In the world of construction, few legislations have remained as controversial and debated as the Davis-Bacon Act of 1931. Created during the Great Depression to ensure fair wages on federally funded construction projects, the act has faced both avid supporters and fierce critics for almost a century. The first comprehensive regulatory review of this law in nearly 40 years, with a final rule effective date of Oct. 23, has the construction industry fearing the worst.
No matter what side you take, it is imperative that all contractors understand these changes, especially with the numerous federally funded projects in progress or on the way from the Infrastructure Investment and Jobs Act and the CHIPS Act.
Let’s take a look at the pros and cons of this enduring law, and how recent changes could affect your construction company and the industry moving forward.
Intended upsides of the Davis-Bacon Act
- Protecting worker wages: The act was initially established to prevent contractors from undercutting local wage rates to win bids. By ensuring workers are paid at least the local prevailing wage, the Davis-Bacon Act provides a safeguard against the exploitation of construction workers. The changes should raise wages for more than a million construction workers.
- Leveling the playing field: Without the Davis-Bacon Act, there would be a greater incentive for contractors to hire cheaper, potentially less skilled labor, to outbid competitors. The act keeps competition based on quality, efficiency, and experience, rather than merely who can pay the least. The changes allow for the wage rate to be adjusted every three years.
- Supporting local economies: By ensuring local prevailing wages are paid, money remains within local communities. This can bolster the economy, as workers are more likely to spend their earnings locally. However, the recent changes eliminate the strict ban on mixing rural and metropolitan data to allow combined data when necessary, even as high as at the state level.
- Higher quality work: Proponents argue that by ensuring fair wages, the act attracts more skilled and experienced workers, leading to better quality construction projects. The changes may help bring the needed skilled workers for the many government-funded infrastructure projects.
Possible downsides of the Davis-Bacon Act
- Increased costs: Critics claim that the act inflates construction costs for federally funded projects. By requiring payment of the prevailing wage, some believe that projects could be completed at a lower cost, saving taxpayer money. The wages on public projects are ultimately paid by the taxpayers. Specifically, the change from using the current 50 percent prevailing wages to the new 30 percent prevailing wages could improperly inflate wage rates above the true prevailing rates.
- Bureaucratic challenges: Keeping track of prevailing wage rates across numerous job classifications and regions can be cumbersome. Contractors often find themselves navigating a web of administrative work to stay compliant. This may have been easier in 1931 when the industry was smaller – but even with today’s technological advantages, making sense of this large amount of data won’t be easy. The final rule imposes DBA requirements “by operation of law” in place of contract clause notifications, increasing the risk of violation without any notice to contractors.
- Stifling small businesses: Smaller firms might not have the resources or administrative capacity to stay compliant with the Davis-Bacon Act. This can act as a barrier for small businesses trying to compete for federal contracts. Mario Burgos, chief strategy officer at Prairie Band LLC, spoke before Congress Oct. 19 on behalf of Associated Builders and Contractors (ABC) against the final rule of the Davis-Bacon Act. Burgos said small businesses will be hurt and not able to participate in public projects.
- Potential for misuse: There have been instances where the determined “prevailing wage” was higher than what most workers in the area were actually earning. This discrepancy can sometimes result in artificially high wages for specific projects. Associated General Contractors (AGC) of America is preparing a lawsuit to challenge the final rule, stating that the Department of Labor (DOL) “exceeded the authority Congress granted it under the Davis Bacon Act and acted in an arbitrary and capricious manner.”
The middle ground
As with most longstanding policies, the truth about the recent updates to the Davis-Bacon Act's overall effectiveness lies somewhere in between the staunch opposing viewpoints. Many stakeholders feel that a more nuanced approach involving regular updates, simplifying compliance procedures, and offering more guidance for small businesses could retain the act's benefits, while minimizing its drawbacks. Others say a total repeal of the act would do more good for the construction industry, its workers and the country.
The Davis-Bacon Act stands as a testament to the nation's commitment to ensuring fair wages in the construction industry. While it undoubtedly has its merits in protecting workers and maintaining a high standard of work, its critics highlight valid concerns about costs and bureaucratic entanglements.
The government’s stated goal in revising the act is to “promote compliance, provide appropriate and updated guidance, and enhance their usefulness in the modern economy.” Time will tell if the more than 50 updates in the updated act will help or harm the construction industry. As the construction landscape continues to evolve, it will be worth revisiting the act's provisions to ensure they serve the best interests of all parties involved.
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