Companies that enter into covered contracts or receive awards that are subject to the Davis-Bacon Act, or a Davis-Bacon Related Act, will have new regulations to abide by after October 22, 2023. In what is the first major revision to the Davis-Bacon regulations in forty years, the U.S. Department of Labor made several key changes, including expanding the scope of coverage, modifying the methodology used for calculating prevailing wages and fringe benefits, and outlining when secondary work sites will be required to comply with labor standard obligations. With prevailing wage mandates being incorporated into significant pieces of legislation like the Bipartisan Infrastructure Law and the Inflation Reduction Act, and more companies voluntarily agreeing to comply with Davis-Bacon & Related Acts' requirements in hopes of securing federal grants or loans, understanding how the new regulations impact business operations is paramount.
Davis-Bacon Act & Related Acts Obligations
The Davis-Bacon Act ("DBA") and all Davis-Bacon Related Acts ("DBRAs") apply to contractors and subcontractors performing on federally funded or assisted awards in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works. More specifically, the DBA and the DBRAs require employers to pay their laborers and mechanics working on their covered projects no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area (referred to as "Davis-Bacon labor standards"). Examples of DBRAs include the Bipartisan Infrastructure Law, the Inflation Reduction Act, the Federal Aid Highway Acts, the Housing and Community Development Act, and the Federal Water Pollution Control Act.
The U.S. Department of Labor ("DOL") is responsible for determining prevailing wages, issuing regulations and standards to be observed by federal agencies that award or fund projects subject to Davis-Bacon labor standards, and overseeing consistent enforcement of the Davis-Bacon labor standards.
Adding even more complexity, for prime contracts in excess of $100,000, contractors and subcontractors must also, under the provisions of the Contract Work Hours and Safety Standards Act, as amended, pay laborers and mechanics, including guards and watchmen, at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. The overtime provisions of the Fair Labor Standards Act may also apply to DBA-covered contracts.
Davis-Bacon Related Act Regulations
On August 8, 2023, the DOL published its Final Rule Updating the Davis-Bacon and Related Acts Regulations, representing the Department's first comprehensive regulatory review in forty years.1 The Final Rule will take effect on October 22, 2023. The Department's stated objective with the Final Rule is to provide clarity to federal agencies, covered employers and workers to ensure effective and consistent administration of the DBRA. The Final Rule is lengthy (over 800 pages), but a summary of the key changes and codifications of current guidance are outlined below.
Expansion of DBRA Coverage by Operation of Law
Perhaps the most significant change in the Final rule is the expansion of DBRA coverage by operation of law. Previously, Davis-Bacon labor standards were not self-executing, meaning that for them to be in effect, the appropriate contract clause or wage determination had to be incorporated into the contract or award. Under the Final Rule, the DOL can now decide that a contract or an award incorrectly failed to include the necessary Davis-Bacon labor standard clause or wage determination; and then order that the contract or award be treated as having included those requirements retroactive to the beginning of performance.2 While the Final Rule also specifies that contractors and award recipients will be made whole for any increased costs that they are required to pay because of a change, the payment will have to be obtained from the federal agency supporting the project and not the DOL, placing potentially significant risk on contractors and award recipients.
Methodology For Prevailing Wage Calculation
While the Final Rule makes changes to the frequency that the DOL can calculate prevailing wages and allows, under specific circumstances, the DOL to adopt prevailing wage rates set by state and local governments, the most notable change to the administration of prevailing wages was to the methodology that DOL will use moving forward to calculate prevailing wages.
The Final Rule reverts to the DOL's original methodology for determining prevailing wages, known as the "three-step process," that was in effect before 1983. According to the three-step process, in the absence of a wage rate paid to a majority of workers in a particular classification, a wage rate will be considered prevailing if it is paid to at least 30 percent of such workers. Only if no wage rate is paid to at least 30 percent of workers in a classification will a weighted average rate be used.3
This methodology lowers the threshold for setting the prevailing wage from 50% to 30% of workers to be paid a particular wage for that to become the prevailing wage. This could lead to prevailing wages increasing in certain locations where a union pay scale is less prevalent. Fringe benefits will similarly be calculated using the same 30% threshold, meaning that if 30% or more of workers receive a certain fringe benefit, then that amount will be the prevailing fringe rate.
When Must Prevailing Wages Be Updated on a Project
Generally, wage determinations apply for the life of a project or contract and need not be updated during the course of performance. However, the Final Rule, clarifies that if a contract is "changed to include additional, substantial construction, alteration, and/or repair work not within the scope of work of the original contract or order, or to require the contractor to perform work for an additional time period not originally obligated, including where an option to extend the term of a contract is exercised" the contracting agency must include the most recent wage determination or wage determinations at the time the contract is changed or the option exercised.4
Revised Definition of "Site of Work"
The Final Rule codifies that Davis-Bacon labor standards will apply at "secondary construction sites," which are defined as any other site where a "significant portion" of the building or work is constructed, as long as such construction is for "specific use in that building or work and does not simply reflect the manufacture or construction of a product made available to the general public"5 To this end, the Rule goes on to state that in order for the "secondary site" to be subject to the Davis-Bacon labor standard it must also have been "either established specifically for the performance of the contract or project, or is dedicated exclusively, or nearly so, to the performance of the contract or project for a specific period of time."6
The regulations also define what qualifies as a "significant portion" of a building or work. This phrase means one or more entire portions or modules of the building or work, "such as a completed room or structure, with minimal construction work remaining other than the installation and/or final assembly of the portions or modules at the place where the building or work will remain."7 Under the Final Rule, a "significant portion" does not include materials or prefabricated component parts such as prefabricated housing components.
Importantly, "secondary work sites" will not typically include permanent home offices, branch plant establishments, fabrication plants or tool yards because these locations will continue to function without regard to a particular Federal or federally assisted contract or project.8
The Final Rule updates current recordkeeping requirements to clarify that payrolls and other basic records must be kept for "at least three years after all the work on the prime contract is completed" and requires that records include each worker's last known telephone number and email address,9 neither of which has been required before. In addition, covered employers must maintain records of each worker's correct classification or classifications of work performed and the hours worked in each classification. The Final Rule also requires contractors, subcontractors, and funding recipients to maintain Davis-Bacon contracts, subcontracts, and related documents for the same three-year post project completion deadline.
With the federal government inserting prevailing wage requirements into significant pieces of legislation such as the Bipartisan Infrastructure Law and the Inflation Reduction Act, DBRA compliance is no longer an issue solely for traditional government contractors. Construction contractors and award recipients, and their financial backers, need to understand how and when Davis-Bacon labor standards apply to projects and take steps to ensure compliance and remediate risk. As burdens continue to be placed on contractors and award recipients, it is paramount that entities communicate with their federal agency partners and legal advisors about whether Davis-Bacon labor standards will apply and how.
1 Final-Rule_Updating-the-Davis-Bacon-Related-Acts.pdf (dol.gov)
2 Id. at 782.
3 Id. at 676-84.
4 Id. at 733.
5 Id. at 761.
8 Id. at 762.
9 Id. at 781.
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