Regulatory Topic: Davis-Bacon
Regulatory Agency: Department of Labor
On March 18, 2022, the President Joe Biden’s Department of Labor (DOL) proposed a rule to change how Davis-Bacon prevailing wage rates are calculated and enforced for federally assisted construction projects, which would significantly increase the costs of projects and add new compliance concerns for construction firms.
Prevailing wage mandates from governments have long created cost inflation for taxpayers as well as favored union firms and workers over non-union ones despite the fact that around 86 percent of construction workers today are not members of a union.
What is the newly proposed Davis-Bacon rule?
On May 17, 2022 the Biden DOL closed comments for the proposed Updating the Davis-Bacon and Related Acts Regulations rule, which now awaits final publication from DOL. In its summary, DOL touts this effort as the “first comprehensive regulatory review in nearly 40 years” and that the new regulatory changes are “needed to provide greater clarity and enhance their usefulness in the modern economy.” However, in reality the new DOL rule largely reverts to some policies and dated methodology for determining rates used before the last significant changes in 1982.
As outlined by Institute for the American Worker and Americans for Prosperity in a joint public comment submitted on May 17, 2022, the new DOL rule would make the Davis-Bacon Act more problematic because:
- First…the proposed amendment of the test to determine the applicable prevailing wage rates for a given contract is arbitrary and will unjustifiably privilege higher union wages in a given locality, leading to higher costs and a greater burden on the taxpayers who ultimately fund government contracting.
- Second, the NPRM’s proposal to use wage escalation data from the Bureau of Labor Statistics (“BLS”) will improperly inflate Davis-Bacon Act wage determinations because no changes to the Department’s underlying wage survey process is contemplated.
- Third, the proposal to eliminate the distinction between urban and rural work areas when making prevailing wage determinations is unjustified by the text of the Davis-Bacon Act and will result in unnecessary inflation of construction costs.
- Fourth, the proposal to treat certain different wage rates as functionally the same also will unjustifiably inflate construction costs by improperly privileging union wages.
- And finally, the Department’s proposal to affect prevailing wage requirements by operation of law rather than through incorporation of appropriate clauses in covered contracts exceeds the Department’s authority and violates the express provisions of the Davis-Bacon Act.
Background: What are prevailing wages and the Davis-Bacon Act?
Prevailing wages in construction projects involving government funding are the average wage workers earn in designated regions based on survey methods established by federal, state, and local governments. Regardless of whether contractors might accept different rates in a competitive environment, prevailing wage laws require that governments pay these pre-determined wages to workers.
The Davis-Bacon Act, first enacted in 1931 and modified over time, governs prevailing wage rates for federal projects. More specifically, as summarized by DOL, “The Davis-Bacon and related Acts (DBRA) generally apply to contractors and subcontractors performing on federal and federally assisted contracts in excess of $2,000 for construction, alteration, or repair (including painting and decorating).”
The DOL is tasked with calculating Davis-Bacon prevailing wages as well as enforcing compliance and payment of such wages. Historically, survey methods used by DOL have been problematic, leading to cost inflation. Reasons include calculating rates over regions that have considerable variability within them, allowing errors in surveys, delaying survey updates for long periods of time, using self-selected samples over scientific ones, and relying on limited participation that is heavily skewed towards union firms that operate with higher costs.
The flawed survey methods and use of Davis-Bacon in general drives overall federal constructions costs up as much as 10 percent with wages being inflated 20 percent over market rates, meaning taxpayer money dedicated to construction is considerably less efficient than it would be without the wage mandates.
Brief Davis-Bacon Timeline:
- 1931 – Davis-Bacon Act enacted, creating a form of minimum wage mandate In the private sector construction industry.
- 1934 – Copeland “Antikickback” Act enacted, which prevented employers from deducting portions of Davis-Bacon prevailing wages from worker wages.
- 1935 – Davis-Bacon Amendments enacted, which dropped the Davis-Bacon mandate threshold for projects to $2,000, extended the requirements to all aspects of construction including even painting, allowed agencies to ban contractors that violated requirements in the past, provided workers a right of action to seek prevailing wages from contractors, and set rates prior to projects being bid on by contractors.
- 1964 – Fringe Benefits Amendments enacted, which added the calculation of fringe benefits to Davis-Bacon calculations, which drove up costs due to various benefits provided particularly by union firms.
- 1982 – The Reagan administration issued new regulations for the Davis-Bacon Act that have remained intact for decades. These included a “50 percent” rule whereby in areas a broad based rate couldn’t be calculated, the average wage of half of workers in a craft in a locality would work be used; more distinction between urban and rural areas for calculation purposes; and allowance of “helpers” in various ways under construction projects that were not subject to Davis-Bacon.
- March 2022 – The Biden DOL proposes the Updating the Davis-Bacon and Related Acts Regulations rule, a return to many of the approaches utilized for a number of years prior to 1982.
- Institute for the American Worker and Americans for Prosperity public comment on Notice of Proposed Rulemaking, Updating the Davis-Bacon and Related Acts Regulations, 87 Fed. Reg. 15,698 (Mar. 18, 2022), RIN 1235-AA40. https://americansforprosperity.org/wp-content/uploads/2022/06/2022.05.17-AFPF-I4AW-Reg-Comment-re-Davis-Bacon-Act-NPRM.pdf
- Why the Biden administration’s new Davis-Bacon prevailing wage proposed rule is so troubling for Americans. https://americansforprosperity.org/biden-administration-davis-bacon-prevailing-wage-troubling/
- USDOL’s Proposed Rewrite of Davis-Bacon Enforcement Rules: Back to the 1970s. https://www.littler.com/publication-press/publication/usdols-proposed-rewrite-davis-bacon-enforcement-rules-back-1970s
- Studies on the Negative Impact of the Davis-Bacon Act and Prevailing Wage Policies. https://www.abc.org/Portals/1/ABC%20Prevailing%20Wage%20Davis%20Bacon%20Studies%20Summary%20Updated%20March%202022%20031122.pdf?ver=2022-03-14-075659-850
- The Davis-Bacon Act: Institutional Evolution and Public Policy. https://crsreports.congress.gov/product/pdf/RL/94-408
- Repealing the Davis–Bacon Act Would Save Taxpayers $10.9 Billion. https://www.heritage.org/jobs-and-labor/report/repealing-the-davis-bacon-act-would-save-taxpayers-109-billion
- DOL Proposes Changing Definition of ‘Prevailing Wage’ Under Davis-Bacon Act. https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/dol-proposal-definition-prevailing-wage-davis-bacon-act.aspx
- Davis-Bacon Repeal Act. https://i4aw.org/resources/davis-bacon-repeal-act/