Uncertainty follows prevailing wage repeal
Execs unsure how Senate vote will affect current bids on construction labor.
The Michigan Senate voted June 6 to repeal the state’s prevailing wage law, and while the decision evokes praise from those who have campaigned for it, uncertainty hangs in the air over how it will affect current bids on construction labor.
According to the Associated Press, the repeal passed in a 23-to-14 vote, mostly along party lines in a Republican-controlled Senate. Gov. Rick Snyder opposed the bill, but it was veto-proof because it was initiated through a ballot drive.
The ballot drive was initiated by the Associated Builders and Contractors of Michigan, which collected nearly 400,000 signatures from private individuals opposing the state’s prevailing wage laws.
ABC Western Michigan Chapter President Norm Brady said he was “delighted” by a repeal that he felt was long overdue.
“ABC is about open competition,” Brady said. “(Prevailing wage) had the government picking winners and losers when it should be the market that determines who wins work.”
Brady cited a 2015 study from the Anderson Economic Group, a Lansing-based nonpartisan research firm, saying Michigan taxpayers were overpaying on K-12 school construction projects by almost $127 million annually.
“As a taxpayer, it was problematic to me personally to overpay when there were schools to be built,” Brady said.
The AEG study also noted state and local governments in Michigan spend an average of $2.3 billion in school construction and repair projects each year, 90 percent of which, or $2.1 billion, is affected by prevailing wage laws.
According to the Michigan Department of Licensing and Regulatory Affairs, Michigan’s prevailing wage law was enacted in 1966 and applies to construction projects where the state or school district is the contracting agent and is financially supported by the state.
Michigan’s prevailing rates are compiled from the rates contained in collectively bargained agreements, which cover the locations of the state projects. The prevailing rates provide an hourly rate, which includes wage and fringe benefit totals for designated construction mechanic classifications.
Brady argued there is nothing prevailing about this model, saying the agreements do not represent the majority of contractors’ rates.
“It’s based solely on the union scale,” he said. “Twenty percent of contractors in Michigan are unionized. When rates are established, they ignore the rates of 80 percent of the contractors in the state.”
Mitch Watt, senior vice president of Grand Rapids-based Triangle Associates, said the repeal could mean an average of 20 percent reduction in labor costs on state- and school district-funded construction projects.
Watt said the repeal might only apply to school districts that go through the state treasury to fund projects. He said when school districts want to build or improve an existing building, they have one of two options. School districts can either sell bonds based on their own credit and pay no prevailing wage, or if they have a bond issue, go through a qualification process with the Michigan Treasury.
“(The treasury) will allow the school district to use the credit rating of the state of Michigan, which is typically better than the school,” Watt said. “To do that, the state requires them to pay prevailing wage.”
As one of Grand Rapids’ oldest construction firms, Triangle Associates has a long history of K-12 and university-related projects, so the prevailing wage repeal is significant to its own operations.
“This was surprising to us,” Watt said of the Senate’s vote. “We feel that it’s good news for many of our clients for a number of different reasons.”
Watt said while the prevailing wage was enacted, some clients wouldn’t even bid work because of prevailing wage. Now with the repeal, Watt said Triangle already has a couple of school districts reconsidering going through the state treasury for bonds.
Generally, in an area like West Michigan with more nonunion contractors, attitudes toward repeal are going to be more positive, Watt said.
“In the Detroit area, there’s more of a prevalence of union contractors,” he said. “Their workers might like prevailing wages if the prevailing wage is higher than their current pay.”
The repeal also could mean uncertainty for contractors like Triangle going forward. Watt said in conversations with Triangles attorneys, there’s some gray area in regard to how contracts are bid.
The easy answer is if a quote is already given, the contract doesn’t change. But Watt said uncertainty arises when a contractor already is given a bid, but subcontractors haven’t been selected yet. The client then has to decide whether to change the contract value or open a new contract.
“We’re trying to decide whether we talk to our clients, and say they don’t want to change the way you pay the subcontractors unless we have more information,” he said. “If the contractor has already been bid, they should just continue to pay the prevailing wage.”
Watt added he doesn’t see a strong shift in West Michigan’s workforce as a consequence of the Senate’s recent vote, considering the majority of contractors in the area aren’t unionized.
“You may see a shifting of where the workforce is slightly,” Watt said. “Certainly, the contractors that pay higher rates are going to struggle a bit.”
Construction jobs funded at the federal level still will pay prevailing wage, although national prevailing wages pay at a lower rate than state wages.
According to AEG, the federal prevailing wage statute of 1931, more commonly known as the Davis Bacon Act, applies to contracts with federal funding in excess of $2,000. Federal prevailing wages are based on a U.S. Department of Labor survey of employers and unions by trade an occupation in a given locality.
Unlike the Davis-Bacon Act, the Michigan prevailing wage law did not require a minimum amount of state funding to enforce prevailing rates. The Michigan law also was suspended for a short time from 1994-97.