By Jackson Moore and Tess S. R. Diven of Smith Anderson
Originally published April 2, 2024
For the first time in almost 40 years, the U.S. Department of Labor (“DOL”) has finalized comprehensive changes to regulations covering the Davis-Bacon Act (“DBA”) and 70 “DBA Related Acts,”[1] federal wage regulations that apply to contractors and subcontractors working on most federal government construction projects.[2]
The changes to these collective regulations (“DBRA”) are intended to “provide clarity . . . and to enhance the effectiveness and consistency of the administration and enforcement of the DBRA.”[3] The Final Rule applies minimum wage requirements to more contracts, changes how DOL makes wage determinations, expands DOL’s enforcement mechanisms and increases penalties when contractors fail to comply. Industry groups have sued to stop these changes, and two federal lawsuits remain pending and undecided after the Final Rule went into effect during October 2023.
A Short History of DBA and the DBRA
DBA is a 1931 “minimum wage law designed for the benefit of construction workers”[4] that applies to federal contracts valued in excess of $2,000 for the construction, alteration or repair of public buildings or public works.[5] DBA requires the payment of locally prevailing wages and fringe benefits to individuals working on federal construction contracts.[6] DOL sets the applicable wages by locality using wage determinations.
Congress has included similar prevailing wage requirements in more than 70 other statutes, the DBA Related Acts, through which federal agencies “assist construction projects through grants, loans, loan guarantees, insurance, and other methods.”[7] The DBA and the DBA Related Acts apply to more than $200 billion in federal or federally-assisted construction spending every year and establish minimum wage rates for more than 1 million U.S. construction workers.[8]
Changed Definitions Will Expand DBRA’s Coverage
The Final Rule adds what DOL describes as “non-substantive revisions” to certain terms, adding for the first-time definitions for contractor, subcontractor, prime contractor, and material supplier.[9]
The Final Rule also re-defines the phrases building or work and public building or public work to include the installation of solar panels, wind turbines, broadband and electric car charging stations.[10] The Final Rule codifies a long-standing policy that “demolition work” is covered by the DBRA when the demolition itself constitutes construction or when subsequent construction is contemplated on the site. [11]
The Final Rule also revises the definition of the site of the work to include any location where a significant portion of a building or work is constructed, if the site is dedicated exclusively or almost exclusively to performance of a single DBRA contract for a specific period of time. Flaggers are considered to be working on the site of the work if they work at a location adjacent or virtually adjacent to the primary construction site, such as a short distance down a roadway.[12] The significant portion definition encompasses one or more portions or modules of the building or work but does not include materials or prefabricated component parts such as prefabricated housing components.
DBRA Now Applies by Operation of Law and to All Subcontract Tiers
DBRA contract clauses are now effective “by operation of law” when applicable clauses are wrongly omitted from an applicable contract.[13] This codifies court-made concepts underpinning the Christian doctrine.[14] Particular wage determinations also are effective by operation of law even if those determinations are not provided with the contract or underlying solicitation.
The Final Rule applies to prime contracts and subcontracts at any tier.[15]
Prime Contractors Will Be Responsible for Paying Back Wages Owed by Their Subcontractors, and DOL Can “Cross-Withhold” Amounts Owed to Contractors (and their Affiliates) on Unrelated Contracts
The Final Rule attempts to clarify several enforcement mechanisms available to DOL.
The FAR clause that accompanies the Final Rule (FAR 5.5) requires prime contractors and upper-tier subcontractors to pay back wages when their lower tier subcontractors violate the Final Rule. In appropriate circumstances, violations by a lower-tier subcontractor may subject the prime and upper-tier contractors to debarment.[16] Prime contractors are now responsible for a subcontractor’s back wages, regardless of any showing of intent on the part of the prime contractor. However, upper-tier subcontractors must have some degree of intent to be held liable for back wages of their lower tier subcontractors.[17]
The Final Rule adds an anti-retaliation provision and corresponding remedies, including make-whole relief and remedial actions, to protect those reporting violations of the DBRA.[18]
The new definition of prime contractor may permit cross-withholding by the Government when payments are owed to affiliates of a prime contractor who violates the DBRA. These affiliates include controlling shareholders or members of an entity, or joint venturers or partners holding a prime contract, or general contractors that have been delegated the responsibility for overseeing all or substantially all of the construction under the prime contract.[19]
For example, if a prime contractor violates the DBRA in project A, cross-withholding could be applied to the prime contractor’s other projects and shareholders or members of the project A prime contractor.[20]
The Final Rule also allows the Government to “cross-withhold” payments owed on any contract held by the same prime contractor, even if the other contracts are issued by different agencies from the agency that issued the contract where violations occurred.[21]
New language in the Final Rule also requires interest, compounded daily, to be added to back wages and other monetary relief. The Final Rule attempts to make uniform debarment standards by eliminating the “aggravated or willful” standard that appears in certain Related Acts and uniformly applies a three-year mandatory debarment period.
Wage Determinations Will Be Updated More Frequently
The Final Rule states that “general wage” determinations covering a particular geographic area should be the default determination that applies to a contract and that “project” wage determinations should be the exception.[22] Wage determinations provided in a solicitation must be updated after award when the contract or task order adds construction not within the original scope of work or if a contract amendment adds more time not originally obligated, such as when an option is exercised.[23]
Wage determinations must be updated annually for contracts requiring construction over a period of time and that are not tied to the completion of any specific project (e.g., IDIQ contracts, schedule contracts or long-term operations and maintenance contracts).[24] Task orders awarded under such contracts must incorporate the most recent wage determination modification in the master contract at the time the task order is awarded.[25]
Prevailing Wages
The Wage and Hour Division (“WHD”) of DOL will return to DOL’s pre-1983 methodology for determining prevailing wages. Under this three-step process, in the absence of a wage rate paid to a majority of workers in a particular classification, a wage rate is considered “prevailing” if it is paid to at least 30% of such workers as opposed to 50% under the previous rules. If no wage rate is paid to 30% or more workers in a classification, only then will a weighted average rate be used. WHD also can count functionally equivalent but non-identical wage rates, such as zone rates, escalator-clause rates, night-shift differential and combined hourly-fringe rates, as the same rate for the purposes of determining the prevailing wage.[26]
Non-collectively bargained wage rates may now be periodically updated based on Bureau of Labor Statistics’ data. However, the rates may be adjusted no more than once every three years, no sooner than three years after the date of the rate’s publication, continuing until the next survey results in a new general wage determination.[27]
The “area” unit used in wage determinations now includes circumstance-specific alternatives to the existing definition. For multi-county projects, there is an option to include counties’ data and issue a single wage rate per classification to be used for the project. For highway projects, the WHD may use state highway districts or other state geographic subdivisions instead of counties as the initial area unit for the wage determination.
The Final Rule eliminates the prior ban on mixing rural and metropolitan data so that: (1) when data is not sufficient at the county level, surrounding counties can be used, regardless of those surrounding counties’ specific designation as rural or metropolitan, and (2) rural and metropolitan data can be combined at the supergroup level, or at the statewide level as a last resort, before concluding that no sufficient data exists for a classification.
The Final Rule explicitly permits WHD to adopt state or local prevailing wage rates for highway and nonhighway construction under certain circumstances where doing so would be consistent with the purpose of the DBA. Generally, it must be determined that the state or local government’s method and criteria for setting prevailing rates are substantially similar to those the WHD uses in making wage determinations.
Industry Challenges to the Final Rule Remain Pending
The Final Rule adds layers of administration and expense for construction contractors and exposes them (and potentially their affiliates) to heightened legal risks.
Industry groups have sued the federal government over the changes implemented by the Final Rule. The Associated Builders and Contractors, Inc. and its Southeast Texas chapter (“ABC”) filed suit in federal court in the Eastern District of Texas. The Associated General Contractors of America (“AGC”) filed a second suit in federal court in the Northern District of Texas.
These lawsuits remain pending and undecided as of March 2024. Each lawsuit asserts that the DOL exceeded its statutory authority in passing the Final Rule and violated the Administrative Procedures Act. ABC and AGC request in their respective lawsuits declaratory judgements declaring the Final Rule invalid and blocking its enforcement. AGC challenges the application of the DBA by operation of law, the application of the DBA to material suppliers operated by contractors and subcontractors, the expansion of DBA coverage to certain driver or transportation activities and the expansion of DBA coverage to fabrication facilities. How the Supreme Court addresses challenges to Chevron agency deference may impact the final outcome of these Texas federal cases.[28]
Despite challenges to the Final Rule, the updated DBRA became effective October 23, 2023. We will continue to follow the cases out of Texas and any other notable developments.
This article was originally published on SmithLaw.com on (April 2, 2024) and has been republished here with permission by Smith Anderson.
Jackson Moore is an attorney with Smith Anderson. His practice focuses on government contracting and business dispute resolution, including litigation, mediation, and arbitration. He can be reached at jmoore@smithlaw.com or 919.821.6688.
Tess S. R. Diven is a member of the Smith Anderson Real Estate Development and Litigation practice. She regularly represents owners, developers and general contractors in state and federal court litigation. She can be reached at tdiven@smithlaw.com or 919.821.6615.
End Notes
[1] U.S. Dept Labor, Government Contracts Compliance Assistance, (last accessed, Feb. 5, 2024), https://www.dol.gov/agencies/whd/government-contracts.
[2] Id.
[3] Id.
[4] United States v. Binghamton Constr. Co., 347 U.S. 171, 178 (1954).
[5] 40 U.S.C. 3142.
[6] Id.
[7] Updating the Davis-Bacon and Related Acts Regulations, 88 Fed. Reg. 57,526 (Aug. 23, 2023), (codified at 29 C.F.R. pts. 1, 3, 5), available at https://www.federalregister.gov/documents/2023/08/23/2023-17221/updating-the-davis-bacon-and-related-acts-regulations (Executive Summary) (last accessed, February 5, 2024).
[8] Id. (citing Executive Order 12866, Regulatory Planning and Review et al).
[9] 88 Fed. Reg. 57526, 57604.
[10] 88 Fed. Reg. 57526, 57597.
[11] 88 Fed. Reg. 57526, 57602.
[12] 88 Fed. Reg. 57526, 57614.
[13] 88 Fed. Reg. 57526, 57661-64.
[14] Id.
[15] 29 C.F.R. § 5.2(h).
[16] 29 C.F.R. §§ 5.5(a)(6)-(7), 5.5(b)(4).
[17] 29 C.F.R. §§ 5.5(a)(6), 5.5(b)(4).
[18] 29 C.F.R. §5.18.
[19] 29 C.F.R. §§ 5.2, 5.5, 5.9.
[20] 29 C.F.R. §§ 5.9 (b), (c).
[21] 88 Fed. Reg. 57526, 57687.
[22] 88 Fed. Reg. 57526, 57565.
[23] 29 C.F.R. §§ 1.6(c)(2), (c)(3).
[24] 29 C.F.R. §§ 1.6(c)(2), (c)(3).
[25] 29 C.F.R. § 1.6(c)(2)(iii)(B).
[26] U.S. Dept. Labor, Wage and Hour Division, Frequently Asked Questions: Updating the Davis-Bacon and Related Acts Regulations Final Rule, FAQ No.2, (Feb. 15, 2024) available at, https://www.dol.gov/agencies/whd/government-contracts/construction/rulemaking-davis-bacon/faqs.
[27] 29 C.F.R. § 1.6(c)(1).
[28] See Relentless, Inc. v. Department of Commerce, 144 S.Ct. 325, 217 L.Ed. 2d 154 (argued Jan. 17, 2024) and Loper Bright Enters. v. Raimondo, 143 S.Ct. 2429, 216 L. Ed. 2d 414 (argued Jan. 17, 2024).