On August 8, 2023, the Department of Labor (DOL) announced their final rule (Final Rule) revising the Davis-Bacon Act (DBA) and Davis-Bacon Related Acts (Related Acts) regulations. These are the largest and most significant revisions in the last 40 years. In this client alert, PilieroMazza’s Labor & Employment Group summarizes key points of the Final Rule and its impact on prevailing wage and fringe benefit requirements for contractors working on government construction projects. The Final Rule is expected to be published in the Federal Register shortly and will go into effect 60 days from publication.
1. The DBA and Related Acts
The DBA is a federal prevailing wage statute that requires government contractors to pay prevailing wages and fringe benefits to laborers and mechanics working on federally funded or assisted contracts for construction, alteration, or repair of public buildings or public works. The Related Acts subsequently incorporated DBA prevailing wage requirements into numerous construction projects which are assisted by federal agencies through grants, loans, loan guarantees, insurance, and other methods. Under the DBA and Related Acts (collectively, DBRA), DOL publishes wage determinations that catalog the wages and fringe benefits owed to laborers and mechanics working on covered contracts. These wage determinations are calculated through the use of wage surveys conducted by DOL to determine what wage and fringe benefits are prevailing in the locality.
2. Significant Changes to the Regulations
Three Step Method. Currently, DOL determines a locality’s prevailing wage by identifying a rate paid to the majority of workers in the locality, i.e., a rate paid to at least 50 percent of workers. If no such majority exists, DOL relies on the weighted average paid to workers. In other words, DOL determines the prevailing wage by calculating the average rate, taking into consideration the frequency of the different rates paid to workers. DOL estimates the weighted average currently makes up two-thirds of the prevailing wage rates across the U.S.
In contrast, the Final Rule returns to the so called “Three Step Method” in calculating the prevailing wage. The Three Step Method was in effect between the enactment of the DBA and its revisions in 1983. The Three Step Method uses three steps (instead of two) to filter through the information that DOL collects when determining the prevailing wage. A wage is identified as “prevailing” if it is the rate paid to a majority of workers. If there is no rate that at least 50 percent of workers are paid, then it is the rate paid to at least 30 percent of the workers. And finally, if there is no rate paid to at least 30 percent of workers, then it is the weighted average rate paid to the workers.
Reversion to the Three Step Method is expected to lead to significant increases in prevailing wage rates due to the number of localities where unionized rates make up more than 30 percent (but less than 50 percent) of the locality’s rates. Under the Three Step Method, these localities will now consider the union rates to be prevailing rather than the weighted average of rates paid in the locality.
Wage Determinations Effective by Operation of Law. DOL’s Final Rule establishes that the DBRA and wage determinations will be effective “by operation of law,” a dramatic change to previous regulations.
Currently, DBRA obligations only apply to a contract where the correct FAR clauses and/or wage determinations were incorporated. In other words, the DBRA functions as a creature of contract and where an agency failed to incorporate the appropriate contract clauses or wage determination(s), there is no obligation for a contractor to comply with DBA prevailing rates. Instead, DOL’s only method for enforcement would be to order the procuring agency to retroactively incorporate the required clauses. Only after the right language is included in the contract would DOL be able to hold a contractor responsible for complying with the DBRA requirements.
Under the Final Rule, DOL will soon have authority to enforce the DBRA requirements even where an executive agency omitted the DBA contract clauses or wage determinations from the contract. Practically, this means that even if the contractor has no notice that a contract is covered by the DBRA, or of the applicable wage determination rates, they are still required to pay prevailing wages and fringe benefits. These new changes will allow DOL to hold contractors responsible without the required contract clauses and subject them to withholding, back wages, and other enforcement mechanisms before the contractor receives a contract adjustment. These changes ensure that workers on covered contracts receive their unpaid wages quicker than before, but it also suggests that contractors will be responsible for mistakes made by the executive agency in the procurement process. The change will only apply to new contracts entered into after the Final Rule becomes effective in early October.
Changes to the Conformance Process. The Final Rule also makes changes to the conformance process and the listing of classifications in wage determinations for which DOL received insufficient data to determine a prevailing wage rate. Where DOL received insufficient data, for example, if there are no responses for a particular labor category, the classification is not listed in the wage determination. This requires the contractor to submit a conformance request to DOL to add a new labor classification to the wage determination covering the specific contract at issue. DOL determined that this process is too burdensome and, in the future, will be listing frequently conformed positions on the wage determination instead of approving such conformances on a case-by-case basis.
Changes to the Related Acts Debarment Process. The DOL Final Rule also makes significant changes to the Related Acts debarment regulations. Historically, the standard for debarment under the DBA was separate and distinct from the standard under the Related Acts. The Final Rule merged the two standards, replacing the Related Acts’ “aggravated or willful violation” standard with the DBA’s “disregard of obligations” standard. DOL will also import the DBA’s mandatory three-year debarment period to violations of the Related Acts, eliminate a contractor’s opportunity to apply for early removal from the debarment list, and apply the same scope of debarment applied to DBA violations.
3. Other Notable Changes
- DOL adopts additional recordkeeping obligations. Contractors will be required to provide telephone numbers and email addresses upon request and also keep all DBA and DBRA-related documents for three years after the completion of the project. This means that contractors must keep all contract documents such as bids, submissions, payroll, etc., for at least three years after a project is completed.
- DOL adopts new anti-retaliation clauses to be inserted in covered contracts allowing DOL to give “make-whole” relief to workers who were discriminated against for taking or being perceived to have taken protected actions concerning labor standards under the DBRA.
- The Final Rule makes clear that contractors can be held responsible (including possible debarment) for a lower-tiered subcontractor’s DBRA violations.
- The Final Rule provides clarification on what types of demolition and removal work is covered by the DBRA and provisions related to the coverage of truck drivers.
4. Key Takeaways
- Contractors should expect marked increases to prevailing rates in certain localities due to DOL’s reversion to the Three Step Method, which is likely to give a preference to union rates.
- Contractors will have a new responsibility to determine whether a project is DBRA and what prevailing wage applies. An agency’s mistake will no longer be a defense for failure to pay employees correctly.
- The Final Rule imposes many new obligations on contractors, including record-keeping obligations and anti-retaliation provisions, while at the same time loosening the standard for debarment due to a violation. It is important that construction contractors familiarize themselves with these new obligations to ensure compliance.
- Given the large scope of these changes, and the impact they will have on the construction industry, it’s likely they will be challenged in court. Contractors should stay tuned for legal action that may stay implementation of certain requirements.
If you have any questions about the Final Rule or the DBRA more generally, please contact Sarah Nash or Kirby Rousseau, the authors of this client alert, or another member of PilieroMazza’s Labor & Employment Group.
Visit this link to check out the latest podcast episodes from “Clocking in with PilieroMazza: Labor & Employment News for Government Contractors.” We also encourage you to visit this link to view available training modules designed to help government contractors stay in compliance with their contract requirements.
