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 March 18, 2022, the U.S. Department of Labor (DOL) published a notice of proposed rulemaking in the Federal Register,1 calling for the most sweeping revisions to the rules governing Davis-Bacon Act (DBA) enforcement since the Reagan administration’s 1982 reforms. In the name of “modernizing” or “updating” the DBA’s enforcement, DOL has announced its intent to undo most of the Reagan reforms, while at the same time making more than 50 significant changes to Davis-Bacon enforcement. Many of these changes are causing concern among government contractors and a broad spectrum of industry groups. DOL indicates that its DBA regulations affect work totaling more than $200 billion annually involving more than 1.2 million construction workers. Public comments on the proposed DOL rules are due to be filed by May 17, 2022.
What the Davis-Bacon Act Does and How It Has Been Enforced
The DBA was passed in 1931 to require federal government construction contractors on covered public buildings and public works to pay the “prevailing wage” to laborers and mechanics performing covered work in the civil subdivision where the work is being performed.2 The stated intent of the bill sponsors was to protect higher paid workers during the Great Depression – many of whom were union workers – from out-of-state wage rate competition from contractors that were viewed as taking advantage of the extraordinary economic conditions of the 1930s. Congress and the courts vested broad discretion with the Secretary of Labor to determine the “prevailing wage” for each local area throughout the country. Davis-Bacon provisions were ultimately added to more than 70 pieces of legislation impacting government construction, known as the “Related Acts.” Twenty-eight states have enacted their own similar prevailing wage laws.
In the decades after World War II, union market share in the construction industry shrank from more than 85% to less than 14% today. But the majority of DOL’s wage determinations continued to find that union rates “prevailed” in much of the country. These anomalous outcomes led to much criticism within and outside the government, particularly as high rates of inflation occurred during the 1970s. In response, the Reagan administration enacted significant reforms of DOL’s wage survey process so that the results would more accurately reflect the prevailing wages throughout the construction industry and to avoid the inflationary impact of DOL’s survey process, particularly by eliminating the so-called “30 percent” rule (discussed below).
Even with the Reagan reforms, DOL’s wage survey process has been criticized by the Government Accountability Office, DOL’s own inspector general, and outside groups.3 The arcane rules governing worker classifications, wage rates, fringe benefits, and recordkeeping requirements have deterred many smaller construction contractors from bidding on government construction projects.
With this background in mind, it is concerning that DOL’s proposed rule does not address the systemic problems with the wage survey process but instead appears to turn back the clock to inflate wage rates on government construction above the levels that should be found to prevail based on scientific survey principles. The proposed rules also create new questions about previously settled coverage issues and generally impose new burdens on contractors with very little guidance. This article will highlight the changes that, if they become final, seem likely to have the biggest impact on government construction contractors. Space limitations do not permit discussion of every proposed change.
Highlights of DOL’s Proposed Changes
Return to the 30 percent rule. As noted above, the Reagan DOL in 1982 eliminated a rule that allowed wage rates to be found “prevailing” if voluntary wage surveys found a single wage to be paid to a mere 30 percent of the local workforce in a given trade, if no wage rate was found prevailing among a majority of the workforce. The Reagan DOL found that the 30 percent rule contributed to higher rates in wage determinations than actually prevailed, and also contributed to undesirable inflation. DOL’s proposed rule, in the name of “modernization,” seeks to restore the 30 percent rule by redefining the word “prevailing” and declaring that “weighted average” wage rates are undesirable outcomes.
Adoption of BLS wage escalators, while ignoring BLS wage survey methods. The proposed rule fails to address alternative methods of wage surveys long conducted by DOL’s Bureau of Labor Statistics (BLS), as informed economists have recommended.4 The proposed rule makes no change in its voluntary wage survey process that so often has led to anomalous results. Meanwhile, BLS employs scientific statistical sampling techniques to establish market wage rates in construction and many other industries, as required by Congress in other related contexts. Yet DOL’s proposed rule for the first time seeks to adopt 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 Reagan 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 area. Nevertheless, DOL now proposes to return to its 1970s policies.
Seeking comments on counting DBA-covered projects in future wage surveys. The Reagan DOL recognized that the proper goal in measuring the prevailing wage under the DBA was (and arguably still is) the rate prevailing on private work in the local area. For that reason, DOL stopped its previous practice of counting wages paid to workers on other federal construction projects, because such rates obviously inflated the determination of wages paid on private work. DOL’s new proposed rule does not announce an intent to undo the current standard, but leaves the issue open for comment, which could lead to yet another inflationary change in the final rule.
Redefining the “single wage” factor in counting percentages. Both the 50 percent and 30 percent counting rules favor union wage rates, because collective bargaining agreements more often set a uniform wage for an entire group of workers. But the WHD for many years altered the numbers by counting union rates that were “close” to the CBA rate as a “single” rate, until DOL’s own Administrative Review Board (ARB) rejected the practice as violating DOL’s own wage-counting rules.5 DOL’s proposed rule seeks to overturn the ARB’s decision in order to increase the likelihood of finding union rates “prevailing.”
Adopting state prevailing wage rates. As noted above, some states have set 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. DOL proposes criteria to incorporate state wage data into the federal survey process.
Expanding site of the work. The DBA expressly states that its coverage is limited to construction performed at the “site of the work.”6 Numerous court decisions during the 1990’s 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. DOL now proposes to reopen this previously settled issue by expanding the definition of the construction “site” and by expanding coverage to material supplier drivers.
Expanding types of activities constituting “construction.” DOL proposes to expand the types of work that will be deemed to be covered by DBA requirements, to expressly include installation of “green” equipment (such as installation of solar panels, wind turbines, broadband, and electric car charges) and to include portions of public buildings under construction and demolition.
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. DOL is now proposing to impose DBA requirements “by operation of law,” increasing the risk of violation without any notice to contractors.
Expanding DOL’s debarment and withholding powers. DOL proposes to apply the same (easier) debarment standard for both DBA projects and projects performed under the “Related Acts.” In addition, DOL is proposing to expand its powers to withhold funds from contractors engaged in multiple federal construction projects. Such withholding typically takes place before any hearing is held with regard to alleged violations, threatening the due process rights of contractors.
Adding “anti-retaliation” provisions. DOL is proposing to add new provisions penalizing contractors that retaliate against workers who complain of prevailing wage violations. This change likely would expand the number of claims against contractors.
Adding new classifications (conformances) without agency or contractor input or wage survey data. DOL is proposing to fill in “gaps” in the wage survey process by adding new classifications via conformance, without waiting for requests from interested parties.
Adding fringe benefit annualization requirements to the regulations and codifying administrative costs restrictions. DOL has long required most fringe benefits to be “annualized,” reducing the credit 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 DOL now proposes to change. In addition, DOL is proposing a new requirement that contractors obtain DOL review and approval of existing fringe benefits meeting DOL’s longstanding criteria, within 18 months after the published rule. This process could dramatically increase regulatory burdens on contractors and DOL itself. DOL is also proposing new rules governing administrative costs for fringe benefit plans.
Consolidating treatment of apprenticeship under the DBA. In what DOL claims to be “non-substantive” rewrites of the governing apprenticeship regulations, DOL proposes to reorganize them to address in one place the proper crediting of contributions to apprenticeship programs. It is not clear whether changes in wording from the previous guidance will have impacts on contractors employing apprentices.
Clarifying when multiple wage determinations are required in a contract. DOL is proposing to revise its 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. This issue has generated a number of opinion letters, which DOL purports to be maintaining, but comment has been requested on whether this practice should continue.
Increased recordkeeping requirements. DOL proposes to require contractors to retain all contracts, subcontracts, bids, proposals, amendments, modifications, and extensions, in addition to the existing requirements of certified payrolls and back-up wage payment information already required under the DBA and Copeland Act regulations.
Issues Not Addressed
As discussed above, space does not permit review of all of the dozens of proposed changes to the DOL DBA regulations. More questions and concerns certainly will be fleshed out in the public comments due by May 17, 2022. It should be noted, however, some important concerns about DOL’s enforcement of the DBA do not appear to be addressed in the proposed rule changes.
First, as noted above, DOL nowhere discusses the need to apply more scientific methods to the wage survey process, along the lines of those long employed by DOL’s own BLS. Statistical weighting of survey data is a key feature of BLS surveys, which the WHD has not addressed in its proposed rulemaking.
Another omission from the proposed rule is any substantive guidance to contractors as to the proper classification of workers under the governing wage determinations. 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 DOL’s Field Operations Handbook requires agency officials to conduct area practice surveys to determine which of several disputed wage classifications controls the work, the guidelines are inconsistently applied, and contractors are often left without any guidance until they receive a complaint or DOL investigatory findings, resulting in costly litigation.
What Happens Now?
Construction contractors should familiarize themselves with the proposed rule changes and should make their voices heard – individually or through their industry trade association(s). Littler’s Workplace Policy Institute (WPI) will be assisting with comments for its clients.
There is reason for concern that DOL’s proposed return to discredited policies of the 1970s will result in inflated wage rates that are inconsistent with the DBA and will exacerbate the current inflation in the U.S. economy. It can only be hoped that DOL will provide additional guidance and scale back some of its more extreme proposed changes in response to comments from government construction contractors.
1 87 Fed. Reg. 15698 (Mar. 18, 2022).
2 40 U.S.C. § 3142.
3 Dep’t of Labor, Office of the Inspector General, 04-19-001-15-001, Better Strategies Are Needed to Improve the Timeliness and Accuracy of Davis-Bacon Act Prevailing Wage Rates (2019); Gov’t Accountability Office, GAO-11-152, Davis-Bacon Act: Methodological Changes Needed to Improve Wage Survey (2011).
4 See James Sherk, Labor Department Can Create Jobs by Calculating Davis–Bacon Rates More Accurately, Heritage Found. (Jan. 21, 2017).
5 Mistick Construction, ARB No. 04-051 (Mar. 31, 2006).
6 40 U.S.C. § 3142(a); see also 29 C.F.R. § 5.2(j).