Public agencies and private entities are increasing collaboration to develop, operate and maintain a variety of transportation and building projects. The involvement of a public agency in these “public-private partnerships” or “P3s” may necessitate compliance with statutes or regulations not otherwise applicable to privately developed projects, including a requirement to pay prevailing wages to construction workers. In a recent decision, the U.S. Court of Appeals held that a private project developed on land leased from the District of Columbia (D.C.) is not subject to the Davis Bacon prevailing wage requirements.
Enacted in 1931, the Davis Bacon Act (Act) originally covered contracts for construction of “public buildings” entered into by the federal government and D.C. The statute requires that construction workers on covered projects be paid not less than the prevailing rate of wages for work of a similar nature in the local labor market. The statute was amended a few years later to also include federal and D.C. contracts for construction of “public works.” Many states and municipalities have similar statutes governing construction of various public works. Increasing innovation in real estate and development transactions between public agencies and private entities have blurred the lines between public works subject to prevailing wage requirements and private projects exempt from statutory wage regulation.
The CityCenterDC project involved a combination of leases and development agreements between the DC and a group of private developers. D.C. entered into 99-year ground lease agreements with the private developers and received lease payments in return for the developers’ right to use D.C.’s convention center site. In addition, D.C. and the developers entered into development agreements requiring the developers to develop and build CityCenterDC, an upscale mixed use project composed of office, retail, residential and hotel space. While D.C. maintained the right to approve the developers’ general contractors, neither the leases nor the development agreements contemplated that D.C. would be a party to any contracts for the actual construction of the CityCenterDC project.
The Mid-Atlantic Regional Council of Carpenters’ request for a determination as to whether the Act applied to construction of CityCenterDC resulted in litigation and, ultimately, review by the U.S. Court of Appeals for the District of Columbia. That court ruled that the CityCenterDC project failed to meet either of two independent prerequisites to application of the Act. First, the court found that the Act applies only to construction contracts entered into by the federal government and D.C. and here D.C. was not a party to any of the actual construction contracts. The court rejected the U.S. Department of Labor’s assertion that the development agreements constituted “contracts for construction” as referenced in the Act. As a second independent basis for concluding that the Act did not apply, the court found that the project was not a “public work” within the meaning of the Act. The court reasoned that in order to be classified as a public work, a project must possess public funding, public ownership, or government operations of the completed facility. In rejecting CityCenterDC as a public work, the court noted:
“D.C. provided no public funding for construction of CityCenterDC. D.C. does not occupy any space at CityCenterDC. D.C. does not own or operate any of the businesses located there. And D.C. does not offer any government services there.”
While helpful clarification as to application of the Act given the structure of the particular lease and development transactions at issue, the impact of the CityCenterDC decision may be limited. The structures of projects, including financing, ownership, operation and use vary widely and the application of the Act will need to be assessed on a case by case basis. Similarly, owners and developers should also familiarize themselves and ensure compliance with any applicable state or municipal equivalents to the Act.