Act and Related Acts.

The DOL intends that its proposal — the first comprehensive regulatory review in nearly 40 years — would speed up prevailing wage updates, creating several efficiencies in the current system and ensuring prevailing wage rates keep up with actual wages.

Steel Worker

Background

The Davis-Bacon Act of 1931 (DBA) requires government contractors and subcontractors that work on federally funded construction contracts in excess of $2,000 to pay their employees specified local prevailing wages and fringe benefits set by the DOL. The intent of the DBA was to protect workers by preventing contractors from basing their bids on wages lower than those prevailing in the area. Violations of these requirements may result in withheld contract payments, contract termination, liability and debarment from future contracts for up to three years.

While there is one federal DBA that regulates organizations contracting with the U.S. federal government, many states and localities have adopted “mini Davis-Bacon” laws modeled after the federal law for their geographies. These mini laws are regulated by the specific geography’s Department of Labor to enforce the applicable wage and fringe benefit rates. There are currently over 70 such laws across the U.S. that protect an estimated 1.2 million construction workers and represent approximately $217B in annual federal spending.

The DOL revised its guidance in the early 1980s to address concerns that the DOL’s wage survey process should more accurately reflect prevailing wages across the construction industry. Those revisions included changing the definition of “prevailing wage” to eliminate the “30 percent” rule. That rule stated that if there is no prevailing wage rate for a majority of workers in a particular job classification, then the rate is considered prevailing if it is paid to the greatest number of workers so long as that number is at least 30 percent of the workers.

The proposed rule

The DOL published a notice of proposed rulemaking on March 18, 2022 and included several updates to the rules governing the DBA:

  • Prevailing wage definition. The DOL recently determined that the elimination of the 30 percent rule noted above was mistaken or ultimately resulted in outcomes “that are increasingly in tension with” the DBA. The DOL proposed reincorporating the 30 percent rule into its definition of “prevailing wage.” The three step-process proposed by the DOL would define prevailing wage as:
    1. Any wage rate paid to a majority of the workers
    2. If no such majority rate exists, then the rate paid to the greatest number of workers, so long as that number is at least 30 percent of the workers
    3. If there is no rate that is paid to at least 30 percent of workers, the weighted average rate
  • Contract language. The proposed rule would allow DBA contract clauses and wage determinations to be effective by “operation of law,” regardless of whether they are expressly included in the covered contract. The DOL would also be permitted to enforce contract clauses and appropriate wage determinations retroactive to the beginning of the contract, even if the contract clauses and appropriate wage determinations were mistakenly omitted from the contract.
  • Three-year record retention. Contractors would be required to maintain regular payroll and fringe benefit records, contracts, subcontracts and other related documents for three years after the work on the contract is completed.
  • Adoption of state and local wages. The DOL could adopt wage determinations from state and local authorities when certain conditions are met. This change is aimed at improving the speed and accuracy of new wage determinations.
  • Definitional updates. Several definitions would be updated by the proposed rule. For instance, “area” would include projects that span multiple counties and to address highway projects.
  • Worker protections. Workers that raise concerns about DBA compliance would be protected by new anti-retaliation provisions. In addition, contract payments may be withheld from contractors failing to pay the prevailing wages to their workers.

Implications for construction industry employers

It is anticipated that there will be numerous public comments on the proposed regulations, which were due by May 17. If the final rule is adopted as proposed, employers subject to the DBA should:

  • Conduct a thorough review of all contracts to determine if they are covered by the DBA. This may also require contacting and coordinating with the contracting officer.
  • Ensure DBA contract compliance and that the appropriate wage rates are assigned for each job classification.
  • Review recordkeeping and payroll processes for accuracy and record retention.
  • Ensure all subcontractors are aware of and meet the new requirements.
  • Ensure applicable subcontracts contain the appropriate DBA contract provisions.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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