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Ashley Eley Cannady is a partner at Balch & Bingham LLP, a national corporate law firm that advises clients in regulated industries in practice areas such as labor and employment, energy, construction, environment and litigation. The opinions are the authors’ own.
Meaningful 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 regulates the payment of wages to contractors and subcontractors working on federal and federally assisted construction projects. The changes came at a time when the Labor Department projected a significant increase in the number of workers in the industry due to significant investments in federally funded construction projects made possible by laws such as the Jobs and Infrastructure Investment Act.
On October 23, the the DBRA updates went into effect, which serves as the first major update to the law in four decades. The Department of Labor’s updates aim to “provide greater clarity and improve its usefulness in the modern economy.”
DBRA applies to certain federal government/Washington, DC contracts where the contract is more than $2,000 and is for the construction, alteration, and/or repair of public buildings or public works.
Covered contractors should expect a significant financial impact from the new changes. This includes:
1. Expansion of the work site
The DOL has expanded the definition of “job site” because DOL believes that technological advances have allowed contractors to perform work off-site and escape DBRA coverage. The construction site now includes sites devoted exclusively or almost entirely to constructing a significant portion of a project covered by DBRA.
With this expansion, contractors would need to assess whether their sites, regardless of where they are located in relation to the main project site, are dedicated to a single DBRA-covered project. If so, to maintain non-coverage status, contractors should consider investing in site reconfiguration to ensure that multiple projects are ongoing at the same time or limit the scope of coverage by isolating the DBRA-covered project to a single building or area of the site.
2. Coverage and monitoring of additional jobs
Employers should invest in monitoring systems or training for human resources and accounting teams to ensure that the newly codified coverage is recognized for flaggers, truckers and material suppliers, and that these workers are paid the prevailing wage. Contractors are now required to cover minimal and potentially discrete tasks performed by these functions when they are directly related to the work covered by the DBRA and when not de minimis — Too trivial or minor to merit consideration.
This may require contractors to split these workers’ hours so that part is paid at a prevailing wage rate and part is 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. Salary standard in force
The DBRA requires workers and mechanics on covered projects to be paid a prevailing wage. In its comments to the final rule, the DOL admits that a 2008 study by the Beacon Hill Institute found that using prevailing wage determinations increased the cost of federal construction by nearly 10 percent.
Previously, prevailing wage rates were determined by:
- First by identifying whether there was a single wage rate paid to more than 50% of workers in a classification.
- If no such wage rate exists, determine the weighted average of all wage rates paid in the classification.
According to the final rule:
- If the majority (more than 50%) of the wage rates in a classification are the same, that is the prevailing wage.
- If there is no majority, then the wage rate that earns the largest number of workers, provided that at least 30% have that rate, is the current rate.
- If no salary type is obtained in the classification at least 30%, the weighted average is applied.
The final rule, changing how wage determinations are calculated, will result in significant additional labor costs that contractors should consider when bidding on projects.
4. Maintenance of records
DOL certified payroll requirements and enhanced recordkeeping requirements may require contractors to incur higher administrative and labor costs. In terms of administrative costs, contractors may incur costs such as:
- Procurement of new electronic monitoring systems as suggested by the DOL.
- Using an electronic file or storage system.
- Hiring HR or additional administrative staff to assist with monitoring to ensure the storage and maintenance of contracts and core records that must now be kept for at least three years.
For labor costs, contractors can pay a higher number of prevailing wage hours. For example, when a worker performs labor in more than one job classification, such as DBRA-covered work versus non-DBRA-covered work, contractors are now required to monitor and maintain these records by accurately classifying each hours worked Good record keeping by the contractor will likely result in additional time being captured at the prevailing wage rate, a necessary expense to avoid more costly penalties and interest.
5. Green sector
DOL modernized the definition of “building or work.” Although arguably already covered, the construction and installation of solar panels, wind turbines, broadband installation and electronic car chargers on a building or site is DBRA covered work. This means that green projects, which are heavily incentivized by the federal government, are now subject to significant cost increases.
6. Additional benefits
DBRA has long required that fringe benefits be paid to covered workers. DOL has codified its longstanding position that fringe benefits are annualized. Contractors cannot use contributions made to a fringe benefit plan during DBRA-covered hours to earn DBRA credit. Contractors must tediously track whether fringe benefits are paid for hours and work covered by DBRA or non-DBRA.
To do this, contractors are now officially required to annualize the contributions required by conversion to an hourly cash equivalent to determine what can be credited to the prevailing wage rate paid during DBRA-covered work. If not previously annualized, contractors will incur increased fringe benefit costs during periods of work covered by DBRA because contractors are now explicitly prohibited from counting contributions made during periods of work not covered by DBRA DBRA.
7. Enhanced performance, increased damages or costs
Contractors must ensure strict compliance or risk costly penalties. If a contractor underpays workers (ie, fails to pay the prevailing wage rate for DBA-covered work), it is now required to pay interest on those back wages using a legally established interest rate that is compounded daily. If necessary, DOL may even withhold such back wages from that contractor’s other federal contracts.
Failure to comply with the DBRA subjects contractors to debarment from future federal contracts and federally assisted contracts, which could cost the contractor millions in contract losses during the debarment period. Contractors who disregard obligations to employees or subcontractors under the DBRA are now subject to a three-year exclusion period with no early withdrawal option.
This disqualification and loss of federal contracts covers not only the violating entity, but could also cover any other entity with an interest in the disqualified entity and the individual officials of the disqualified entity responsible for the breach.
Armin Moeller and Russell Dumas of Balch & Bingham, partners in the firm’s Jackson, Mississippi office and members of the firm’s labor and employment practice, contributed to this article.
