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 DOL made revisions to 29 C.F.R. 1.6(f), 5.5, and 5.6 to address what happens if a contracting agency wrongly fails to include a Davis-Bacon Act contract clause or wage determination in a contract. The DOL’s goal was to provide a regulatory mechanism for the DOL, or workers, to obtain wages required by the Davis-Bacon Act where an agency failed to include the contract clauses or wage determinations required by the Davis-Bacon Act.
The changes are;
29 C.F.R. § 5.5(e): Added language to provide that the labor standards contract clauses and appropriate wage determinations will be effective “by operation of law” in circumstances where they have been wrongly omitted from a covered contract:
29 C.F.R. § 5.5(e) Incorporation by operation of law. The contract clauses set forth in this section (or their equivalent under the Federal Acquisition Regulation), along with the correct wage determinations, will be considered to be a part of every prime contract required by the applicable statutes referenced by § 5.1 to include such clauses, and will be effective by operation of law, whether or not they are included or incorporated by reference into such contract, unless the Administrator grants a variance, tolerance, or exemption from the application of this paragraph. Where the clauses and applicable wage determinations are effective by operation of law under this paragraph, the prime contractor must be compensated for any resulting increase in wages in accordance with applicable law.
Under this new regulation, erroneously omitted contract clauses and appropriate wage determinations will be enforceable retroactive to the beginning of the contract or construction. This means that the DOL can enforce prevailing wage requirements on contractors whose contracts should have, but did not, include applicable wage determination.
Contracting agencies will be required to compensate contractors for any increases in wages resulting from a post-award incorporation of a contract clause or wage determination by operation of law. Contracting agencies can also seek a variance, tolerance, or exemption from the application of the regulations.
Notably, this “operation of law” provision will only apply to prime contractors, not subcontractors. The DOL explained that:
the Davis-Bacon regulations and case law provide that the prime contractor is responsible for the payment of applicable wages on all subcontracts. If the prime contract contains the labor standards as a matter of law, then the prime contractor is required to ensure that all employees on the contract—including subcontractors’ employees—receive all applicable prevailing wages. Accordingly, as the Department explained in the NPRM, extending the operation-of-law provision itself to subcontracts is not necessary to enforce the Congressional mandate that all covered workers under the contract are paid the applicable prevailing wages.
This new regulation will also only apply to new contracts executed after the effective date of the regulations. It will not apply to construction contracts in place prior to that effective date:
Once the operation-of-law provision at § 5.5(e) is effective and applicable to a contract, it will require the incorporation as a matter of law of any omitted contract clauses and wage determinations that would have been appropriate and necessary to include in the contract at the time the contract was entered into. Because § 5.5(e) will generally only apply to contracts newly entered into after the applicability date, the Department would not interpret § 5.5(e) to require the contract clause provisions as amended in this final rule to be incorporated by operation of law to replace the contract clauses that have already been physically incorporated into contracts entered into before the applicability date. Similarly, § 5.5(e) would not incorporate the contract clauses into any contract from which the clauses have been wrongly omitted unless that contract has been entered into after the effective date of the final rule. For any contracts entered into prior to the effective date of the final rule that are missing required contract clauses or wage determinations, the Department will seek to address any omissions solely through the modification provisions in the existing regulation at § 1.6(f).
29 C.F.R. § 5.5(d): Clarified that the clauses and wage determinations are equally effective if they are incorporated by reference.
29 C.F.R. § 5.5(d) Incorporation of contract clauses and wage determinations by reference. Although agencies are required to insert the contract clauses set forth in this section, along with appropriate wage determinations, in full into covered contracts, and contractors and subcontractors are required to insert them in any lower-tier subcontracts, the incorporation by reference of the required contract clauses and appropriate wage determinations will be given the same force and effect as if they were inserted in full text.
29 C.F.R. § 1.6(f)(1): Added new language clarifying that the contracting agency can incorporate the correct wage determination post-award “upon its own initiative,” as opposed to having to wait for a request from the DOL, as well as clarifying that the requirements apply equally to projects carried out with Federal financial assistance as they do to Davis-Bacon Act projects.
29 C.F.R. § 1.6(f) Post-award determinations and procedures. (1) If a contract subject to the labor standards provisions of the laws referenced by § 5.1 of this subtitle is entered into without the correct wage determination(s), the agency must, upon the request of the Administrator or upon its own initiative, incorporate the correct wage determination into the contract or require its incorporation. Where the agency is not entering directly into such a contract but instead is providing Federal financial assistance, the agency must ensure that the recipient or sub-recipient of the Federal assistance similarly incorporates the correct wage determination(s) into its contracts.
29 C.F.R. § 1.6(f)(3): Added language consistent with the changes to 29 C.F.R. § 5.5(e), including that contractors must be compensated for any increases in wages resulting from incorporation of a missing wage determination and that:
The new language is:
29 C.F.R. § 1.6(f)(3): Under any of the circumstances described in paragraphs (f)(1) and (2) of this section, the agency must either terminate and resolicit the contract with the correct wage determination or incorporate the correct wage determination into the contract (or ensure it is so incorporated) through supplemental agreement, change order, or any other authority that may be needed. The method of incorporation of the correct wage determination, and adjustment in contract price, where appropriate, should be in accordance with applicable law. Additionally, the following requirements apply:
(i) Unless the Administrator directs otherwise, the incorporation of the correct wage determination(s) must be retroactive to the date of contract award or start of construction if there is no award.
(ii) If incorporation occurs as the result of a request from the Administrator, the incorporation must take place within 30 days of the date of that request, unless the agency has obtained an extension from the Administrator.
(iii) Before the agency requires incorporation upon its own initiative, it must provide notice to the Administrator of the proposed action.
(iv) The contractor must be compensated for any increases in wages resulting from incorporation of a missing wage determination.
(v) If a recipient or sub-recipient of Federal assistance under any of the applicable laws referenced by § 5.1 of this subtitle refuses to incorporate the wage determination as required, the agency must make no further payment, advance, grant, loan, or guarantee of funds in connection with the contract until the recipient incorporates the required wage determination into its contract, and must promptly refer the dispute to the Administrator for further proceedings under § 5.13 of this subtitle.
(vi) Before terminating a contract pursuant to this section, the agency must withhold or cross-withhold sufficient funds to remedy any back-wage liability resulting from the failure to incorporate the correct wage determination or otherwise identify and obligate sufficient funds through a termination settlement agreement, bond, or other satisfactory mechanism.
29 C.F.R. § 5.6(a)(1) Added a procedure for determining that the required contract clauses were wrongly omitted from a contract. The DOL also added language stating that, in the event the clauses were wrongly omitted the applicable agency must incorporate the clauses or require their incorporation into any contract that is either awarded by the agency or receives funding assistance from the agency. The DOL also revised 29 C.F.R. § 5.6(a)(1) to reflect the changes to 29 C.F.R. § 1.6(f). The DOL explained that:
The proposed changes clarify that the requirement to incorporate the Davis-Bacon labor standards clauses is an ongoing responsibility that does not end upon contract award, and the changes expressly state the Department’s longstanding practice of requiring the relevant agency to retroactively incorporate, or ensure retroactive incorporation of, the required clauses in such circumstances. As discussed above, such clarification is warranted because agencies occasionally have expressed confusion about—and even questioned whether they possess—the authority to incorporate, or ensure the incorporation of, the required contract clauses after a contract has been awarded or construction has started.
The proposed changes similarly make clear that while agencies must retroactively incorporate the required clauses upon the request of the Administrator, agencies also have the authority to make such changes on their own initiative when they discover an error has been made. The proposed changes also eliminate any confusion among the recipients of Federal funding as to the extent of the Federal funding agency’s authority to require such retroactive incorporation in federally funded contracts subject to the Davis-Bacon labor standards. Finally, the proposed changes do not alter the provisions of 29 CFR 1.6(g), including its provisos.
The new language is:
29 C.F.R. § 5.6(a) Agency responsibilities. (1)(i) The Federal agency has the initial responsibility to ascertain whether the clauses required by § 5.5 and the appropriate wage determination(s) have been incorporated into the contracts subject to the labor standards provisions of the laws referenced by § 5.1. Additionally, a Federal agency that provides Federal financial assistance that is subject to the labor standards provisions of the Act must promulgate the necessary regulations or procedures to require the recipient or sub-recipient of the Federal assistance to insert in its contracts the provisions of § 5.5. No payment, advance, grant, loan, or guarantee of funds will be approved by the Federal agency unless it ensures that the clauses required by § 5.5 and the appropriate wage determination(s) are incorporated into such contracts. Furthermore, no payment, advance, grant, loan, or guarantee of funds will be approved by the Federal agency after the beginning of construction unless there is on file with the Federal agency a certification by the contractor that the contractor and its subcontractors have complied with the provisions of § 5.5, or unless there is on file with the Federal agency, a certification by the contractor that there is a substantial dispute with respect to the required provisions.
(ii) If a contract subject to the labor standards provisions of the applicable statutes referenced by § 5.1 is entered into without the incorporation of the clauses required by § 5.5, the agency must, upon the request of the Administrator or upon its own initiative, either terminate and resolicit the contract with the required contract clauses, or incorporate the required clauses into the contract (or ensure they are so incorporated) through supplemental agreement, change order, or any and all authority that may be needed. Where an agency has not entered directly into such a contract but instead has provided Federal financial assistance, the agency must ensure that the recipient or sub-recipient of the Federal assistance similarly incorporates the clauses required into its contracts. The method of incorporation of the correct wage determination, and adjustment in contract price, where appropriate, should be in accordance with applicable law. Additionally, the following requirements apply:
(A) Unless the Administrator directs otherwise, the incorporation of the clauses required by § 5.5 must be retroactive to the date of contract award or start of construction if there is no award.
(B) If this incorporation occurs as the result of a request from the Administrator, the incorporation must take place within 30 days of the date of that request, unless the agency has obtained an extension from the Administrator.
(C) The contractor must be compensated for any increases in wages resulting from incorporation of a missing contract clause.
(D) If the recipient refuses to incorporate the clauses as required, the agency must make no further payment, advance, grant, loan, or guarantee of funds in connection with the contract until the recipient incorporates the required clauses into its contract, and must promptly refer the dispute to the Administrator for further proceedings under § 5.13.
(E) Before terminating a contract pursuant to this section, the agency must withhold or cross-withhold sufficient funds to remedy any back wage liability resulting from the failure to incorporate the correct wage determination or otherwise identify and obligate sufficient funds through a termination settlement agreement, bond, or other satisfactory mechanism.
(F) Notwithstanding the requirement to incorporate the contract clauses and correct wage determination within 30 days, the contract clauses and correct wage determination will be effective by operation of law, retroactive to the beginning of construction, in accordance with § 5.5(e).
