A recent federal appellate decision examined an issue regarding private construction projects on public land in District of Columbia v. Department of Labor, 819 F.3d 444 (D.C. Cir. 2016). In this particular case, the district court and the appellate court involved refused to extend the application of the Davis-Bacon Act to the project in question. With the 2016 presidential election about a month away, this recent decision is important in the context of the construction industry because the administration that wins the election—depending on their labor stance—may push for more or less application of the DBA through the Department of Labor, an executive branch agency. Moreover, given the decision of the court, legislators running for election or reelection to Congress may have labor stances that should be examined by those interested in this issue and decision. This blog examines the opinion of the court and its reasoning in reaching its decision in this case and also comments on why this case is of importance to the construction industry.

The Davis-Bacon Act (“DBA”) (40 U.S.C. § 3141, et seq.) requires “prevailing wages”—a minimum hourly rate of pay combined with minimum fringe benefits—on applicable projects. Application of prevailing wage rates through the DBA is required as follows:

Application.—The advertised specifications for every contract in excess of $2,000, to which the Federal Government or the District of Columbia is a party, for construction, alteration, or repair, including painting and decorating, of public buildings and public works of the Government or the District of Columbia that are located in a State or the District of Columbia and which requires or involves the employment of mechanics or laborers shall contain a provision stating the minimum wages to be paid various classes of laborers and mechanics.

40 U.S.C. § 3142(a). Although the DBA’s application is limited by this provision, tying legislation extends the application of DBA’s prevailing wages to other areas including federally assisted and federally funded construction projects.

In District of Columbia v. Department of Labor, the court examined whether the DBA applied to set prevailing wages in the construction of CityCenterDC, which is a large private development in Washington, D.C. that includes upscale retail, commercial and residential property.[i] Taken alone, it would seem obvious that the DBA does not apply to this project. However, the complicating factor is that CityCenterDC sits on public land leased to private developers through a series of 99-year leases.[ii] In its analysis, the court looked primarily at two issues, each of which independently take the project out of the DBA’s purview, in determining that the DBA did not apply to the project.[iii] First, the District of Columbia was not a party to the construction contracts for construction of CityCenterDC.[iv] The private developers that leased the land from the District contracted with general contractors to build CityCenterDC as opposed to the District.[v] Second, CityCenterDC is not a public work.[vi] The court stated that in order for the project to qualify as a public work, at a minimum, the construction must be publicly funded or the completed project must be owned or operated by the government.[vii] In this case, neither of these factors was met.[viii]

Arguably, this base level analysis employed by the court still lacks much complication. However, the result and impact cannot be understated. In this age, where there is little public funding available for much needed development, public-private partnerships are being employed to fund projects that might otherwise not move forward. CityCenterDC is a public-private partnership of sorts, which is explored in the decision. In July 2001, a District task force recommended a mixed use urban neighborhood on the site of what is now CityCenterDC.[ix] As a result of a request for proposals, developers were chosen by the District for the project.[x] In addition to leasing the land, the developers also entered into development agreements with the District.[xi] The development agreements obligated the developers to enter into the construction contracts as opposed to the District.[xii] The District provided no public funding for the construction of CityCenterDC, and the District does not own, occupy or operate any space or businesses at CityCenterDC.[xiii]

With these facts, how did the issue arise in the courts? In April 2008, a labor union requested the District to determine whether the DBA would apply.[xiv] The District, in turn, decided that the DBA did not apply.[xv] The labor union then requested a ruling on the issue from the U.S. Department of Labor (“DOL”).[xvi] The DOL initially ruled that the DBA did not apply because the project was not a public work noting that the purpose of the project was primarily private and that there was a lack of public funding.[xvii] Not happy with the decision, the labor union administratively appealed the DOL’s initial decision within the U.S. Department of Labor.[xviii] The Administrator of the Wage and Hour Division of the DOL overturned the DOL’s initial decision.[xix] The Administrator determined that development agreements were construction agreements within the reach of the DBA and that the project was a public work.[xx] The District appealed this decision to the Administrative Review Board of the DOL, but the Board affirmed the decision concluding that the development agreements were construction contracts under the DBA and that CityCenterDC was a public work within the meaning of the Act.[xxi]

The District then filed suit in federal court challenging the DOL’s decision.[xxii] The trial court agreed with the District in ruling that the “plain language of the statute, as well as its history and purpose” establish that the DBA does not cover private projects like CityCenterDC.[xxiii] The trial court further stated that all parties agree that the DBA has never in its history been applied to a project like CityCenterDC that is privately financed, owned and maintained. [xxiv] The DOL then appealed the ruling of the trial court to thefederal appellate court.[xxv]

The appellate court’s decision is worded so strongly that it justifies quoting:

By its terms, the Davis–Bacon Act applies to construction contracts between a federal or D.C. government agency and a construction contractor. In this case, the U.S. Department of Labor seeks to stretch the Act to cover a three-party relationship in which a government agency rents property to a private developer, and the private developer in turn enters into a construction contract with a construction contractor. Or put another way, the Department contends that the Act covers contracts entered into by D.C. that are not themselves construction contracts but rather are contracts with developers where the developers will then separately enter into construction contracts with construction contractors.

No court has previously sanctioned such a significant expansion of the Davis–Bacon Act. We will not be the first.[xxvi]

The court went on to find that the DOL exceeded its statutory authority stating that the DOL’s interpretation of “contract … for construction” is contrary to the text, structure and purpose of the DBA.[xxvii] The court further stated:

The Department’s interpretation of the statutory term “contract … for construction” would significantly enlarge the scope of the Davis–Bacon Act. The Department’s interpretation would embrace any lease, land-sale, or development contract between the Federal Government or D.C. and another party, so long as the agreements required the counterparty in turn to undertake more than an incidental amount of construction. The terms of the Davis–Bacon Act are not so malleable. A contract for construction is a contract for construction. And a lease, land-sale, or development agreement that contemplates one of the parties entering into a future contract for construction with a third party construction contractor is not itself a contract for construction.[xxviii]

For the construction industry, the impact and importance of this decision cannot be understated particularly in the context of election season. Policies of executive branch agencies such as the DOL can be substantially influenced by the President’s policy preferences. In this instance, the courts stopped the DOL from legislating, or in effect, rewriting the DBA to meet its intended policy. Of course, the DBA could be amended by legislation to make it more expansive and meet the intended policy of the DOL for CityCenterDC. However, separation of powers between the three branches of government dictates that Congress, the legislative branch, take up any initiative as opposed to the executive branch DOL. There may be good or bad reasons for amending the DBA to meet the intended purpose of the DOL, but it will require legislators that are each accountable to the people of the country to take any such action. Those in the construction industry (and those outside, should the issue interest them) would be well served to study the positions of the candidates for president as well as Congress on labor issues such as this in the time leading up to Election Day.