7 ways that Davis-Bacon changes could cost contractors
Originally published by Construction Dive, February 1, 2024
Significant new changes to the Davis-Bacon Act and Related Acts will play a critical role as federal contractors consider and prepare for construction projects in 2024, affecting labor and administrative costs as well as how projects are managed.
The DBRA governs wage payment for contractors and subcontractors working on federal and federally assisted construction projects. The changes came at a time when the Department of Labor was projecting a significant increase in the number of industry workers due to sizeable investments in federally funded construction projects made possible by legislation like the Infrastructure Investment and Jobs Act.
On Oct. 23, the updates to the DBRA went into effect, serving as the first major update to the law in four decades. The Department of Labor’s updates aim to “provide greater clarity and enhance their usefulness in the modern economy.”
DBRA applies to certain federal government/Washington, D.C., contracts where the contract is for more than $2,000 and is for the construction, alteration and/or repair of public buildings or public works.
Covered contractors should expect major economic impact from the new changes. These include:
1. Expansion of site of the work
The DOL has expanded the definition of “the site of the work” because DOL believes that technological advances have allowed contractors to conduct work offsite and escape DBRA coverage. Site of the work now includes sites dedicated exclusively or nearly so to constructing a significant portion of a DBRA-covered project.
With this expansion, contractors should evaluate whether their sites – no matter where they are in relation to the main project site — are dedicated to a single DBRA-covered project. If so, in order to maintain non-coverage status, contractors should consider investing in reconfiguring the site to ensure multiple projects are in progress at one time or limiting coverage scope by isolating the DBRA covered project to a single building or area on site.
2. Additional job coverage and monitoring
Employers should invest in monitoring systems or training for human resources and accounting teams to ensure that recently codified coverage is recognized for flaggers, truck drivers and material suppliers, and that those workers receive the prevailing wage. Contractors are now required to cover possibly discrete, minimal tasks performed by these roles when related directly to DBRA covered work and when not de minimis — too trivial or minor to merit consideration.
This can require contractors to divide these workers’ hours for a portion to be paid at a prevailing wage rate and a portion to be paid at a different rate. With successful monitoring, which is necessary to avoid costly violations, contractors should expect labor costs to increase as additional time will likely be identified as DBRA covered work.
3. Prevailing wage standard
The DBRA requires laborers and mechanics on covered projects be paid a prevailing wage. In its comments to the final rule, the DOL concedes that a 2008 study by the Beacon Hill Institute found the use of prevailing wage determinations increased the cost of federal construction by nearly 10%.
Previously, prevailing wage rates were determined by:
- First identifying if there was a single wage rate paid to more than 50% of workers in a classification.
- If no such wage rate exists, determining the weighted average of all wage rates paid in the classification.
Under the Final Rule:
- If a majority (over 50%) of the wage rates in a classification are the same, it is the prevailing wage.
- If there is no majority, then the wage rate earned by the greatest number of workers, provided at least 30% earn that rate, is the prevailing rate.
- If no wage rate is earned by at least 30% in the classification, the weighted average applies.
- The final rule, changing how wage determinations are calculated, will result in significant additional labor costs that contractors should take into account when bidding projects.
DOL certified payroll requirements and enhanced recordkeeping requirements may require contractors to incur increased administrative and labor costs. As for administrative costs, contractors may incur costs such as:
- Purchasing new electronic monitoring systems, as suggested by DOL.
- Employing an electronic storage or filing system.
- Hiring additional human resource or administrative staff to assist with monitoring to ensure storage and maintenance of contracts and basic records now required to be kept for at least three years.
As for labor costs, contractors may pay an increased number of prevailing wage rate hours. For example, when a worker performs labor in more than one job classification — such as work covered by DBRA versus work not covered by DBRA — contractors are now themselves required to monitor and maintain those records accurately classifying each hour worked. Good recordkeeping by the contractor will likely result in additional prevailing wage rate time being captured — a necessary expense to avoid more costly penalties and interest.
5. Green sector
DOL modernized the definition of “building or work.” Although arguably covered already, the construction and installation of solar panels, wind turbines, broadband installation and electronic car chargers on or into a building or work is DBRA-covered work. That means green projects, which are highly incentivized by the federal government, are now subject to major cost increases.
6. Fringe benefits
DBRA has long required fringe benefits be paid to covered workers. DOL has codified its longstanding position that fringe benefits be annualized. Contractors cannot use contributions made to a fringe benefit plan during non-DBRA covered hours to gain DBRA credit. Contractors must tediously track whether fringe benefits are paid for DBRA or non-DBRA covered hours and work.
To do so, contractors are now officially required to annualize the contributions which requires conversion to an hourly cash equivalent to determine what may be credited towards the prevailing wage rate paid during DBRA-covered work. If not previously annualized, contractors shall incur increased fringe benefit costs during DBRA-covered work periods because contractors are now explicitly barred from counting contributions made during non-DBRA-covered work periods.
7. Enhanced enforcement, increased damages or costs
Contractors should ensure strict compliance or risk costly penalties. If a contractor underpays workers (i.e. fails to pay prevailing wage rate for DBA-covered work), it is now required to pay interest on those back wages using a statutorily established interest rate that compounds daily. If necessary, DOL can even cross-withhold those back wages from that contractor’s other federal contracts.
By failing to comply with DBRA, contractors subject themselves to debarment from future federal contracts and federally assisted contracts, which could cost the contractor millions in contract losses over the debarment period. Contractors that disregard obligations to employees or subcontractors under the DBRA are now subject to a three year debarment period with no early removal option.
This debarment and loss of federal contracts covers not only the violating entity but could also cover any other entity with an interest in the debarred entity and the individual officers of the debarred entity that were responsible for the failure to comply.