Davis-Bacon update

On August 8, 2023, the Department of Labor issued a Final Rule that makes significant changes to contractor and subcontractor obligations on federal and federally assisted construction projects. Contractors who perform work under projects covered by the Davis-Bacon Act should become familiar with their new obligations.

We have summarized below some of the key provisions of the Final Rule. They are as follows:

• Updated definition of "prevailing wage." The DOL departed from the definition of "prevailing wage" used for nearly 40 years. The Final Rule now identifies a wage as prevailing if it is paid to a majority of workers, or, if no wage rate is paid to a majority of workers, then it is prevailing if it is the rate paid to at least 30% of workers. Then, if no wage rate is paid to 30% of workers, the prevailing wage is the weighted average of all rates paid to workers in that classification. While this is a significant departure from previous methodology - and likely to result in union wage rates determining which rates are "prevailing" - the change is not likely to be felt as sharply in Pennsylvania because the prevailing wages on Davis-Bacon projects are already determined by union rates.
• Fringe benefit annualization requirements; unfunded plans; and administrative costs. The Final Rule makes official DOL's long-held position that fringe benefits should be "annualized" when calculating the amount that a contractor's contributions to a fringe benefit plan can be credited against Davis-Bacon fringe benefit requirements. The Final Rule also requires contractors to seek approval of unfunded plans (including vacation and holiday plans) before claiming credit for the anticipated costs of the plan toward prevailing wage obligations. Lastly, the Final Rule prohibits contractors from taking credit for the costs of administering a fringe benefit plan if the expenses are primarily for the benefit or convenience of the contractor. The Final Rule does, however, permit contractors to take credit for those costs which are directly related to the administration and delivery of a bona fide fringe benefit.
• Expanded Davis-Bacon coverage to additional construction activities and "site of the work." Davis-Bacon coverage is generally limited to the "site of the work," but the Final Rule expands this definition to include certain "secondary construction sites" where a significant portion of the building or work is constructed, provided the site isn't making products or materials for the general public and it is established in connection with the contract or the project. The Final Rule also includes various "green" activities as construction activities subject to Davis-Bacon coverage, like the installation of solar panels, wind turbines, broadband internet, and electric car stations.
• Limiting the exemption for material suppliers. The Final Rule clarifies that the material supplier exemption is only available to entities whose sole obligation under the contract is to supply materials. In other words, if a company is supplying materials for the contract, and also engaging in construction activities at the site of the work, it not a material supplier, and the exemption would not apply.
• Clarification relating to coverage for truck drivers employed by contractors or subcontractors who are not material suppliers. With respect to truck drivers who are not material suppliers, the Final Rule also clarifies that Davis-Bacon coverage applies to the time that delivery drivers spend onsite related to offsite deliveries (loading and unloading) if that time is not de minimis. In determining whether the delivery driver's time onsite is de minimis, the DOL notes that what matters is the total daily or weekly time a driver spends at the site of work, rather than focusing on the fact that each delivery may only take a few minutes.
• Removal of notice requirements. The requirements of the Final Rule are effective even if the contract doesn't expressly require them. In other words, the provisions of the Final Rule are simply effective by operation of law, which means contractors should be aware of the new requirements, even if the contract with the federal agency doesn't provide notice.

The Final Rule also sets forth additional recordkeeping requirements, anti-retaliation provisions, revised debarment provisions, and could expand the geographic area over which a wage rate is deemed prevailing, among other provisions. Contractors should become familiar with these provisions now, before the Final Rule goes into effect. The Final Rule is scheduled to become effective on October 22, 2023 (60 days from its scheduled publication in the Federal Register).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Andrew Levy and Austin W. Wolfe, McNees Wallace & Nurick, (c) Mondaq Ltd, 2023

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