Prevailing wage requirements expand under ARRA

June 15, 2009
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Many employers are hoping to cash in on the billions of dollars allocated for construction of federal buildings, schools, highways, and other work-force development programs funded by the American Recovery and Restoration Act of 2009. Accepting ARRA projects, however, will not come without strings attached. This article briefly addresses one of those strings: the requirement to pay prevailing wages.

Payment of prevailing wages on federally funded construction projects is hardly new, but the ARRA has expanded its scope. Under the Davis-Bacon Act, every federal contract “for construction, alteration or repair … of public buildings and public works” in excess of $2,000 must include a contract provision requiring the payment of prevailing wages as set by the Department of Labor By contrast, the ARRA includes much broader and less clear requirements.

The ARRA requires that “all laborers and mechanics employed by contractors and subcontractors on projects funded directly by or assisted in whole or in part by and through the Federal Government pursuant to this Act … shall be paid (prevailing wages).” This language is extremely broad, leaves many open questions, and differs from Davis-Bacon in several ways.

First, the plain language covers any project that is funded in any part by assistance provided for under the voluminous appropriations provisions in the ARRA. The new law does not define the terms “project,” “laborers,” or “mechanics.” It also fails to provide guidance on what constitutes financial “assistance.” The DOL, however, has recently provided some non-binding insight on the scope of this provision. A May 29, 2009, internal memorandum suggests, without concluding, that the prevailing wage obligations are limited to “ARRA-assisted construction projects.” Not surprisingly, however, the DOL takes a very broad view of the phrase “assisted in whole or in part,” explaining that it would encompass “any assistance provided for ARRA projects through grants, loans, guarantees, and insurance.”

Second, the ARRA requires more than the inclusion of a contract term to pay prevailing wages. It mandates that employees are actually paid prevailing wages. Under Davis-Bacon, a contract that fails to include the required terms would not impose an obligation to pay the prevailing rates. But under ARRA, an agency’s failure to include the terms may not eliminate the obligation to pay prevailing wages.

Employers should also note that the ARRA includes a separate prevailing wage provision governing renewable energy and electric power transmission projects and imposes prevailing wage requirements on projects financed with certain tax-favored bonds, including projects financed with proceeds from: new clean renewable energy bonds; qualified energy conservation bonds; qualified zone academy bonds; qualified school construction bonds; and Recovery Zone economic development bonds.

Because the scope of prevailing wage requirements are broad and unclear, employers bidding or working on a project must determine whether there is any ARRA funding or assistance. The prevailing rates are often much higher than market rates, and the consequences of bidding a project without considering prevailing wage obligations could prove costly.

Employers working on ARRA projects must also be familiar with the Davis-Bacon Act requirements. Examples of issues that often arise on prevailing wage projects include: errors in the DOL’s prevailing wage rates and wage determinations; payroll practices and reporting requirements; wage posting requirements; employee and work coverage issues; calculation of prevailing wage rates; determination of bona fide fringe benefit credits.

The DOL has established a special Web site, www.dol.gov/esa/whd/recovery, where recipients of ARRA financial assistance and contractors can obtain information related to prevailing wages under the ARRA.

Keith E. Eastland is an attorney with Miller Johnson.

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