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Prevailing Wage Laws You Should Know Before Bidding on a Project

Published: April 16, 2020

Labor PricingPolicy and Legislation

Paying attention to prevailing wage rules at all levels will keep your business in compliance and ensure that you price your bids appropriately.

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 U.S. 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 $2,000.

These federal laws affect state and local projects funded in whole or part by federal money. One example is the U.S. Department of Transportation’s (DOT) INFRA Grants program that has funded dozens of projects nationwide since 2016.

Generally, the prevailing wage laws apply to all infrastructure and transportation projects.  To this end, the DOL provides a searchable data base of wage determinations for contractors.  The DOL also publishes various rules that define the implementation of the provisions of Executive Order 13658, including a recent notice that increased the federal minimum wage for contract workers to $10.80/hour, beginning in January 2020.

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 now subject to this final rule. 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 has found that the bulk of the extra wages paid will eventually be passed back to the government through higher bids on contract work; however, current contractors and subcontractors might 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.

Over the years, many have proposed repealing the Davis-Bacon Act.  A Congressional Budget Office (CBO) report on the idea states that the federal government would save “$12 billion in discretionary outlays from 2019 through 2028.” While this seems like a small sum in the grand scheme of things, ongoing budget deficits will keep this idea afloat.

Prevailing Wage Rules at the State Level

Contractors might 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, according to a list kept by the DOL, 26 states and the District of Columbia have their own, sometimes longstanding, prevailing wage acts.  However, recent political currents have resulted in numerous changes, and even repeals, of state prevailing wage rules.

While you might 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.  For example, a state can have a prevailing wage law with no threshold, which means that the wage is required for all projects starting with the first dollar of contract value.

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 WyomingMassachusettsRhode Island.  At a minimum, you should begin with the National Association of Government Labor Officials’ (NAGLO) membership web page and visiting the primary website for the states in which you will be doing business.

States can have unique requirements; for example, California has an additional requirement that contractors register with the state. Washington state requires the prevailing wage for virtually all types of construction, renovation, and maintenance beginning with the first dollar of contract value.  In contract, Connecticut’s prevailing wage law does not pertain unless the “cost of all work to be performed by all contractors and subcontractors” reaches $1 million.  Moreover, the Connecticut prevailing wage law does not apply in “connection with  remodeling, refinishing, refurbishing, rehabilitation, alteration or repair of any public works project under one hundred thousand ($100,000) dollars.”

Other state regulations can be equally as varied. 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

Violations of prevailing wage laws are taken seriously and penalties for non-compliance range from fines to debarment.  A Florida-based development, construction, and roofing contractor was recently debarred from future government contracts for three years, according to the DOL. An Illinois firm was fined $1.1 million in penalties and back pay to carpenters for failing to pay state-certified prevailing wage and benefit rates.  The Orange County (N.Y.) District Attorney recently kicked off a comprehensive regional campaign against labor crimes, including prevailing wage fraud.

In theory, awarding agencies would determine and then communicate in bid specifications what prevailing wage laws are in affect that might apply the work. In reality, not all agencies and municipalities do their homework.  Therefore, the onus is on the contractor to perform the due diligence on statewide labor regulations that apply to work with a local government, school district, or higher educational institution.

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. For example, utility districts in Washington state recently increased their prevailing wage threshold for certain types of contracts from $35,000 to $50,000.  The City of San Francisco maintain its own prevailing wage regulations.

Paying attention to prevailing wage rules at all levels will keep your business in compliance and ensure that you price your bids appropriately.