On August 23, 2023, the United States Department of Labor (“DOL”) issued a final rule updating regulations issued under the Davis-Bacon Act. This is the DOL’s first comprehensive update to the Davis-Bacon Act regulations in forty years, and understanding and applying these new regulations will be critical to contractors engaged in federal construction projects.
In this series, we will deliver regular updates on the final rule of the regulatory changes made to the Davis-Bacon Act. Our full summary can be found here.
The regulations at 29 C.F.R. Part 5 address the rules regarding payment of minimum wages, including fringe benefits, to covered workers engaged in construction activity covered by the Davis-Bacon Act, as well as enforcement of these rules. The DOL adopted new definitions, and changed others, in ways that will expand the applicability of the Davis-Bacon Act, as well as provide some additional clarity and requirements regarding payment of fringe benefits.
Definition Revisions
Addition of a Definition of “Type of Construction”
The Davis-Bacon Act applies to construction projects, and the DOL revised 29 C.F.R. § 1.2 to include a definition of “Type of construction (or construction type)” that:
means the general category of construction, as established by the Administrator, for the publication of general wage determinations. Types of construction may include, but are not limited to, building, residential, heavy, and highway. As used in this part, the terms “type of construction” and “construction type” are synonymous and interchangeable.
The intent was to clarify that the terms “type of construction” and “construction type,” when used in the regulations, are synonymous and interchangeable.
Revisions to the Definition of Agency, Agency Head, Contracting Officer, Secretary, and Davis-Bacon Labor Standards.
The DOL made non-substantive revisions to certain definitions in 29 C.F.R. § 5.2, including clarifying references to agencies, agency heads, and contracting officers to clarify that some state agencies and officials have responsibility for enforcing Davis-Bacon Act rules.
Inclusion of Energy Infrastructure and Related Activities in the Definition of “Building or Work”
The DOL revised the definition of “building or work” in 29 C.F.R. § 5.2 to include solar panels, wind turbines, broadband installation, and installation of electric car chargers to the non-exclusive list of construction activities encompassed by the definition. The DOL explained that:
These proposed additions to the definition were clarifications intended to reflect the significance of energy infrastructure and related projects to modern-day construction activities subject to the Davis-Bacon and Related Acts, as well as to illustrate the types of energy infrastructure and related activities that are encompassed by the definition of “building or work.”
The DOL also added language to the definitions of “building or work” and “public building or public work” to clarify that these definitions can be met even when the construction activity involves only a portion of an overall building, structure, or improvement.
The new definition of “building or work” reads:
29 C.F.R. § 5.2, Building or work. The term “building or work” generally includes construction activities of all types, as distinguished from manufacturing, furnishing of materials, or servicing and maintenance work. The term includes, without limitation, buildings, structures, and improvements of all types, such as bridges, dams, solar panels, wind turbines, broadband installation, installation of electric car chargers, plants, highways, parkways, streets, subways, tunnels, sewers, mains, power lines, pumping stations, heavy generators, railways, airports, terminals, docks, piers, wharves, ways, lighthouses, buoys, jetties, breakwaters, levees, canals, dredging, shoring, rehabilitation and reactivation of plants, scaffolding, drilling, blasting, excavating, clearing, and landscaping. The term “building or work” also includes a portion of a building or work, or the installation (where appropriate) of equipment or components into a building or work.
29 C.F.R. § 5.2, Public building or public work. The term “public building or public work” includes a building or work, the construction, prosecution, completion, or repair of which, as defined in this section, is carried on directly by authority of or with funds of a Federal agency to serve the interest of the general public regardless of whether title thereof is in a Federal agency. The construction, prosecution, completion, or repair of a portion of a building or work, or the installation (where appropriate) of equipment or components into a building or work, may still be considered a public building or work, even where the entire building or work is not owned, leased by, or to be used by a Federal agency, as long as the construction, prosecution, completion, or repair of that portion of the building or work, or the installation (where appropriate) of equipment or components into that building or work, is carried on by authority of or with funds of a Federal agency to serve the interest of the general public.
The DOL explained that:
to further make plain that “building or work” includes not only construction activity involving an entire building, structure, or improvement, but also construction activity involving a portion of a building, structure, or improvement, or the installation of equipment or components into a building, structure, or improvement, the Department proposed to add a sentence to this definition stating that “[t]he term building or work also includes a portion of a building or work, or the installation (where appropriate) of equipment or components into a building or work.” The Department also proposed to include additional language in the definition of “public building or public work” to clarify that a “public building” or “public work” includes the construction, prosecution, completion, or repair of a portion of a building or work that is carried on directly by authority of or with funds of a Federal agency to serve the interest of the general public, even where construction of the entire building or work does not fit within this definition.
The DOL also explained that this revision does not eliminate the requirement that the Federal government enter into a contract for construction in order for the regulations to apply:
The proposed changes to the definition of a public building or work, adopted in this final rule, do not eliminate the requirement that the Federal Government enter into a contract for construction for the DBA to be applicable. As reflected not only in the CityCenterDC decision but also in the statute itself, coverage under the DBA applies to “every contract in excess of $2,000, to which the Federal Government or the District of Columbia is a party, for construction, alteration, or repair, including painting and decorating, of public buildings and public works.” 40 U.S.C. 3142(a). The requirement that the Federal Government enter into a contract for construction and the requirement that such a contract for construction must be for a public building or public work are two distinct requirements, both of which must be satisfied for the DBA to apply to a contract. The changes to the definitions of “building or work” and “public building or public work” described here simply provide that the construction of a portion of a building or work may still be considered a public building or work, even where the entire building or work is not owned, leased by, or to be used by a Federal agency. These revisions do not eliminate or affect the separate requirement under the DBA that the Federal government enter into a “contract . . . for construction.”
Revision to the Definition of “Construction, Prosecution, Completion, or Repair”
The final rule also adds a new sub-definition to the term “construction, prosecution, completion, or repair” in 29 C.F.R. § 5.2, to clarify when demolition and similar activities are covered by the Davis-Bacon Act. The new clause reads:
(2) These terms [construction, prosecution, completion, or repair] include, without limitation (except as specified in this definition):
…
(v) Demolition and/or removal, under any of the following circumstances:
(A) Where the demolition and/or removal activities themselves constitute construction, alteration, and/or repair of an existing building or work. Examples of such activities include the removal of asbestos, paint, components, systems, or parts from a facility that will not be demolished; as well as contracts for hazardous waste removal, land recycling, or reclamation that involve substantial earth moving, removal of contaminated soil, re-contouring surfaces, and/or habitat restoration.
(B) Where subsequent construction covered in whole or in part by the labor standards in this part is contemplated at the site of the demolition or removal, either as part of the same contract or as part of a future contract. In determining whether covered construction is contemplated within the meaning of this provision, relevant factors include, but are not limited to, the existence of engineering or architectural plans or surveys of the site; the allocation of, or an application for, Federal funds; contract negotiations or bid solicitations; the stated intent of the relevant government officials; and the disposition of the site after demolition.
(C) Where otherwise required by statute.
The DOL explained that:
First, demolition and removal activities are covered by Davis-Bacon labor standards when such activities in and of themselves constitute construction, alteration, or repair of a public building or work…. Second, the Department has consistently maintained that if future construction that will be subject to the Davis-Bacon labor standards is contemplated at the location where the demolition occurs—either because the demolition is part of a contract for such construction or because such construction is contemplated as part of a future contract, then the demolition of the previously existing structure is considered part of the construction of the subsequent building or work and therefore within the scope of the Davis-Bacon labor standards.
The determination of whether demolition performed in anticipation of a future construction project is a “fact-specific question.” The DOL stated, as an example, that:
Davis-Bacon coverage may apply, for example, to the removal and disposal of contaminated soil in preparation for construction of a building, or the demolition of a parking lot to prepare the site for a future public park. In contrast, Davis-Bacon likely would not apply to the demolition of an abandoned, dilapidated, or condemned building to eliminate it as a public hazard, to reduce the likelihood of squatters or trespassers, or to make the land more desirable for sale to private parties for purely private construction.
Expansion of the Definition of “Contract”
The DOL expanded the definition of “contract” in 29 C.F.R. § 5.2 to conform to the definition to the manner in which the term “contract” is defined in other DOL regulations applying to Federal contracting statutes and Executive Orders. The new definition is:
29 C.F.R. § 5.2, Contract. The term “contract” means any prime contract which is subject wholly or in part to the labor standards provisions of any of the laws referenced by § 5.1 and any subcontract of any tier thereunder, let under the prime contract. With the exception of work performed under a development statute, the terms contract and subcontract do not include agreements with employers that meet the definition of a material supplier under this section.
The DOL explained that:
While the Department has not included a list in the regulatory text of all of the various types of agreements that may be considered to be “contracts” under the definition, it continues to interpret the DBRA as applying broadly to any contract that fits within the common law definition, as well as to contracts-implied-in-law where the parties intended to enter into such a contract, as long as the contract satisfies the other statutory and regulatory elements of coverage.
Addition of a Definition of Contractor
“Contractor” is not defined in the existing version of § 5.2. The DOL adopted the following definition of “contractor” in the revised regulations:
The term “contractor” means any individual or other legal entity that enters into or is awarded a contract that is subject wholly or in part to the labor standards provisions of any of the laws referenced by § 5.1, including any prime contract or subcontract of any tier under a covered prime contract. In addition, the term contractor includes any surety that is completing performance for a defaulted contractor pursuant to a performance bond. The U.S. Government, its agencies, and instrumentalities are not contractors, subcontractors, employers or joint employers for purposes of the labor standards provisions of any of the laws referenced by § 5.1. A State or local government is not regarded as a contractor or subcontractor under statutes providing loans, grants, or other Federal assistance in situations where construction is performed by its own employees. However, under development statutes or other statutes requiring payment of prevailing wages to all laborers and mechanics employed on the assisted project, such as the U.S. Housing Act of 1937, State and local recipients of federal aid must pay these workers according to Davis-Bacon labor standards. The term “contractor” does not include an entity that is a material supplier, except if the entity is performing work under a development statute.
Addition of a Definition of Prime Contractor
The DOL also adopted a definition at 29 C.F.R. § 5.2 for the term “prime contractor.” The DOL explained that it adopted a broad definition in order to “prioritize the appropriate allocation of responsibility for contract compliance and enhance the effectiveness of the withholding remedy” and clarify that the label an entity gives itself is not controlling. The definition is:
The term “prime contractor” means any person or entity that enters into a contract with an agency. For the purposes of the labor standards provisions of any of the laws referenced by § 5.1, the term prime contractor also includes the controlling shareholders or members of any entity holding a prime contract, the joint venturers or partners in any joint venture or partnership holding a prime contract, and any contractor ( e.g., a general contractor) that has been delegated the responsibility for overseeing all or substantially all of the construction anticipated by the prime contract. For the purposes of the provisions in §§ 5.5 and 5.9, any such related entities holding different prime contracts are considered to be the same prime contractor.
Addition of a Definition of Subcontractor
The DOL adopted the following definition for the term “subcontractor” at 29 C.F.R. § 5.2:
The term “subcontractor” means any contractor that agrees to perform or be responsible for the performance of any part of a contract that is subject wholly or in part to the labor standards provisions of any of the laws referenced in § 5.1. The term subcontractor includes subcontractors of any tier.
Originally, the DOL proposed that the “subcontractor” definition “did not include laborers or mechanics for whom a prevailing wage must be paid.” After considering public comment, however, the DOL abandoned that language, determining that it was likely to cause confusion. Instead, the DOL explains that “an individual can both be referred to as a ‘subcontractor’ who contracts for a portion of the work on the prime contract and also be a laborer who must be paid a prevailing wage by the prime contractor or upper-tier subcontractor that has brought them onto the project.”
Revisions to the Definition of Apprentice and Helper
The DOL amended the current regulatory definition in 29 C.F.R. § 5.2(n) of “apprentice, trainee, and helper” to remove references to trainees. A trainee is currently defined as a person registered and receiving on-the-job training in a construction occupation under a program approved and certified in advance by the Employment and Training Administration (ETA) as meeting its standards for on-the-job training programs. Because ETA no longer reviews or approves on-the-job training programs, the DOL concluded that a definition is unnecessary.
The DOL also modified the definition of “apprentice and helper” to reflect the current name of the office designated by the Secretary of Labor, within the Department, to register apprenticeship programs.
Revisions to the Definition of Laborer or Mechanic
The DOL amended the regulatory definition of “laborer or mechanic” to remove the reference to trainees and to replace the term “foremen” with the gender-neutral term “foreperson.”
Clarification Regarding the Rules that Apply to Survey Crews
Because the DOL frequently receives questions about the application of the definition of “laborer or mechanic”—and thus the application of the Davis-Bacon labor standards—to members of survey crews, it provided non-substantive revisions to clarify the circumstances under which survey crew members should be considered laborers or mechanics. The DOL describes those circumstances:
The Department has historically recognized that members of survey crews who perform primarily physical and/or manual work while employed by contractors or subcontractors on a DBA or Related Acts covered project on the site of the work immediately prior to or during construction in direct support of construction crews may be laborers or mechanics subject to the Davis-Bacon labor standards. Whether or not a specific survey crew member is covered by these standards is a question of fact, which takes into account the actual duties performed and whether these duties are “manual or physical in nature” including the “use of tools or . . . work of a trade.”
When considering whether a survey crew member performs primarily physical and/or manual duties, it is appropriate to consider the relative importance of the worker’s different duties, including (but not solely) the time spent performing these duties. Thus, survey crew members who spend most of their time on a covered project taking or assisting in taking measurements would likely be deemed laborers or mechanics (provided that they do not meet the tests for exemption as professional, executive, or administrative employees under part 541). If their work meets other required criteria ( i.e., it is performed on the site of the work, where required, and immediately prior to or during construction in direct support of construction crews), it would be covered by the Davis-Bacon labor standards.
Clarification Regarding the Rules Governing Truck Drivers
Under current Davis-Bacon regulations, different rules apply depending on whether truck drivers are employed by material suppliers or contractors or subcontractors. There is also some uncertainty regarding application of these different rules. To address this uncertainty, the DOL revised the regulations to, as discussed above,
codify a definition of “material supplier” in a manner that would reduce ambiguity regarding the subcontractor/material supplier distinction by restricting the material supplier exemption to employers whose sole contractual responsibility is material supply and, in so doing, eliminate the subregulatory 20-percent threshold pertaining to material suppliers’ drivers who engage in onsite construction work.
In addition to those changes, the DOL revised the definition of “construction, prosecution, completion, or repair” in 29 C.F.R. § 5.2 to clarify which truck drivers are covered by the Davis-Bacon Act labor requirements. The DOL revised that definition to include “covered transportation,” and thus truck drivers, in five different circumstances:
(A) Transportation that takes place entirely within a location meeting the definition of “site of the work”;
(B) Transportation of one or more “significant portion(s)” of the building or work between a “secondary construction site” as defined in this section and a “primary construction site”;
(C) Transportation between an “adjacent or virtually adjacent dedicated support site” and a “primary construction site” or “secondary construction site”;
(D) “Onsite activities essential or incidental to offsite transportation,” defined as activities conducted by a truck driver or truck driver’s assistant on the site of the work that are essential or incidental to the transportation of materials or supplies to or from the site of the work, such as loading, unloading, or waiting for materials to be loaded or unloaded, but only where the driver or driver’s assistant’s time spent on the site of the work is not de minimis; and
(E) Any transportation and related activities, whether on or off the site of the work, by laborers and mechanics employed in the construction or development of the project under a development statute.
In regards to whether a driver’s time spent on the site of the work is “de minimis,” and thus not subject to the Davis-Bacon Act labor rules, the DOL did not define what would constitute “de minimis” time. Instead, the DOL intends to review this issue on a case-by-case basis:
However, whereas the proposed rule sought to borrow language from the Department’s regulatory definition of de minimis under the FLSA, see 29 CFR 785.47, the final rule is not defining de minimis in the regulation for several reasons. First, the Department did not propose a definition for the term in the NPRM. Second, the Department’s historical practice has been to evaluate de minimis under the DBRA on a case-by-case basis…. To the extent warranted, the Department will consider whether to further elaborate on the definition of de minimis in sub-regulatory guidance.
While the DOL did not define “de minimis,” its notice of final rulemaking did identify two general principles that would apply. The first principle is that guidance and precedent under the Fair Labor Standards Act regarding what constitutes “de minimis” time does not apply or govern:
First, the de minimis standard under the DBRA is independent of the de minimis standard under the FLSA…. The DBRA’s de minimis principle…informs the different inquiry of whether a worker is “employed directly on the site of the work.” Thus, the Department has generally held that it excludes periods of “a few minutes” onsite just to drop off materials, even though such time generally is considered hours worked under the FLSA.
The second principle is that, in certain cases, the DOL will aggregate short periods of time that may be considered de minimis in isolation, but not when combined with other de minimis periods of activity:
Second, the Department intends that under circumstances where workers spend a significant portion of their day or week onsite, short periods of time that in isolation might be considered de minimis may be aggregated. For example, in its recent decision in ET Simonds, the ARB concluded that it was reasonable for the Administrator to aggregate such periods throughout a workday where the record showed that workers spent a total of 15 minutes per hour on the website. Thus, the Department’s position is that the total amount of time a driver spends on the site of the work during a typical day or workweek—not just the amount of time that each delivery takes—is relevant to a determination of whether the onsite time is de minimis.
Rate of Contribution or Cost for Fringe Benefits
Contributions made to a fringe benefit plan for Davis-Bacon Act projects generally may not be used to fund the plan for periods of private work. Therefore, when a contractor’s workers perform work on both Davis-Bacon Act projects and projects that are not subject to Davis-Bacon Act requirements (referred to as “private” work or projects) in a particular year or other shorter time period, the contractor typically must convert its total annual contributions to the fringe benefit plan to an hourly cash equivalent by dividing the cost of the fringe benefit by the total number of hours worked (Davis-Bacon Act projects and private work) to determine the amount creditable towards meeting its obligation to pay the prevailing wage under the Davis-Bacon Act. This principle, referred to as “annualization,” effectively prohibits contractors from using fringe benefit plan contributions attributable to work on private projects to meet their prevailing wage obligation for Davis-Bacon Act projects.
The DOL added 29 C.F.R. § 5.25 (c) to codify the principle of annualization and to clarify when exceptions to annualization may apply:
Except as provided in this section, contractors must “annualize” all contributions to fringe benefit plans (or the reasonably anticipated costs of an unfunded benefit plan) to determine the hourly equivalent for which they may take credit against their fringe benefit obligation. The “annualization” principle reflects that DBRA credit for contributions made to bona fide fringe benefit plans (or the reasonably anticipated costs of an unfunded benefit plan) is allowed based on the effective rate of contributions or costs incurred for total hours worked during the year (or a shorter time period) by a laborer or mechanic.
(1) Method of computation. To annualize the cost of providing a fringe benefit, a contractor must divide the total cost of the fringe benefit contribution (or the reasonably anticipated costs of an unfunded benefit plan) by the total number of hours worked on both private (non-DBRA) work and work covered by the Davis-Bacon Act and/or Davis-Bacon Related Acts (DBRA-covered work) during the time period to which the cost is attributable to determine the rate of contribution per hour. If the amount of contribution varies per worker, credit must be determined separately for the amount contributed on behalf of each worker.
(2) Exception requests. Contractors, plans, and other interested parties may request an exception from the annualization requirement by submitting a request to the WHD Administrator. A request for an exception may be granted only if each of the requirements of paragraph (c)(3) of this section is satisfied. Contributions to defined contribution pension plans (DCPPs) are excepted from the annualization requirement, and exception requests therefore are not required in connection with DCPPs, provided that each of the requirements of paragraph (c)(3) is satisfied and the DCPP provides for immediate participation and essentially immediate vesting (i.e., the benefit vests within the first 500 hours worked). Requests must be submitted in writing to the Division of Government Contracts Enforcement by email to DBAannualization@dol.gov or by mail to Director, Division of Government Contracts Enforcement, Wage and Hour Division, U.S. Department of Labor, 200 Constitution Ave. NW, Room S–3502, Washington, DC 20210.
(3) Exception requirements. Contributions to a bona fide fringe benefit plan (or the reasonably anticipated costs of an unfunded benefit plan) are excepted from the annualization requirement if all of the following criteria are satisfied:
(i) The benefit provided is not continuous in nature. A benefit is not continuous in nature when it is not available to a participant without penalty throughout the year or other time period to which the cost of the benefit is attributable; and
(ii) The benefit does not compensate both private work and DBRA-covered work. A benefit does not compensate both private and DBRA-covered work if any benefits attributable to periods of private work are wholly paid for by compensation for private work.
Unfunded Plans
An “unfunded plan” is a plan:
in which the contractor does not make irrevocable contributions to a trustee or third person pursuant to a fund, plan, or program, but instead provides fringe benefits pursuant to an enforceable commitment to carry out a financially responsible plan or program, and receives fringe benefit credit for the rate of costs which may be reasonably anticipated in providing benefits under such a commitment.
The DOL added language to 29 C.F.R. § 5.28(b), (c) and (d) explicitly stating that unfunded benefit plans or programs must be approved by the Secretary in order to qualify as bona fide fringe benefits. The revised regulations do not specify the documentation that must be submitted with a request for DOL approval of an unfunded plan, but only states that contractors should submit sufficient information so as to permit the DOL to determine if the unfunded plan can “withstand a test of actuarial soundness.”
The revised 29 C.F.R. § 5.28 states:
(a) The costs to a contractor or subcontractor which may be reasonably anticipated in providing benefits of the types described in the Act, pursuant to an enforceable commitment to carry out a financially responsible plan or program, are considered fringe benefits within the meaning of the Act ( see 40 U.S.C. 3141(2)(B)(ii)). The legislative history suggests that these provisions were intended to permit the consideration of fringe benefits meeting these requirements, among others, and which are provided from the general assets of a contractor or subcontractor. (Report of the House Committee on Education and Labor, H. Rep. No. 308, 88th Cong., 1st Sess., p. 4; see also S. Rep. No. 963, p. 6.)
(b) Such a benefit plan or program, commonly referred to as an unfunded plan, may not constitute a fringe benefit within the meaning of the Act unless:
(1) It could be reasonably anticipated to provide the benefits described in the Act;
(2) It represents a commitment that can be legally enforced;
(3) It is carried out under a financially responsible plan or program;
(4) The plan or program providing the benefits has been communicated in writing to the laborers and mechanics affected; and
(5) The contractor or subcontractor requests and receives approval of the plan or program from the Secretary, as described in paragraph (c) of this section.
(c) To receive approval of an unfunded plan or program, a contractor or subcontractor must demonstrate in its request to the Secretary that the unfunded plan or program, and the benefits provided under such plan or program, are “bona fide,” meet the requirements set forth in paragraphs (b)(1) through (4) of this section, and are otherwise consistent with the Act. The request must include sufficient documentation to enable the Secretary to evaluate these criteria. Contractors and subcontractors may request approval of an unfunded plan or program by submitting a written request in one of the following manners:
(1) By mail to the United States Department of Labor, Wage and Hour Division, Director, Division of Government Contracts Enforcement, 200 Constitution Ave. NW, Room S–3502, Washington, DC 20210;
(2) By email to unfunded@dol.gov (or its successor email address); or
(3) By any other means as directed by the Administrator.
(d) Unfunded plans or programs may not be used as a means of avoiding the Act’s requirements. The words “reasonably anticipated” require that any unfunded plan or program be able to withstand a test of actuarial soundness. Moreover, as in the case of other fringe benefits payable under the Act, an unfunded plan or program must be “bona fide” and not a mere simulation or sham for avoiding compliance with the Act. To prevent these provisions from being used to avoid compliance with the Act, the Secretary may direct a contractor or subcontractor to set aside in an account assets which, under sound actuarial principles, will be sufficient to meet future obligations under the plan. Such an account must be preserved for the purpose intended. (S. Rep. No. 963, p. 6.)
The DOL did, in its notice of final rulemaking, explain that while the DOL’s approval of an unfunded plan is based on the “totality of the circumstances,” the type of information the DOL will be seeking from contractors will:
typically include identification of the benefit(s) to be provided; an explanation of the funding/contribution formula; an explanation of the financial analysis methodology used to estimate the costs of the plan or program benefits and how the contractor has budgeted for those costs; a specification of how frequently the contractor either sets aside funds in accordance with the cost calculations to meet claims as they arise, or otherwise budgets, allocates, or tracks such funds to ensure that they will be available to meet claims; an explanation of whether employer contribution amounts are different for Davis-Bacon and non-prevailing wage work; identification of the administrator of the plan or program and the source of the funds the administrator uses to pay the benefits provided by the plan or program; specification of the ERISA status of the plan or program; and an explanation of how the plan or program is communicated to laborers or mechanics.
Specific Fringe Benefits
While 29 C.F.R. § 5.29(a) provides that the defrayment of the costs of apprenticeship programs is a recognized fringe benefit that Congress considered common in the construction industry, the current regulations do not address when a contractor may take credit for such contributions or how to properly credit such contributions against a contractor’s fringe benefit obligations.
Accordingly, the DOL has adopted a new paragraph (g) to address the circumstances under which a contractor may take a fringe benefit credit for the costs of an apprenticeship program.
The DOL also adopted a minor technical revision to paragraph (e) to include a citation to 29 C.F.R. § 5.28, which provides additional guidance on unfunded plans.
Administrative Expenses of a Contractor or Subcontractor
The DOL also added a new 29 C.F.R. § 5.33 to codify the existing WHD policy under which a contractor or subcontractor may not take Davis-Bacon credit for its own administrative expenses incurred in connection with fringe benefit plans. That policy is consistent with the DOL’s regulations under the Service Contract Act (SCA) and with case law under the Davis-Bacon Act, under which such costs are viewed as “part of [an employer’s] general overhead expenses of doing business and should not serve to decrease the direct benefit going to the employee.” Collinson Constr. Co., WAB No. 76–09, 1977 WL 24826, at *2.
The revised 29 C.F.R. § 5.33 delineates which costs are “creditable” and which costs are “noncreditable,” and explains that questions regarding whether a particular cost or expense is creditable towards a contractor’s prevailing wage obligations should be referred to the Administrator for resolution prior to any such credit being claimed.
Clarification to Fringe Benefit Contributions to Plans Managed by a Trustee or Third Party
The DOL made non-substantive changes to the 29 C.F.R. § 5.26, which address the requirements that apply to any fringe benefit contributions made to a trustee or to a third person pursuant to a fund, plan, or program. While the changes are not substantive, the DOL did, in response to one comment, state:
The Department nonetheless recognizes that, as these commenters noted, the current regulation only includes trustees, not non-trustee “third persons,” when referring to applicable fiduciary responsibilities, whereas the proposed rule included both. Given the commenters’ concerns that this could be construed as a substantive change, the Department modifies the language in the final rule to state instead that “a trustee must adhere to any fiduciary responsibilities applicable under law.” The Department notes, however, that whether the recipient of fringe benefit contributions is a trustee or a third person, to the extent that the party is deemed a fiduciary under applicable law, if the party is found to have materially violated its fiduciary responsibilities with respect to the fringe benefit contributions, it is likely that such contributions will not be creditable under the DBRA. The final rule makes this change and otherwise adopts the language as proposed.
This commentary by the DOL raises the possibility that fiduciary breaches by trustees (or third parties) managing a fringe benefit program may impact contractors by making their contributions not creditable for fringe benefit purposes.
