Prevailing Wage Rules at the Federal Level
Before bidding on any project, all prime contractors and subcontractors should investigate whether or not they are required to pay a “prevailing wage.”
According to the Department of Labor (DOL), under the Davis-Bacon Act, all contractors and subcontractors performing on federally funded or assisted construction-related contracts in excess of $2,000 must pay their laborers employed under the contract no less than the “locally prevailing wages and fringe benefits” for corresponding work on similar projects in the area. There are also approximately 60 “related Acts” nationwide, such as the McNamara-O’Hara Service Contract Act covering any contract over $2,500.
These federal laws affect state and local projects funded in whole or part by federal money. One example is the Recovery Act’s $3.1 billion State Energy Program that funded a subsidy which virtually all states accepted (expired as of May 2012).
In the past, the prevailing wage laws mainly applied to infrastructure and transportation projects. However in 2014, the US Department of Labor published a final rule to implement the provisions of Executive Order 13658 which increases the federal minimum wage for contract workers to $10.10/hour, beginning in January 2015. Unlike the Davis-Bacon Act, the new requirement also applies to contracts for goods and services, not just construction.
If you are a prime contractor or subcontractor with current government contracts, you should check the language in your contracts to see if you are either now subject to this final rule or may be in 2015. If you are currently bidding on state, local and municipal projects, you should also check whether or not the new rule will apply to ensure you’re in compliance and to prevent mispricing any bids.
The DOL’s own analysis found that the bulk of the extra $100.2 million in additional wages per year will eventually be passed back to the government through higher bids on contract work; however current contractors and subcontractors may have to bear the burden in the short term depending on the type of contract, award value, how full-time-equivalent employees (FTE’s) are calculated, and/or other compliance triggers.
Federal prevailing wage laws can affect states too. In 2014, Kentucky Senator Mitch McConnell proposed repealing the federal prevailing wage law so workers could be paid less. The project which triggered his concern is the replacement of the Brent Spence Bridge across the Ohio River ($2.4 billion) and he broadened the issue by noting that, without the prevailing wage law, the state would save $13 billion over 10 years.
Prevailing Wage Rules at the State Level
Contractors may assume that as long as their project is not funded by federal money, they are exempt from checking prevailing wage rules. It is important to know that many states have their own, longstanding prevailing wage acts; for example, New Jersey’s was passed in 1963.
While you may know the prevailing wage requirements in your own state, other states’ rules should be researched. Rules vary from state to state as to what types of projects are covered and how the prevailing wages are determined.
There are nuances that even those contractors that are experienced in doing work for more than one state need to know as they expand their government business into additional states.
Some states are more thorough than others in publicizing prevailing wage details. In Oregon, the Bureau of Labor and Industries publishes the prevailing wage rates required to be paid to workers on non-residential public works twice a year. Illinois has detailed frequently-asked-questions notes (for example the state includes all joint-employer projects) as do Wyoming, Massachusetts, Rhode Island.
Other states have unique requirements; for example, California has an additional requirement that contractors register with the state. In Maryland, state-funded businesses are included. Connecticut has lower cut-offs than the Federal Government, typically at $400,000/$100,000 levels while Maine laws are triggered when more than $50,000 of state money is spent.
Other state regulations can be more opaque. There are several consultants out there to help businesses who work at the state level sort out all the details which can include bond requirements, etc.
Penalties for Ignoring Prevailing Wage Requirements Can Be Serious
The penalties for non-compliance range from fines to debarment. A federal contractor, HWA, was debarred from future government contracts for three years, according to the DOL. HWA provided security services to various federal facilities, government offices and public works projects in five states. Another contractor was placed on Missouri’s debarment list and fined for ignoring state prevailing wage rules on a public works project.
In theory, awarding agencies would determine and then communicate in bid specifications and contracts if the project is for public work and what prevailing wage laws are in affect that might apply the work. In reality, not all agencies and municipalities do their own research. In New York, the town of Brookhaven found that its rate schedule for vendors was not in compliance with New York State labor law on prevailing wages. In that case, the town did not place the blame on the contractors.
In addition to federal and state prevailing wage rules, contractors should also be on the lookout for municipal, city, township and county-wide rules. Believe it or not, municipalities may have their own spending levels which trigger the requirement for prevailing wages. In California, the City of Irvine’s rules kick in at $1,000 per project, which also applies to subcontractors.
Paying attention to prevailing wage rules will keep your business in compliance at all levels of government and ensure that you price your bids appropriately with any and all prevailing wages taken into consideration.