The Biden Administration announced on August 8, 2023, the issuance of a final rule from the Department of Labor (DOL), Wage and Hour Division, that overhauls the prevailing wage pay requirements for construction workers working on federally-funded construction projects under the Davis-Bacon Act (DBA) and Related Acts (collectively, DBRA). The DOL last engaged in comprehensive revisions to the DBRA over forty years ago, in 1982.
The DBA applies to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration or repair (including painting or decorating) of public buildings or public works. The DBA is essentially “a minimum wage law designed for the benefit of construction workers.” United States v. Binghamton Constr. Co., 347 U.S. 171, 178 (1954). It obliges federal contractors and their subcontractors to pay their workers the same prevailing wages and benefits as similar projects in the same geographical area.
In its 2023 final rule, the DOL sought to update the DBRA due to the increased need for infrastructure projects for Federal and State governments in the energy and transportation sectors to mitigate climate change. Presently, the Federal government spends $217 billion on construction projects annually, which effects an estimated 1.2 million U.S. construction workers. The overhaul of the DBRA will change how the prevailing wages to these construction workers are calculated, with a goal of increasing their pay.
What is Different Under the Final Rule
The most fundamental change in the final rule, entitled “Updating the Davis-Bacon and Related Acts Regulations,” is a change to the methodology the DOL Wage and Hour Division (WHD) uses to make its determination of the prevailing wage. A wage determination is the listing of wage rates and fringe benefit rates for each classification of laborers and mechanics the DOL has determined to be prevailing in a given geographic area for a particular type of construction.
Under the final rule, the DOL is returning to a wage determination methodology that was in place prior to 1983 called the “three step process.” According to the three-step process, where there is no 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 to determine a prevailing wage. The WHD may also consider escalator-clause rates, zone rates, night-shift differential and combined hourly-fringe rates in their computation of a prevailing wage. The final rule also adds a new provision which permits the WHD Administrator, under specified circumstances, to determine DBRA wage rates by adopting wage rates set by state and local governments.
The final rule expands the scope of a “geographic area” for a wage determination. Prior to the final rule, the default area for the majority of wage determinations was the county. While most wage determinations will continue to use the county as the basic geographic unit for determining the prevailing wage, the final rule now allows the WHD to issue multi-county project wage determinations with a single wage rate per classification. The final rule also permits WHD to use state highway districts or “similar State geographic subdivisions” as the area for a highway project.
The final rule includes changes to enforcement, anti-retaliation provisions, and tools to hold contractors responsible for wage violations. It imposes increased recordkeeping requirements on employers. Employers must continue to keep payroll and other basic records for at least three years after all the work on the prime contract is completed. Contractors and subcontractors must maintain records of each worker’s correct classification or classifications of work actually 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.
What Remains Unchanged Under the Final Rule
The final rule does not change the types of projects which are subject to the DBRA. The final rule does, however, clarify the types of projects subject to the DBRA. For example, the installation of solar panels, wind turbines, broadband installation and installation of electric car chargers are all subject to Davis-Bacon labor standards if they are built as a part of a contract with a federal agency or otherwise covered by a Related Act.
The final rule also does not allow for more frequent revisions to a prevailing wage than once every three years. Three years after the date of the rate’s publication, continuing until the next survey results in a new general wage determination, the prevailing wage must remain the same.
Criticism of the DBRA and the Final Rule
The DBA was passed in 1931, in the context of the Great Depression, with the stated intent to protect higher paid workers – many of whom were union workers – from out-of-state wage rate competition. Since then, despite that union market share in the construction industry has shrunk to as low as 14%, higher union rates “prevail.” The Reagan Administration’s reforms of 1982 were intended to avoid the inflationary impact caused by these higher wage rates by more accurately reflecting the prevailing wages throughout the construction industry, including by eliminating the “30 percent” rule the Biden Administration is reinstating.
Supporters say that the DBRA elevates labor standards for all construction workers and encourages development and opportunity for highly skilled, higher wage workers, resulting in the most productive, best skilled and best managed workforce. Critics contend that the DBRA essentially functions as a wage floor, resulting in artificially inflated costs for taxpayer-funded projects and reduced employment for less-specialized and general laborers while the construction industry is facing a skilled labor shortage. The Rule is expected to be immediately challenged by the Associated Builders and Contractors and other trade groups.
Resources for Your Review
This alert does not cover all of the changes in the final rule to the DOL’s enforcement of the DBRA. The final rule is available here, and the FAQ’s to the final rule, which provide more digestible guidance, are provided here. Also note that the final rule will go into effect sixty (60) days from the date of publication to the federal register, which should occur in the coming days or weeks.
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