As any contractor will tell you, the costs associated with paying your crew can be one of the biggest you will face in the construction industry. There is pressure to find reliable, experienced workers, and the competition to keep those workers is fierce. Now, the U.S. Department of Labor (DOL) has proposed a change to the Davis-Bacon Act that may impact how much you will have to pay your workers.
What the Proposal Suggests
The change revolves around the “prevailing wage.” When the Davis-Bacon Act was adopted in 1931, it called for workers on federal construction projects to be paid locally prevailing wages, as well as fringe benefits. The Supreme Court once described the law as “a minimum wage law designed for the benefit of construction workers.” Its rules are applicable to workers under contract with federal agencies for more than $2,000, and it relates to the repair, alteration, or construction of public works and public buildings.
For decades, the DOL used a three-step process to determine the prevailing wage. Those steps are as follows:
- Use the wage rate paid to a majority of the workers.
- If no such majority wage exists, use the wage paid to the largest number of workers, as long as it was paid to at least 30 percent of the workers (30 percent rule).
- If the 30 percent rule could not be met, then use the weighted average rate.
However, in 1983, the regulation removed the second step. According to the DOL, this two-step process has resulted in contractors overusing the weighted average rate. So, the DOL proposes returning to the three-step process.
The proposed new rule also includes anti-retaliation language and revises how often the regulation can be updated.
What This Means for Construction
If the DOL is successful with this proposal, the prevailing wage will significantly increase. That increase means that the costs of federally funded and federally assisted construction projects will rise substantially. In addition, this change will give local unions more power, as they will be able to set their collective bargaining agreement (CBA) rate.
When the prevailing wage rule process was changed in 1983, the DOL agreed with concerns expressed by some experts that the 30 percent rule could lead to higher inflation and gave too much weight to CBA rates. But now, with its intent to reinstate the three-step process, the DOL has apparently dismissed such arguments.
The Davis-Bacon Act applies to approximately $217 billion in federal construction spending each year, and it sets prevailing wage rates for about 1.2 million U.S. construction workers. Given the country’s extraordinary infrastructure needs, the DOL expects those numbers to increase.
It is likely that the proposed change will be approved. The only recourse available is public comment. If you feel strongly about this issue, you can provide comments on the Federal Register site.
For more information on this subject, please contact Trent Cotney, partner at Adams and Reese LLP, at email@example.com.