The U.S. Department of Labor’s finalization of a rule updating the Davis-Bacon Act, the federal law which governs how prevailing wages for federal construction projects can be determined, will have a significant impact on contractors and workers alike in the construction industry. The new rule, in effect, adopts the 30% rule, meaning that the prevailing wages must be equal to the wage paid to at least 30% of workers of a particular classification in a particular area. The new rule also implements a new anti-retaliation provision, specifically protecting construction workers who raise concerns about payment practices from adverse employment actions. The timing of this new rule is particularly significant for contractors, as it will likely raise the cost of labor for contractors at a time when the Infrastructure Investment and Jobs Act and the CHIPS Act are providing additional funding for federal projects across the country. Thus, it is important for all parties in the construction industry to understand the updated rule in order to evaluate the short-term impacts on their respective projects and long-term impact on their respective businesses. 

What is the Davis-Bacon Act?

Often associated with the Great Depression, the Davis-Bacon Act was enacted in 1931. The DBA mandated that any workers hired for a federally funded construction project must be paid the prevailing wage of the area in which the work was being performed. Under the DBA, contracts over $2,000 on such public works are required to pay the prevailing wages the DOL has set. The intent of the DBA was to prevent contractors from importing workers from other communities and paying them less compensation. Unsurprisingly, proponents and opponents of the law put forth the same arguments they did almost 100 years ago. Supporters of the DBA argue it ensures workers are paid a fair wage and that the overall quality of projects correspondingly improves, while opponents oppose it on the basis that it unnecessarily increases the costs of projects, which can be particularly impactful depending on current economic conditions.

Under the DBA, the Wage and Hour Division of the DOL sets the prevailing wage rates by determining the prevailing wages paid in a given area for a particular type of construction. In doing so, the DOL considers wages paid in private as well as public construction projects for the particular type of work classification. The DOL sets both General Wage Determinations that reflect the rates it determines are prevailing in a specific geographic area for a particular work classification and Project Wage Determinations issued on a particular project. Contractors on public works projects are required to display, in a prominent and accessible place, the applicable wage determinations and the federal poster informing workers about the DBA.

The “New” Prevailing Wage Rate Rule 

Prior to the rule change, the DOL set prevailing wage rates based on information provided by wage surveys using a majority—50% or more—as the determining factor. As part of the changes to the DBA, the DOL is redefining the term prevailing wage, and returning to the 30% rule, which was in place from the inception of the DBA through 1982.The 30% rule is the wage paid to at least 30% of workers of a particular classification in a particular area, if a majority of workers of that classification aren’t paid the same wage. This change is significant and will undoubtedly impact contractors. Due to this rule change, prevailing area wage rates are likely to increase, along with an increase to construction costs as a whole to the industry as costs are passed up and down the industry. This will likely also cause an increase in the influence of collective bargaining agreements to prevailing area wage rates, which could further increase prevailing wages over the long term.

The DBA’s New Anti-Retaliation Provision

Under the current rules, the DOL could debar contractors for violations, but could not order relief to employees who were retaliated against for complaining about violations. Under the new rules, the DOL expanded the suite of remedies it can order when finding that a contractor or subcontractor has retaliated against workers. Specifically, the new anti-retaliation provisions aim to discourage contractors, responsible officers and any other persons from engaging in—or causing others to engage in—business practices that may chill worker participation in the Wage and Hour Division’s investigations or other compliance actions. Examples of the new remedies available to make a person whole for any violation of the anti-retaliation provisions are: employment, reinstatement, front pay in lieu of reinstatement, back pay and interest, and compensatory damages, among many others.

Impact on the Construction Industry

There is little doubt the DBA will make a significant impact on the construction industry. Under the new rule, compliance will be more complicated, wages and costs will likely continue to rise and more risk will be shifted onto contractors. While recent federal legislation has provided additional funding for infrastructure and green energy projects, all of these changes come at a time when the construction industry is already facing increasing inflationary pressures and increased financing costs due to higher interest rates. When taken as a whole, these changes make it more challenging for contractors to comply with the DBA and make the consequences of failing to comply much more severe.

Conclusion

Public works projects can offer dependable income for contractors, but any project using federal funding comes with laws and regulations attached, such as the DBA. Failure to classify workers correctly and pay them the correct wage for work performed can result in serious consequences—namely back charges from the DOL and even debarment from work on future government contracts. It is critical that contractors take advantage of all resources available to help them understand and comply with federal laws. Rather than attempting to navigate these laws alone, contractors should seek out and partner with trusted legal counsel, as well as other professional such as accounting firms.