Final Rule Updates the Davis-Bacon and Related Acts – Impacts to Federal Construction Contracting
Key Details: On August 23, 2023, the Department of Labor (DOL) published a final rule titled "Updating the Davis-Bacon and Related Acts Regulations," revamping the regulations that will impact federal construction businesses. This comprehensive regulatory review is the first in nearly 40 years and is set to promote higher compliance and updated guidance. This final rule is effective October 23, 2023. Businesses with covered federal and federally assisted construction projects must understand this final rule to remain compliant and competitive.
Ryan & Wetmore is committed to assisting construction contractors in their business growth and compliance journey. For information and expertise, contact us today.
What is the Davis-Bacon Act?
Under the DBA (Davis Bacon Act), the DOL is responsible for determining prevailing wages and issuing regulations and standards observed by federal agencies when awarding or funding projects. The DBA applies to contractors and subcontractors who perform on federally funded or federally assisted contracts greater than $2,000. This applies to constructing, altering, or repairing public buildings or works.
Additionally, contracts and projects covered by the DBA require businesses to pay the laborers and mechanics employed under the contract no less than the local prevailing wage rates and fringe benefits for similar work on projects in the area. As such, the DOL sets forth the locally prevailing wage rates.
Prime contracts greater than $100,000 also require contractors and subcontractors to comply with the Contract Work Hours and Safety Standards Act provisions. Laborers and mechanics, which includes guards and workmen, must receive at least 1.5 times their regular pay rate for overtime hours. Overtime hours are hours worked outside normal business hours or over 40 hours in one work week.
Key Changes in the Final Rule
The final rule brings about several changes that update prevailing wages, wage determinations, compliance principles, and enforcement. The procedures for determining prevailing wage rates and applicable fringe benefits to laborers and mechanics performing on contracts covered by the DBA are outlined in 29 CFR (Code of Federal Regulations) Part 1.
Higher Prevailing Wages
Under the final rule, the threshold for setting the prevailing wage is lowered. Previously, the determination used two steps: identify a single wage rate that is paid to more than 50% of workers in a classification or use a weighted average. The final rule reverts to the pre-1982 3-step process: if over 50% of wage rates in a classification are the same, that is the prevailing rate; if there is no majority, the prevailing wage is the rate earned by at least 30% of workers, if no wage rate is earned by 30% of workers, use the weighted average. As such, prevailing wages are likely to rise in locations with a less prevalent union pay scale, and businesses should expect increased labor costs. The process for fringe benefits is also updated whereby if no single rate is paid to more than 30% (previously 50%), then the fringe rate is the average fringe benefits of workers who are paid fringe benefits.
Wage Determination Updates
Under the final rule, more frequent wage determination updates will occur after a contract is awarded. Updates are required when an agreement is modified or extended beyond the original performance period. Additionally, wage determination updates will be required annually for contracts that do not have a schedule of completion dates. Indefinite delivery, indefinite quantity contract wage determinations will need updates for every task order. Previously, wage determination modifications issued after the contract award would generally not apply to the contract.
The final rule expands the coverage of the DBA and clarifies the term "building or work." Modern construction projects such as solar panels, broadband installation, wind turbines, and the installation of electric car chargers are added to the non-exclusive list of example construction activities covered by the DBA. Additionally, the final rule clarifies that the term building or work includes a portion of the building or employment and the installation of equipment or components of the building or work. Previously, the term building or work included manufacturing, furnishing or materials, servicing, maintenance work, and applies to buildings, structures, and improvements of all types.
Additionally, the final rule updates the term "construction, prosecution, completion, or repair – demolition." Previously, the long-standing policy regarding demolition work was that it was generally not covered by the DBA labor standards. However, the Department understood the DBA labor standards to cover demolition and removal when these activities constitute construction, repair, or alteration. Under the final rule, there is a new sub-definition to codify the Department's guidance that demolition work is covered under the DBA when the work performed constitutes construction, alteration, or repair.
Currently, contractors must only maintain basic records, including payroll, certified payroll, and additional records for fringe benefits, apprenticeships, and training. The final rule clarifies the difference between regular payroll and other essential records that contractors and subcontractors must maintain. The final rule also clarifies the certified payroll records of compliance that contractors must submit weekly. Additionally, contractors and subcontractors must maintain records (such as contracts, subcontractors, telephone numbers, and email addresses) for at least three years after work on the prime contract is completed. Finally, certified payroll now requires signature and submission electronically.
According to the final rule, prime and upper-tier subcontractors may be liable for subcontractor violations at the lower tier. Prime and responsible upper-tier subcontractors must pay back wages on behalf of lower-tier subcontractors that violated prevailing wage requirements.
Conclusion and Next Steps
The DOL's final rule is the first comprehensive regulatory review in nearly 40 years and presents updated compliance items for contractors and subcontractors. Businesses are encouraged to review the final rule and to follow the steps below to remain competitive on future contract awards:
- Create a contract matrix that identifies the regulations you must comply with under each contract award.
- Review contracts that the DBA covers and ensure flow-down requirements are met.
- Internally review worker classifications are maintained and kept current.
- Review the prevailing wage rates for the work areas and worker classifications identified.
- Ensure applicable fringe benefits are applied at the correct rates.
- Ensure you maintain all certified payrolls for at least three years. Coordinate with your subcontractor and maintain subcontractor-certified payrolls in the file.
- Review your payroll records to ensure the following is included for each laborer:
- Individual identifying number
- Labor classification
- Number of hours worked broken down by date.
- Hourly rate of pay
- The gross amount of standard overtime and fringe benefit compensation
- Permissible deductions such as social security
- Net wages
- Ensure proper counties or locations are selected for each wage determination.
- Review wage determinations and certified payrolls and reconcile the wage determination on file against the wage determination included in the contract.
- Conduct wage verification, i.e. internally with laborers and subcontractors.
- Coordinate with your law firm, payroll department, and HR team to ensure compliance.
For further information and expertise, contact Ryan & Wetmore today.
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