The American Recovery and Reinvestment Act of 2009 (“ARRA”) contains direct federal funding, tax incentives, grants, loans, loan guarantees and bond programs to assist in the development of clean and renewable energy projects. Section 1606 of ARRA requires the payment of Davis-Bacon Act (“DBA”) prevailing wage rates to “all laborers and mechanics employed by contractors and subcontractors on projects funded directly or assisted in whole or in part by and through the Federal Government pursuant to this Act.” This language imposes DBA obligations on almost all recipients of ARRA financial assistance for construction projects. This broad application has swept many energy industry contractors into DBA who previously had no background or knowledge regarding DBA’s requirements.
- The Davis-Bacon Act
Scope. The DBA, passed in 1931, requires that “each contract over $2000 to which the Federal Government or the District of Columbia is a party, for construction, allocation, or repair, including painting and decorating of a public building or public works, shall contain a provision stating the minimum wages to be paid to all mechanics and laborers employed directly upon the site of the work.” The $2,000 obligation has not changed since the 1930s. The “minimum wages” to be paid are those that the Secretary of Labor determines to be “prevailing” for the “corresponding classes of laborers and mechanics employed on projects of a character similar to the contract work in the locality where the work is to be performed.” Since its passage, Congress has added DBA prevailing wage obligations to approximately 60 “Related Acts” under which federal agencies assist construction projects through grants, loans, loan guarantees and insurance. In most DBA Related Act situations, the federal agency that is funding the assistance is one step removed from the construction contract itself.
Prevailing Wages. Prevailing wages must be paid to all “laborers and mechanics.” “Laborers and mechanics” are those workers whose duties are manual or physical in nature, as opposed to those whose duties are mental or managerial in nature. Apprentices, trainees and helpers also are considered within the category of “laborers and mechanics.” DBA coverage does not extend to workers whose duties are primarily administrative, executive or clerical such as architects, engineers, timekeepers and inspectors. Many contractors incorrectly confuse DBA “laborers and mechanics” classification with exempt/nonexempt classifications under the Fair Labor Standards Act. These classification systems are completely different and neither informs the other.
The Department of Labor (“DOL”) determines and publishes all DBA wage determinations. Revisions are published each Friday, along with notice of pending revisions that will be made the following Friday. Prevailing wage determinations are classified based upon the nature of the construction project being performed and fall within four classifications: residential, building, highway and heavy construction. The categories largely mean what they say, with the exception of the heavy construction classification, which is a catch-all for projects that are not residential, building or highway. Prevailing wage determinations are based upon the local labor market. No “national” prevailing wage determination exists in any job classification. DOL collects wage data using surveys and evaluates the wages paid on projects of a similar nature in the local area where the work is to be performed to determine the appropriate prevailing wage. Prevailing wage determinations include both a wage rate and a fringe benefit rate. These rates are discussed further in the Certified Payroll section.
The public agency providing the financial assistance has the obligation to ensure that the appropriate wage determinations are included in the bid/request for proposal documentation. Contractors do not have to determine the applicable prevailing wages on their own. Indeed, the DOL website listing all the current prevailing wage determinations states, “CAUTION: Users should note that the only WDs applicable to a particular solicitation or contract are those that have been incorporated by the contracting officer in that contract action.” Ideally, this caution should stop contractors who are trying to establish the applicable prevailing wage determinations without express instruction from the contracting agency.
Contractors do have the responsibility for placing their workers in the appropriate wage categories based upon the prevailing wage determinations applicable to the contract. Sometimes, despite the active engagement of the contracting agency, the contract will not contain a prevailing wage determination for all the job classifications on the project. This typically occurs when the project contains jobs for which no classification exists. The clean and renewable energy industry includes such novel jobs. For example, a new set of wage determinations recently was issued to cover the laborers and mechanics performing ARRA weatherization work.
Contractors who receive an incomplete list of applicable prevailing wage determinations should confer with the contracting agency and initiate a request for approval of a proposed wage rate. This request for approval is called a “Request for Authorization of Additional Classification and Rate” or a “Conformance” request. This request should be submitted by the contractor to the contracting officer, who in turn submits the request to DOL. Contractors pay the requested conformance rate during the pendency of the DOL determination process. If DOL responds with a rate higher than the proposed rate, the contractor must pay the approved rate retroactive to the first work on the contract by any individual in the wage classification.
Certified Payroll. DBA requires that contractors pay their DBA workers each week (as opposed to the every two weeks obligation imposed by the Fair Labor Standards Act). The contractor must fill out a “certified payroll” for each weekly payroll, stating the wages paid to each laborer/ mechanic on the project during the preceding week. This report is submitted to the public agency contracting for or providing financial assistance to the construction project. The “certified” part of this form is the “statement of compliance” by the contractor asserting that the payroll is correct and complete and that each laborer/mechanic has been paid not less than the applicable prevailing wage. Contractors may use the DOL form for this purpose or any other form that contains the requisite information.
The certified payroll form must contain basic information for each mechanic/laborer: name, address, social security number and his/her job. For each listed worker, the contractor must state the daily and weekly hours worked, the deductions made from their pay and the actual wages paid. The contractor also must provide the rates of contributions or costs for bona fide fringe benefits or cash equivalents of fringe benefits. The hourly rate (including overtime) and the fringe benefit rate must be paid for every hour worked on the project. The fringe benefit rate must be paid as a cash equivalent if the contractor provides no benefits or fewer benefits than the fringe benefit rate. Contractors who do provide benefits may take a “fringe benefit credit” against the fringe benefit rate. Contractors get no credit against the fringe benefit rate for those benefits that are required by law, such as workers’ compensation, unemployment compensation or social security.
Contractors may take credit for amounts paid for life insurance, health insurance, pension, vacation, holidays or sick leave so long as these payments are irrevocably made to the worker and paid at least quarterly. The fringe benefit credit must be accurate as to each employee. The contractor is not permitted to base the fringe benefit credit on the average cost. The calculation of the fringe benefit credit is the most time-consuming component of the certified payroll documentation. Some contractors elect just to pay the fringe benefit rate cash equivalent rather than endure the administrative burden of calculating individual fringe benefit credits.
Enforcement. DOL has overall enforcement authority under the DBA. The public contracting agencies have day-to-day responsibility for the administration and enforcement of the DBA obligations. If DOL concludes that a contractor has paid its employees less than the prevailing wage for a DBA project, it will order the contractor to pay the back wages and has the authority to withhold contract funds to cover any back wages if the contractor does not immediately comply. Also, contractors can be debarred for up to three years as a result of DBA violations.
- The DBA and ARRA
ARRA is divided into two large sections — Division A (appropriations) and Division B (tax). The DBA applies to all federal financial assistance to energy contractors contained in the Division A. The DBA applies more selectively to the tax provisions of Division B. DBA is specifically applied in Division B, Section 1601 to energy projects financed with tax-favored bonds. However, the Section 1603 Grant Program, which provides for cash grants in lieu of a tax credit for investment in certain renewable energy projects, does not require DBA compliance. The Treasury Department, following consultation with the Office of Management and Budget, concluded that the 1603 program was not “federal financial assistance” under the DBA. Also, ARRA amended Sections 1703 and 1705 of the Energy Policy Act of 2005. DBA applies to Section 1705, but not Section 1703.
Even with these exceptions, ARRA casts a wide net that captured many in the energy industry with no background or familiarity with the obligations of DBA. To further complicate this situation, the majority of contractors who are recipients of ARRA federal assistance are not contracting directly with the federal government, but rather through a state or local agency that is administering the federal program. Many local, and some state, agencies have similar novice status regarding the DBA. Accordingly, numerous contractors have been given, and have signed, contracts that contain a reference to their obligations to comply with the DBA but contain no prevailing wage determinations applicable to the project. Or, contractors have signed contracts that contain an incomplete list of prevailing wage determinations because the project involves jobs that have not previously been the subject of wage determinations.
DOL is receiving numerous inquiries from contractors in this position. These contractors either did not realize that the public agency was obligated to provide the applicable wage determinations or they chose not to contact their contracting officer with follow-up, for fear of aggravating someone with whom they hope to have future business. DOL is aware of the problem and has been engaging in substantial outreach to educate and train state/local agencies to try to resolve this issue.
Contractors should be assertive with the contracting agencies. First, when bid documents do contain wage determinations, contractors should carefully review those rates and raise questions in pre-bid conferences. Contractors should attempt to get any errors corrected before the contract is awarded, since it is more difficult to get changes after the contract is awarded and at that point the contractor is vulnerable to a back-pay award for underpayment. Also, if a classification considered necessary to perform the contract work is missing from the wage determination, the contractor should immediately confer with the contracting officer regarding the missing rate and, if it involves a job for which there is no current prevailing wage determination, the contractor should submit a conformance request. Contractors place themselves at risk when they make their own determinations. If their assessment is wrong, they still will be required to make retroactive wage payments. The claim that the contracting agency dropped the ball, even if true, will not remove the financial obligation to retroactively pay the prevailing wage.
ARRA has provided tremendous business opportunities to the energy industry. Contractors with no DBA background should be certain that before taking advantage of these opportunities, they fully understand their DBA rights/responsibilities. The public agency bidding the project should be the first source of guidance. Issues that cannot be resolved with satisfaction during the contracting process should be resolved with the assistance of legal counsel. Otherwise, contractors may underbid the project and lose money and/or be debarred from further federally funded/assisted work due to DBA noncompliance.