On August 23, 2023, the U.S. Department of Labor (“DOL”) issued a final rule updating regulations governing federally funded construction projects subject to the Davis-Bacon Act and Related Acts (“DBA”). The final rule is the first significant regulatory update to the DBA since 1982. Among other things, the final rule changes how DOL will calculate the applicable prevailing wage for any given classification of workers on a DBA-covered contract when the default “majority” prevailing wage calculation is not possible; in particular it supplants the current “weighted average” calculation approach with the “30-percent rule.” The revised rule will go into effect on October 23, 2023 – 60 days after it was published in the Federal Register.
The Davis-Bacon Act applies to contractors and subcontractors performing on federally funded or federally assisted contracts for the construction, alteration, or repair of public buildings or public works by requiring payment of prevailing wages applicable to the location and trades on those contracts. The most significant changes in the rule are below:
- Application of the DBA by Operation of Law: Under the rule, the contract clauses implementing the DBA will now apply “by operation of law” to every prime contract where they are required by 29 C.F.R. § 5.01. This means that DOL can determine that the DBA applied retroactively at the beginning of the contract. DOL may “grant[] a variance, tolerance, or exemption” from the automatic-incorporation provision, and where the DBA becomes effective by operation of law, the prime contractor must be compensated for any wage increases, although the possibility of additional compensation will be managed by an administrative process through the contracting agency, not DOL.
- Wage Determinations: The new rule provides that DBA wage determinations will be updated every three years. For the first time, wage determinations applicable to DBA-covered contracts must be updated after contract award in the event of modification to include additional substantial construction, or a new period of performance, including an option. In addition, wage determinations must be updated annually in contracts requiring construction over a period of time that are not tied to the completion of any particular project (e.g., indefinite delivery indefinite quantity contracts, and schedule contracts).
- Prevailing Wage Calculation: When performing DBA-covered contracts, contractors and subcontractors must pay their workers on that contract at least the local prevailing wages, meaning the wage rates that are paid to 50 percent or more people in a particular classification of workers in the local area. Where there is no majority common wage among the relevant worker classification in a specific geographic area, the new rule requires that the prevailing wage be set at the wage paid to at least 30 percent of the classification of workers in the region. Only where there is no common wage among 30 percent of relevant worker classifications will the current “weighted average” approach be used. The White House predicts that the change will increase wages for many workers and noted that “[t]he Davis-Bacon prevailing wage regulations have not been comprehensively updated in more than 40 years . . . .”
- Expansion of the Terms “Public Work” and “Public Building”: Among other changes to DBA definitions, the rule specifies that the terms “public building” or “public work” includes, among other things, projects to build or install solar panels, wind turbines, broadband, and electric vehicle chargers.
- Compliance Changes: The rule purports to codify DOL’s positions that certified payrolls may be requested of the contractor and must be produced by the contracting agency regardless of whether DOL has initiated an investigation or other compliance action.
- Enforcement Changes: The new rule makes other significant changes to the DBA enforcement regime, which DOL states will strengthen worker protections and clarify the existing law.
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- Anti-Retaliation: The new rule adds anti-retaliation provisions, intended to protect workers that identify potential DBA violations from termination or other adverse employment actions. The rule also requires “make-whole relief” for workers affected by retaliation, including reinstatement, front-pay in lieu of reinstatement, and compensatory damages.
- Cross-Withholding: The new rule permits the government to withhold contract payments across contracts and across agencies if a contractor fails to pay the prevailing wage to their workers.
- Flowdown Requirements: The new rule makes prime contractors and any responsible upper-tier subcontractors (i.e., those with some degree of intent) liable to pay back wages on behalf of their lower-tier subcontractors. Further, lower-tier subcontractors’ violations may subject prime and upper-tier contractors to debarment in certain circumstances.
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Contractors should be assessing the increases in costs and the financial implications to their responses to solicitations for bids in light of the changes to the regulations. There will likely be material impact to their pricing strategy to account for the likely increase to their cost and overhead as a result of these changes. Contractors should also be aware of a more robust enforcement mechanism under the DBA, including stricter penalties.
For further information, please contact:
Trina Fairley Barlow, Partner, Crowell & Moring
tbarlow@crowell.com
