Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On August 8, 2023, the U.S. Department of Labor published its final rule, calling for the most sweeping revisions to the rules governing Davis-Bacon Act (DBA) enforcement since the Reagan administration’s 1982 reforms.
As previously reported in connection with the Notice of Proposed Rulemaking preceding the final rule, the newly issued rule was expected to make many significant changes to longstanding policies under the DBA. Now that the final rule has been published, those expectations have come true, and the new rule is widely expected to impose higher wage rates on most DBA-covered construction projects.
Space limitations do not permit a listing of every impactful change in the new rule, but contractors intending to perform Davis-Bacon-covered work are advised to review the summaries of the final rule posted on the Department’s website. The following is a non-exclusive list of significant changes adopted by the new rule:
Returning to the discredited 30% rule. The DOL’s final rule restores the 30% rule predating the Reagan reforms, by redefining the word “prevailing” to refer to wage rates paid to just 30% of workers, and declaring that “weighted average” wage rates are somehow undesirable outcomes. As a result of this change and other changes described below, though unions represent less than 12% of construction workers nationally, upcoming DOL wage determinations are expected to declare union wage scales to be “prevailing” in a substantial majority of civil subdivisions throughout the country.
Adopting BLS wage escalators, while refusing to adopt BLS’s scientific wage survey methods. The final rule makes no change to the voluntary, unscientific wage survey process that so often has led to anomalous results. But the final rule for the first time adopts Bureau of Labor Statistics (BLS) wage escalators (the Employment Cost Index) every three years, without accepting the underlying BLS wage data collection methods, leading to further inflation of Davis-Bacon wage rates.
Undoing the separation between rural and urban wage rates. Another Reagan-era reform was to eliminate the prior practice of counting together urban and rural wage rates in DOL wage surveys, which not surprisingly resulted in urban wages being overcounted as prevailing in smaller rural areas. The final rule returns to the inflationary pre-1982 policy.
Expanding the geographic scope of wage determinations. The text of the DBA requires the Department to determine prevailing wages “in the civil subdivision of the State in which the work is to be performed.” But the final rule in numerous ways increases the likelihood of multi-county and even statewide wage determinations, resulting in higher wages from many miles away being wrongly declared “prevailing” in local civil subdivisions.
Redefining the “single wage” factor in counting percentages. The new rule further tilts wage surveys in favor of union wage rates, because collective bargaining agreements more often set a uniform wage for an entire group of workers. The final rule now declares that “functionally equivalent” rates can be counted together—overruling the Department’s own Administrative Review Board (ARB) ruling to the contrary—allowing the Department to find union rates more often to be “prevailing.”
Adopting state prevailing wage rates. As noted above, some states have set their own prevailing wage rates for their state-funded construction projects. Some of these states use different methods of setting their wages, which may or may not be compatible with federal wage determinations. The final rule allows the Department to incorporate certain state wage determinations into the federal survey process.
Adding new classifications (conformances) without agency or contractor input or wage survey data. The final rule fills in “gaps” in the wage survey process by adding new classifications via a process called “conformance,” without waiting for requests from interested parties, and without any surveyed wage data. This new process raises new concerns over arbitrary assignment of wage rates, without adequate industry input.
Expanding site of the work. The DBA expressly states that its coverage is limited to construction performed at the “site of the work.” Numerous court decisions during the 1990s rejected DOL efforts to expand the scope of DBA coverage to pre-fabrication activities away from the construction site or transportation to and from the site. The final rule reopens this previously settled issue by “incrementally” expanding the definition of the construction “site” and by expanding coverage to various types of delivery drivers. However, the final rule states that the covered site of the work does not include materials or prefabricated component parts such as prefabricated housing components.
Expanding types of activities constituting “construction.” The final rule expands the types of work that will be deemed to be covered by DBA requirements, to expressly include installation of “green” equipment in public buildings or public works (defined as including installation of solar panels, wind turbines, broadband, and electric car chargers) and to include portions of public buildings under construction and demolition as well as specialized categories of workers not previously considered trades workers, such as certain surveyors.
Holding contractors responsible without notice of DBA requirements. Until now, contractors have not been held responsible for DBA compliance unless they were properly notified of DBA’s application to a project via contract clauses. The final rule imposes DBA requirements “by operation of law,” increasing the risk of violation without any notice to contractors.
Expanding DOL’s debarment and withholding powers. The final rule applies the same (easier) debarment standard—“disregard of obligations —for both DBA projects and projects performed under the “Related Acts.” In addition, the final rule expands the DOL’s powers to withhold funds from contractors engaged in multiple federal construction projects, and expands the Department’s ability to hold affiliated entities responsible for transgressions of a prime contractor.
Adding “anti-retaliation” provisions. Contractors that retaliate against workers who complain of prevailing wage violations will now be penalized, which will likely result in claims against contractors.
Adding fringe benefit annualization requirements to the regulations and codifying administrative cost restrictions. The DOL has long required most fringe benefits to be “annualized,” reducing the credit non-union contractors are allowed to take when their employees receive some of the benefits on private work. The annualization requirement did not previously appear in the regulations, which is now changing. Additionally, the final rule implements a new requirement that contractors obtain DOL review and approval of existing fringe benefits meeting the DOL’s longstanding criteria, within 18 months after the published rule. This process could dramatically increase regulatory burdens on contractors and the DOL itself. The final rule also addresses new rules governing administrative costs for fringe benefit plans.
Consolidating treatment of apprenticeship under the DBA. The DOL’s final rule reorganizes and modifies instructions for the proper crediting of contributions to apprenticeship programs, and changes the ratio and wage requirements for reciprocally approved programs in different jurisdictions.
Clarifying when multiple wage determinations are required in a contract. The final rule revises the DOL’s rules on “substantial” or “incidental” work performed in different categories of construction as well as its rules addressing when multiple wage determinations are required to segregate, for example, building construction from residential construction.
Increased recordkeeping requirements. The final rule requires contractors to retain all contracts, subcontracts, bids, proposals, amendments, modifications, and extensions, in addition to the existing requirements of submitting weekly certified payrolls and back-up wage payment information already required under the DBA and Copeland Act regulations.
Issues Not Addressed
As noted above, the Department’s final rule declines to apply more scientific methods to the wage survey process, along the lines of those long employed by the DOL’s own BLS.
Another omission from the proposed rule is any substantive guidance to contractors as to the proper classification of workers under the governing wage determinations. The DOL continues to rely on unpublished union work assignments in most cases, thereby leaving non-union contractors with little or no notice of their obligations under the DBA. Though industry comments implored the Department to address this recurring issue, the final rule fails to meaningfully discuss it.
The proposed rule was criticized by the Small Business Administration and many industry groups for failing to provide realistic estimates of the regulatory burden being imposed on small businesses under the new rule. The Department’s response to these criticisms remains subject to challenge under laws protecting small businesses from arbitrary imposition of such regulatory burdens.
Effective Date of the Final Rule and What Happens Next?
The Department indicates that the new rule will take effect for most purposes 60 days after the date of publication in the Federal Register (publication is now scheduled for August 23). But if a DBA-covered construction contract is already under way prior to that date, then those aspects of the rule that would otherwise change the terms of the contract, including the applicable wage determination, would not take effect until the next applicable contract option, renewal or extension. Other aspects of the rule may also be delayed in their application, requiring careful reading of the multi-page “dates” section of the final rule.
In the meantime, construction contractors should familiarize themselves with the final rule changes and seek legal advice as to which portions of the rule apply to them, and when. It is widely expected that part or all of the final rule will be challenged in court. Littler’s Workplace Policy Institute (WPI) will continue to be actively engaged with this issue.