U.S. Department of Labor Proposes Overhaul of Prevailing Wage Law for Government-Funded Construction Projects

The U.S. Department of Labor (DOL) has proposed an overhaul of the regulations that establish minimum wages for government-funded construction projects. The proposal is part of the Biden administration’s larger initiative to create new jobs through infrastructure spending. If adopted after the 60-day public comment period, the revised regulations would affect an estimated 1.2 million workers and $187 billion in annual federal spending on public infrastructure construction.

Revised Prevailing Wage Standard Would Lead to Increased Minimum Wage Requirements for Government Construction Contractors

Under the Davis-Bacon Act of 1931 (DBA) and its enabling regulations, minimum wages for government-funded construction projects are determined based on the prevailing wage in the relevant geographic area. Currently, the “prevailing” wage is determined based on a 50-percent threshold. The DOL’s proposal would reduce this threshold to 30 percent, meaning that a wage rate would be considered “prevailing” if paid to at least 30 percent of local workers. This would effectively raise the minimum wage companies are allowed to pay for government-funded construction projects—significantly in some cases.

While the Administrator of the DOL’s Wage and Hour Division (WHD) says that the overhaul is necessary, “to ensure employers on federally funded or assisted construction projects pay fair wages,” critics argue that the prevailing wage concept is flawed. They also argue that increasing the minimum wage for federal construction contracts will exclude small businesses from bidding on these contracts and ultimately limit new job opportunities. According to Reuters, North Carolina Representative Virginia Foxx said that the proposal will, “drastically increase the cost of federal projects, curbing job creation and slowing construction.” Foxx has also argued that a prevailing wage standard at any level is “notoriously inaccurate[ and] unfairly favors unions.”

The DOL’s Proposal Would Also Require More-Frequent Prevailing Wage Adjustments

In addition to revising the prevailing wage standard, the DOL’s proposal would also require more-frequent prevailing wage adjustments. As stated in the proposal:

“In a 2011 report, the Government Accountability Office (GAO) reviewed the Department’s wage survey and wage determination process and found that the Department was often behind schedule in completing wage surveys, leading to a backlog of wage determinations and the use of out-of-date wage determinations in some areas. . . . A 2019 report from the [DOL’s] Office of the Inspector General (OIG) made similar findings regarding out-of-date wage determinations. ”

According to the DOL, more-frequent adjustments are necessary to both address “dissatisfaction among regulated parties” and ensure that workers employed under government construction projects receive fair wages based on current (or, at least relatively current) prevailing wage data. The DOL also states that more-frequent updates would provide greater certainty and thus reduce contractors’ risk of facing enforcement action (more on this below).

DOL Proposal Would Affect Virtually All Federally-Funded Construction Projects

The DOL’s proposal to revise the prevailing wage threshold and require more-frequent adjustments would affect virtually all federally-funded construction projects. As noted in the proposal, the Davis-Bacon Act applies to federal contracts, “that are in excess of $2,000 and for the construction, alteration, or repair of public buildings or public works. . . . [and] Congress [has] incorporated DBA prevailing wage requirements into numerous statutes . . . under which federal agencies assist construction projects through grants, loans, loan guarantees, insurance, and other methods.”

In theory, the Davis-Bacon Act’s prevailing wage standard is intended to prevent government construction contractors from depressing local wage standards. By requiring contractors to pay their employees the local prevailing wage, the DBA seeks to ensure that employees do not suffer negative economic impacts as a result of the competitive bidding process.

In practice, however, the prevailing wage standard can have its own unintended negative consequences. For example, small businesses are not always able to absorb additional costs in the same way as larger companies, and reduced competition can ultimately lead to higher costs for taxpayers. Additionally, rather than absorbing additional costs, companies may simply hire fewer employees to offset the financial burden of the prevailing wage. However, in support of its proposal, the DOL says that the volume of government-funded contracts—and the number of workers employed under these contracts—will “continue to grow,” as authorities at the federal and state levels are working to address, “the significant infrastructure needs of the country, including . . . the energy and transportation infrastructure necessary to mitigate climate change.”

Proposal Also Signals the DOL’s Intent to Prioritize and Streamline Enforcement Under the Davis-Bacon Act

Notably, the proposal also signals the DOL’s intent to prioritize and streamline its enforcement efforts under the Davis-Bacon Act. While the proposal discloses that the DOL has recovered more than $213 million in unpaid wages for more than 84,000 workers over the past decade, it also gives the example of one recent case in which it took eight years to resolve a case that arose out of an erroneous failure to include mandatory wage determination clauses in a blanket purchasing agreement. In light of this and other related concerns, the proposal states that the DOL, “now seeks to address a number of these outstanding challenges in the program while also providing greater clarity in the [DBA] regulations and enhancing their usefulness in the modern economy.”

What Does This Mean for Construction Companies That Bid on Government Infrastructure Projects?

So, what does all of this mean for construction companies that bid on government infrastructure projects? At the moment, the answer remains to be determined, as the DOL’s proposal is not yet final. But, assuming the DOL amends its DBA regulations as proposed, government construction contractors will need to work with their counsel to ensure that they have appropriate policies and procedures in place to comply with the revised regulations and avoid potentially costly enforcement action.