The Davis-Bacon Act applies to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works. The Act requires contractors and subcontractors to pay their workers no less than the locally prevailing wages and fringe benefits for work on similar projects in the area. The U.S. Department of Labor’s Wage and Hour Division is responsible for collecting wage data and determining the prevailing wage. Significantly, as a past DOL Office of the Inspector General report concluded, the methods used by the WHD to obtain survey data can allow for significant bias. In many cases, wage determinations are not based on surveys of wages paid to workers on private projects in the relevant locality, but on union wage scales. As a result, projects subject to the Davis-Bacon Act result in higher labor costs.

In March, the district court for the District of Columbia limited the application of the Davis-Bacon Act. In CCDC Office LLC v. U.S. Department of Labor, et al., 1:13-cv-00737 (March 31, 2014), the district court granted summary judgment to the District of Columbia and private developer. While the court rejected the DOL's ruling that the Davis-Bacon Act can be expanded to include privately funded projects, the case highlights the need to carefully assess risks related to redevelopment projects with public oversight and benefits.

Background

The history of this case is long and tortured. In 2001, the District of Columbia decided to redevelop the site of the former Washington Convention Center, named CityCenterDC. The land is owned by the District of Columbia, concededly a public entity, but has been leased for 99 years to private developers. These private developers constructed a mixed-used development using only private funds. The occupants of the redevelopment are private entities, and the maintenance of the various buildings (condominium and apartment buildings, two office buildings, a hotel and retail establishments) will be paid from private funds.

In 2007, the District signed an Amended Development Agreement. In April 2008, the Carpenter’s Union, vying for higher labor wages on the project, asked the Mayor’s office whether the Davis-Bacon Act would be applied to the project. A deputy major responded that the Davis-Bacon Act did not apply to the project. The following year, the Carpenter’s Union requested a ruling from the Department of Labor as to whether the Davis-Bacon Act applied. On August 30, 2010, the DOL’s Chief of the Branch of Government Contracts in the Division of Enforcement Policy concluded that the Davis-Bacon Act did not apply to the project because it was not a “public work.” The Carpenter’s Union appealed the decision to the Acting Administrator of the Wage-Hour Division of the DOL, who reversed the Branch Chief in June 2011. The Acting Administrator also found that the District - and not the developers - were responsible for any increase in wages and fringe benefit costs. The developers appealed to the DOL’s Administrative Review Board (ARB). On April 30, 2013, the ARB upheld the Acting Administrator’s decision that the redevelopment project was a “public work,” but vacated his decision imposing any increased costs on the District. Significantly, the ARB concluded that CityCenterDC, a privately funded, occupied and maintained mix-use project of condominiums, apartments, offices, and retail stores located on a plot of land owned by the District of Columbia, constituted a “public work” within the meaning of the Davis-Bacon Act.

On May 20, 2013, the District filed a federal lawsuit seeking judicial review of the ARB’s decision. In March 2014, the district court reversed the ARB’s decision and granted summary judgment in favor of the District and private developer. According to the court, under the plain language of the Davis-Bacon Act, a redevelopment project funded entirely by private funds for use by private individuals and entities was not a “public work.” The court rejected the DOL’s claim that Davis-Bacon should apply merely because of the District’s role in planning and oversight of the project or because of the project’s incidental benefits to the public. According to the court, whether or not the project ultimately serves the public interest is not the test for Davis-Bacon Act coverage. 

The court’s ruling is expected to save the District and/or private developers an estimated $20 million in prevailing wage costs.

Practical Implications

The D.C. district court is the first court to address this issue. As governments seek public-private partnerships to revitalize infrastructure, the bright lines between public works and private enterprise may blur. For now, developers should keep a few key points in mind:

  • Developers should weigh the relative value of the partial public funding of projects to determine whether a small grant from the federal government is worth the potential increase in labor costs if the Davis-Bacon Act is deemed to apply to the project.
  • Developers should assess the implications of leasing to public tenants.
  • Developers who sign project labor agreements (PLA) agreeing to use only union labor may not experience increased costs if the Act is later determined to apply (since they have already agreed to pay union scale). These agreements, however, are highly controversial and may not be permitted in all jurisdictions. Developers should consider whether the benefits afforded by such agreements in terms of labor stability outweigh the significant disadvantages of committing to use only union labor.
  • For those projects covered by the Act, noncompliance may be grounds for termination of the contract, debarment, and other penalties.
  • Whether various states which have enacted their own version of the Davis-Bacon Act will follow the court’s decision in CCDC Office LLC remains to be seen.