On Aug. 23, 2023, the Department of Labor published the Final Rule updating and modernizing the Davis-Bacon Act prevailing wage regulations. The prevailing wage regulations have not been updated in more than 40 years, and these amendments are announced at a time when there is more than $200 billion of federally funded or assisted construction projects.
The Final Rule is now in effect (as of October 23, 2023), and makes significant changes to the Davis-Bacon prevailing wage regulations, including:
- Return of the “30-Percent Rule” for Defining “Prevailing Wage”
- The Final Rule returns to the original definition of “prevailing wage,” which outlines a three-step process for determining the “prevailing wage”: (1) Any wage rate paid to a majority of workers; and, if there was none, then (2) the wage rate paid to the greatest number of workers, provided it was paid to at least 30 percent of workers, and, if there was none, then (3) the weighted average rate. The second step is referred to as the “30-percent rule.”In short, in the absence of a wage rate paid to a majority of workers in a particular classification, a wage rate will be considered prevailing if it is paid to at least 30 percent of such workers. Only if no wage rate is paid to at least 30 percent of workers in a classification will a weighted average rate be used.
- Prior to the new rule, if the majority of workers in a given trade and locality (i.e., 50% or more) did not earn a single wage rate, then the prevailing wage was determined by the average wage in a given trade in a locality. This average can pull down the prevailing wage if the locality includes low-paying employers.
- Adoption of State and Local Prevailing Wage Determinations
- The Final Rule allows the DOL, under specified circumstances, to adopt wage rates set by state and local governments.
- Fringe Benefit Annualization
- The final rule codifies and clarifies the DOL requirement that fringe benefits should be annualized. Annualization is the method of calculating the hourly equivalent amount of a contractor’s contributions to fringe benefit plans that may be credited against the contractor’s fringe benefits obligations under the Davis-Bacon Act.
- Importantly, contributions to defined contribution pension plans are excepted from the annualization requirement, so long as they meet certain requirements.
- Expanded Definition of “Site-of-Work”
- The Final Rule revises the definition of “site of the work” to include “secondary construction site[s],” defined as off-site facilities where significant portions of a public building or work are being constructed, but only when the facility is either established specifically for the performance of the contract or project, or is dedicated exclusively, or nearly so, to the performance of the contract or project for a specific period of time.
- In addition, “significant portion” is limited to cases where entire portions or modules of a building or work, such as a completed room or structure, are constructed off-site with minimal construction work remaining at the primary site of construction. It does not include offsite manufacturing of materials or prefabricated component parts.
- Coverage Clarified to Include Energy Infrastructure Projects
- Under the final rule, the DOL provides examples of those types of projects subject to the Davis-Bacon Act requirements, including a non-exhaustive list of energy infrastructure projects, including: installation of solar panels, wind turbines, broadband, and installation of electric car chargers if they are built as a part of a contract with a federal agency. The Final Rule also specifies that coverage may apply even if the construction activity involves a portion of a building or work.
- Apprenticeship Wage and Ratio Rules Clarified
- The Final Rule clarifies that contractors and subcontractors must comply with the apprentice wage and ratio standards of the locality where the work is actually performed. That is the case whether multiple apprenticeship programs are registered in the same state or the contractor or subcontractor performs work in a locality other than the one in which its program is registered.
- Anti-Retaliation Protections
- The Final Rule adds a new anti-retaliation provision in contract clauses to protect workers who raise concerns from being fired or punished and it also strengthens the DOL’s ability to withhold money from a contractor in order to pay employees their lost wages.
- Expanded Recordkeeping Requirements
- The Final Rule revises existing recordkeeping requirements to clarify that payrolls and other basic records must be kept for at least three years after all the work on the prime contract is completed. The final rule also requires that records include each worker’s last known telephone number and email address.Contractors and subcontractors must maintain records of each worker’s correct classification or classifications of work actually performed and the hours worked in each classification. The Final Rule also requires contractors, subcontractors, and funding recipients to maintain Davis-Bacon contracts, subcontracts, and related documents.
- New “Operation-of-Law” Provision
- The Final Rule includes an “operation-of-law” provision that applies Davis-Bacon standards, including any applicable wage determinations, regardless of whether the appropriate contract clause or wage determination was incorporated (physically or by reference) into the contract.If the DOL invokes the operation-of-law provision, then the contractor is required to receive compensation from the contracting agency to account for any increase in the contractor’s costs caused by the application of the wage determination.
- The operation-of-law provision will be generally applicable only to new contracts entered into after the effective date of the Final Rule (Oct. 23, 2023).
Bottom Line
The DOL’s Final Rule went into effect on Oct. 23, 2023, and it will have significant impact on contractors performing federal contract work. In particular, the return of the “30-percent rule” and the “operation-of-law” provision will likely result in an increase in the prevailing wage rate and require federal contractors to keep a keen eye on the latest wage determinations. Given the breadth of these changes and the substantial impact, there will likely be legal challenges to the Final Rule.