If your construction business plans to bid on a publicly funded project, it’s important to understand your obligations under prevailing wage laws. This includes the federal Davis-Bacon Act (DBA) and the “little DBAs” adopted in most states.
These laws require contractors to pay most workers on public projects wages that are comparable to wages for similar work in the same geographical area. So, to prepare accurate bids on such jobs, it’s critical to get a handle on what your actual labor costs will be.
It’s also important to read up on the latest rules. Recently, the U.S. Department of Labor (DOL) overhauled its regulations governing federally funded projects subject to the DBA. The new rules, which apply to contracts entered into after October 23, 2023, are expected to increase wages on most jobs and impose harsher consequences for noncompliance.
Determining prevailing wages
Under previous rules, contractors would determine the prevailing wage for a particular worker classification by ascertaining whether most of those workers — that is, more than 50% — received the same wage rate. If so, that rate would be the prevailing wage. If not, the prevailing wage would be based on a weighted average of all wage rates paid to those workers.
The new rules reinstate the method used before 1982 for determining the prevailing wage. Under this method, contractors still begin by ascertaining whether most workers in a classification receive the same wage rate. If they don’t, the prevailing wage is based on the rate received by at least 30% of those workers. If no wage rate is received by at least 30% of workers, then the prevailing wage is based on a weighted average of all wage rates paid to those workers.
Ultimately, the new rules are expected to increase prevailing wages in many cases.
Calculating fringe benefits
Generally, prevailing wage rates consist of a base rate paid in cash and a fringe benefit amount. Contractors have the option of paying fringe benefits in cash or by applying fringe benefit credits for contributions to “bona fide” benefit plans — such as health and life insurance, long-term disability plans, retirement plans, vacation days or other paid time off. Often, meeting the fringe benefit obligation by contributing to benefit plans is more cost-effective than paying them in cash.
The new rules codify a long-standing “annualization” principle. Under this principle, the DOL requires DBA credits for benefit plan contributions (with certain exceptions) to be based on the effective annual rate of contributions for all hours an employee works during the year on both DBA and non-DBA projects. The impact of this requirement, in many cases, will be to reduce fringe benefit credits on DBA projects, requiring the contractor to make up the difference with higher cash payments.
Expansion of DBA coverage
The new rules expand the reach of DBA coverage in several ways. For example, the act extends to certain secondary construction sites, such as pre-engineering or modular construction sites, related to DBA projects. It also applies to energy infrastructure projects; jobs involving portions of a building; and certain demolition, remediation and removal activities.
In addition, the rules extend coverage to certain off-site flaggers, truck drivers and survey crew members. And they narrow the definition of “material suppliers” who are exempt from DBA requirements. Material suppliers who also perform construction work at a DBA site are subject to the prevailing wage requirements.
Handle with care
Be sure to understand your construction company’s DBA obligations before undertaking a federally funded project. The consequences of noncompliance can include:
- Contract termination,
- Debarment (exclusion from future government work), and
- Withholding of contract payments (even on unrelated federal jobs).
The new rules also contain antiretaliation protections for whistleblowers who report suspect payment practices. And for any projects funded by a state government, determine whether a “little DBA” is in place — its rules may have been updated to conform to the DOL’s new regs. Consult a qualified attorney when making these assessments.