Industry Insights

During the height of the recent economic downturn, the federal government poured billions of dollars of stimulus money into the U.S. economy to stem unemployment and jump-start the economy. A substantial portion of this money went toward federal construction and infrastructure projects as well as federally funded state and local government projects.

In February 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), which, among other things, provided substantial funding for federal construction and infrastructure projects such as roads, bridges, public transit, water systems and housing.

As ARRA funds work their way through the federal request for proposal and appropriations process, contractors may discover many projects initially funded through ARRA are currently coming up for bid and present attractive opportunities to complement their private sector work. Contractors should be aware of additional compliance and reporting requirements that accompany federal government projects and potential problems to avoid.

Davis-Bacon & Related Acts (DBRA)

Since the passage of the original Davis-Bacon Act in 1931, there have been 60 additional laws which affect or relate to the Davis-Bacon Act (collectively known as Davis-Bacon & Related Acts). The original act was enacted during the Great Depression as a way to protect workers from non-local contractors, who would frequently underbid local wage levels to win federal contracts. Although DBRA has been in existence for nearly 80 years, the recent influx of federal funding through ARRA construction projects requires contractors to make sure they are up to speed with federal prevailing wage laws.

Covered Contracts Under DBRA

Any competitively bid or negotiated contract in excess of $2,000, and to which the federal government or District of Columbia is a party, falls under DBRA provisions. In addition to direct federal contracts, any contract that receives federal grants, loans, insurance or guarantees also is required to adhere to DBRA provisions. This effectively extends the DBRA to include all state and local agency contracts funded or partially funded by the U.S. government or one of its agencies.

Covered Workers Under DBRA

DBRA requires local prevailing wages be paid to all mechanics and laborers “employed directly upon the site of the work.” The term “mechanic” is generally interpreted within DBRA to mean any skilled trade, such as an electrician, brick mason, etc., while the term “laborer” refers to all other unskilled trades. Apprentices and trainees also are covered under DBRA, although special provisions apply to these workers, and they are generally paid a percentage of the determined prevailing wage. Administrative and professional staff or any other workers who qualify as exempt employees under Section 541 of the Fair Labor Standards Act of 1938 are generally not covered by DBRA. Additionally, bona fide business owners are not considered covered employees. It is important to note that DBRA provisions only apply to covered workers while they perform work directly on the work site or an adjacent property. Therefore, it is possible for workers to partially qualify under DBRA if time is spent on and off the work site.

Determining Correct Prevailing Wages & Fringe Benefits

Prevailing wages are determined by the U.S. Department of Labor and are generally categorized by type of work, trade classification of workers and geographic location. Contractors are responsible for determining the correct wage classification for each covered worker, so it is important at the beginning of the project to identify the proper wage determination. The wage determination always is made up of two amounts for each worker classification:  a base hourly rate and a fringe benefit amount, which combine to make up the prevailing wage. The contractor has some flexibility as to how the prevailing wage is paid and can usually pay any combination of cash wages and fringe benefits, as long as cash wages comply with other labor standards, such as minimum wage laws.

For example, the wage determination of an electrician in Denver, Colorado, may read as follows:

Rate: $23                Fringes: $8.50                Total:  $31.50

A contractor is not required to pay cash wages of exactly $23 and fringe benefits of $8.50. Instead the contractor may pay any combination of cash wages and fringe benefits, so long as the total amount paid to the employee totals $31.50.

Certified Payroll

Throughout the duration of a DBRA project, contractors must submit weekly certified payroll reports to the awarding body of the contract. These reports are signed, under penalty of perjury, and detail the number of workers, trade classifications, hours worked and prevailing wage rates. It is possible for an employee to perform work in more than one category, so it’s necessary for contractors to track both the hours worked and type of work performed.

Subcontractors & Sub-Tier Contractors

It is important to note that prime/general contractors on any DBRA project are ultimately responsible for the proper classification and payment of prevailing wages to all workers on the job site, including workers of subcontractors. Subcontractors are likewise responsible for the proper classification and payment of prevailing wages for any sub-tier contract workers. To help mitigate potential liability, general contractors (or subcontractors with sub-tier contractors) should consider adding language to their contracts requiring compliance with DBRA.

Contractors who do not comply with DBRA requirements face possible fines or withholding of funds by the contracting agency. In serious instances, contractors face the possibility of disbarment by the federal government from entering into future contracts.

Although DBRA requirements have been around for nearly 80 years, contractors considering a foray into the federal project arena should make sure they are up to speed on federal prevailing wage law. Contact your BKD advisor for more information.