Referring to the “novelty of the U.S. Department of Labor's interpretation,” a federal Court of Appeal has held that construction of the CityCenterDC private development project is not subject to Davis-Bacon wage rates, even though the land where it is located is being leased from the District of Columbia. The case is District of Columbia v. Dep't of Labor, 2016 U.S. App. LEXIS 6173 (April 5, 2016).
In 2001, the District of Columbia entered into a 99-year ground lease and one or more development agreements with a private developer, on the site of the D.C. convention center. The developer eventually built CityCenterDC, which “features upscale retail stores such as Hermès, Boss, and Louis Vuitton; high-end restaurants such as DBGB and Centrolina; the large private law firm of Covington & Burling; and luxury residences.” In 2008, a labor union asked D.C. to determine whether the project should be subject to prevailing wage rates. The D.C. government determined that Davis-Bacon did not apply, as "the District will not be party to any construction contracts, the project to be built will not be owned by the District and no District funds will be used to pay construction costs."
In 2009, the union sought a ruling from the U.S. Department of Labor, and the Chief of Branch of Government Contracts ruled that the project was not a public work, and so the wage rates did not apply. On an administrative appeal, the Administrator of the Wage and Hour Division overturned the decision of the Branch Chief, finding that it “'sufficiently' served the public interest” to qualify as a public project. Next, D.C. appealed that decision to the Administrative Review Board of the US DOL, which affirmed, concluding that the agreements between D.C. and the developers were agreements for construction.
The District of Columbia then filed suit in federal court against the US DOL, and the District Court ruled in favor of D.C. So the appeal to the Court of Appeal represented the sixth layer of administrative and court decision.
The Court of Appeal noted that, for the Davis-Bacon Act to apply, the contract must be for public works to which either the federal government or the District of Columbia is a party. “The CityCenterDC project meets neither requirement. First, D.C. is not a party to the contracts for construction of CityCenterDC. Second, CityCenterDC is not a public work.” When D.C. entered into a 99-year ground lease, it was not entering into a construction contract. Thus, the Court of Appeal found the DOL position, that the development agreements were contracts for construction, to be without foundation. More specifically: “The lease agreements and the development agreements were not contracts for construction under any reasonable understanding of what a contract for construction entails.”
On the issue of whether CityCenterDC was a public work, the Court of Appeal noted that the DOL conceded that the building is a private building, yet somehow argued that the entire project was still a “public work.” The court responded:
it is clear enough that a project must possess at least one (if not both) of the following two characteristics in order to qualify as a public work under the Davis-Bacon Act: (i) public funding for the construction or (ii) government ownership or operation of the completed facility.
Therefore, to determine whether CityCenterDC is a public work, we must assess whether CityCenterDC possesses at least one of the following two characteristics: (i) public funding for the construction of CityCenterDC or (ii) government ownership or operation of CityCenterDC. CityCenterDC possesses neither characteristic.
The Court of Appeal also discusses what it describes as other “anomalies” of the position taken by the US DOL. Suffice to say that the DOL was rebuked by the Court of Appeal, which found no basis to argue that CityCenterDC was a public work, for which construction required payment of Davis-Bacon wage rates.
It remains to be seen whether the DOL will appeal to the U.S. Supreme Court. With an as-yet unfilled vacancy on the Supreme Court, the outcome could be in question, but it is unlikely to be overturned yet again.