There is a saying that sometimes to go forward, you have to go back first. In August, the Department of Labor (“DOL”) published a final rule that will update the Davis-Bacon Act, with some methodologies previously abandoned. Unsurprisingly, this final rule focused on enforcement of labor standards, and was quite lengthy (numbering in the hundreds of pages). Despite it’s voluminous size, there was one major change that federal contractors will find of interest, a change to the method of determining prevailing wage. That is the focus of this post.
A quick primer on the Davis-Bacon Act (the Act), is likely warranted prior to discussing one of the key takeaways from the DOL’s recent final rule. In summary, the Act is a federal law that sets rates for paying staff of contractors and subcontractors when performing certain federal contracts. As such, the Act has been of great interest to contractors for quite some time (the Act first came into being in the 1930s, almost 100 years ago). The Act directs the DOL to determine the “locally prevailing wage rate,” basically functioning as a way for contractors to set minimum wages for staff when performing certain federal contracts, such as construction, alteration, or repair (including painting and decorating) of public buildings or public works. We have discussed prevailing wages and consequences of not following the Act previously, but this final rule presents some shifts to how the Act functions. According to the DOL, the Davis-Bacon Act hasn’t faced a “comprehensive regulatory review in nearly 40 years,” and this final rule aims to do just that.
On August 23, 2023, the DOL published a final rule that updates the regulations under the Act and it’s related acts (these are referred to in publications as the “Davis-Bacon Related Acts” or “DBRA”). The DOL, in their FAQs for this regulatory update, state that the federal contracting landscape has changed significantly. Consequently, this final rule aims to “provide clarity to contracting agencies, contractors, and workers, and to enhance the effectiveness and consistency of the administration and enforcement” of the Act and related rules. Through this final rule, one of the items of clarity is how the “prevailing wage” is determined. Through the final rule, the Wage and Hour Division of the DOL is actually amending the methodology to determine the “prevailing wage.”
Interestingly, through the final rule, the DOL is resurrecting an old method for determining prevailing wage. This methodology was colloquially known as the “three-step process” (or 30% rule) and stopped being used in 1983. Under this “three-step process,” if there is no established wage rate paid to a majority of workers within a particular classification, then a wage rate will be seen as “prevailing” if it is a rate that is paid to at least 30 percent of the workers in that classification. If there is no wage rate paid to at least 30% of workers in a certain classification, then you simply utilize a weighted average rate to determine prevailing wage. How DOL explains the original three steps for finding a prevailing wage in the final rule is as follows:
- Any wage rate paid to a majority of workers; and if there was none, then
- The wage rate paid to the greatest number of workers, provided it was paid to at least 30 percent of works, and if there was none, then
- The weighted average rate.
The DOL will also change how it determines wages in rural and metropolitan areas, to “more accurately reflect modern labor force realities, allow more wage rates to be determined at smaller levels of geographical aggregation, and will increase the sufficiency of data at the statewide level.”
All of these changes appear to be DOL attempting to make wages much more local and specified. As stated in the final rule, the DOL expects that reintroducing the “three step process” “will reduce the use of average rates roughly by half—from 63 percent to 31 percent.” The DOL also decided against using a median wage rate for “prevailing wage.” The DOL also pointed to Congressional testimony from the Solicitor of Labor in 1962 about the three step process:
“An average rate ‘does not reflect a true rate which is actually being paid by any group of contractors in the community being surveyed.’ Instead, ‘it represents an artificial rate which we create ourselves, and which does not reflect that which a predominant amount of workers are paid.‘”
These updates and explanations from DOL shows that the DOL believes these prevailing wage methodology changes will result in much more specific local prevailing wages being found. DOL likely thought that the more recent methodology resulted in broad rates that encompass larger areas, and thus different economic realities for the contractors present. Despite being quite a change to current methodology, DOL is simply shifting back to the way it determined prevailing wages under the Act prior to 1983.
While the prevailing wage methodology change is of course one of great interest to contractors, as stated earlier, this final rule is quite lengthy and covers more than simply prevailing wage methods. Be sure to review it and check back on our site for updates. The DOL has released some good guidance on the Final Rule, including FAQs, Comparison Charts, and Compliance Guides. In addition to checking out the final rule, it is likely a good idea for contractors affected by the Act to review the DOL’s varying guidance documents, as the final rule as a whole represents a lot of changes to the Act that could impact contractors.
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