Ensuring Prevailing Wages: A Closer Look at the Davis-Bacon Act

Enacted in 1931, the Davis-Bacon Act (DBA) applies to contractors and subcontractors working on federally funded contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works. It establishes minimum wage rate requirements for laborers and mechanics performing work on such projects and requires that they be paid on a weekly basis. It also establishes some requirements for contractors and subcontractors that intend to utilize apprentices on DBA-covered buildings or works. 

DBA requirements have been extended by Congress through numerous statutes, collectively known as the Davis-Bacon “Related Acts.” The Related Acts extend DBA requirements to projects that receive assistance from the federal government through a variety of financial instruments (e.g., grants, loans, loan guarantees, insurance).

All DOE Loan Programs Office (LPO) financing programs* are subject to DBA labor standards through at least one (or more) Related Act, except for the Tribal Energy Finance Program. Projects that are subject to DBA labor standards will be expected to comply with its requirements. However, Tribal projects may be subject to the prevailing wage requirements under President Biden’s Inflation Reduction Act (IRA) if they want and qualify for certain tax benefits. DOE does not monitor the IRA's prevailing wage requirements; the IRS does that.

Through the requirement to pay DBA wages, LPO helps ensure that the workers in the communities where the projects are being built will be paid prevailing wages for that area. In this way, LPO’s work underscores the Biden-Harris Administration’s commitment to strengthening America’s workforce, building up local economies, and more.

This guidance provides a high-level overview of the key Davis-Bacon Related Act requirements associated with the LPO loan and loan guarantee programs. The guidance provided in this blog does not constitute legal advice. Nor is this guidance a substitute for a careful review of the DBA provisions, applicable DBA statutes, and regulations. 

Compliance Requirements

All contractors and subcontractors engaged in the construction, alteration or repair of the LPO-supported project are required to pay all laborers and mechanics employed, or working on the site of the work, and not less often than once per week, the full amount of wages and bona fide fringe benefits computed at rates not less than those contained in the wage decision (described below). Employers must prepare, certify, and submit to DOE weekly payroll reports for all the laborers and mechanics engaged in construction on the site of the work. Employers may also be required to submit related documentation in order to demonstrate­ compliance­. The DBA requirements apply to the construction phase of the project, but not to the operation phase. 

LPO borrowers are ultimately responsible for DBA compliance on their respective projects. The specific compliance requirements are outlined in the DBA contract provisions that the Department of Labor requires to be included in all DBA-covered construction contracts. These provisions are located in the Department of Labor regulations at 29 CFR 5.5 and are also attached here for convenience.

DBA-Covered Employees

Laborers and mechanics

Individuals whose duties are manual or physical in nature, including workers who are performing the work of a trade (e.g., electrician), are considered laborers and mechanics for DBA purposes. They include apprentices.

Working forepersons

Forepersons or supervisors that perform construction work and devote more than 20% of their time as a laborer or mechanic are treated, for labor standards purposes, as “laborers” or “mechanics” for their time spent working as a laborer or mechanic. 

Exclusions 

Persons whose duties are primarily administrative, managerial, or clerical are not laborers or mechanics; and they are not covered by DBA’s prevailing wage requirements­. 

DBA Classification

Classification

Each laborer and mechanic is classified in accordance with a specific work classification listed on the wage decision per the actual type of work they perform. They must be paid the applicable wage rate and fringe benefits for that classification regardless of their level of skill, unless they are enrolled in a Department of Labor (DOL)-approved apprenticeship program or with a DOL-recognized State apprenticeship agency. 

Split classification

Laborers and mechanics that perform work in more than one classifi­cation may be compensated at the rate specified for each classification, provided that the employer maintains time records that accurately set forth the time spent in each classification in which the work was per­formed. 

Site of Work

DBA limits the “site of work” to the physical place or places where the construction called for in the contract will remain when work on it has been completed. “Site of work” includes other adjacent or nearby properties used by the contractor/subcontractor in the construction of the project (e.g., fabrication sites, headquarters, tool yards, batch plants, borrow pits), provided that they are dedicated exclusively, or nearly so, to the performance of the contract or project and ­are located in proximity to the actual construction location that it would be reasonable to include them. 

Wages and Fringe Benefits

The prevailing wage rate is made up of two interchangeable components: the basic hourly wage and fringe benefits. Both are identified on the wage determination. The hourly wage rate plus the fringe benefits comprise­ the “prevailing wage” obligation. This obligation may be met by any combi­nation of cash wages and creditable “bona fide” fringe benefits provid­ed by the employer. Fringe benefits may include: 

• Sick, vacation, or holiday pay.
• Costs to defray expenses of apprenticeship or similar programs­.
• Medical or hospital care.
• Supplemental unemployment benefits.
• Life insurance.
• Pensions on retirement or death.
• Compensation for injuries or illness resulting from occupa­tional activity.
• Other bona fide fringe benefits or insurance to provide any of the above.

Wage rates for projects are set at either (1) the date the construction contract is signed (i.e., any identifiable document and date when the construction commitment is finalized) or (2) the start of construction. (See 29 CFR 1.6(g).) Rates remain frozen throughout the length of the project. 

The wage rates that apply to LPO projects that begin construction prior to the date the LGA/LARA is signed should be set per (1) the date the construction contract (i.e., any identifiable document and date when the construction commitment is finalized) is signed or (2) the start of construction (where there is no such construction contract). (See 29 CFR 1.6(g).)

Understanding Wage Decisions and Conformances

A wage decision is a schedule of construction work classifications, wage rates, and fringe benefits that represent the minimum rates that must be paid to workers employed in those classifications. Wage decisions are established for defined geographic areas, usually by a county or group of counties. A wage decision comprises the original decision along with any subsequent decisions made by the DOL to modify, supersede, correct, or otherwise change the provisions of the original decision. The terms “wage decision” and “wage determination” are used interchangeably.

There are four basic categories of wage decisions based on the nature of the construction project. Generally, for wage determination purposes, a project consists of all construction necessary to complete a facility regardless of the number of contracts involved so long as all contracts awarded are closely related in purpose, time, and place.

1. Residential: Residential construction includes the construction, alteration, or repair of single-family houses or apartment buildings of no more than four stories in height. This typically includes all incidental items, such as site work, parking areas, utilities, streets and sidewalks, unless there is an established area practice to the contrary. Many of LPO's distributed energy projects for VPP or residential energy systems will fall under this category. 

2. Building: Building construction generally is the construction of sheltered enclosures with walk-in access for the purpose of hous­ing persons, machinery, equipment, or supplies. It includes all construction of such structures, the installation of utilities and the installation of equipment, both above and below grade. This category in­cludes buildings exceeding four stories in height that have housing units and buildings of four stories or less that do not have housing units. This category also includes incidental items such as grad­ing, sidewalks, and utilities.

   Examples of Building Category that may apply to LPO projects are facilities for manufacturing or power generation (other than dams) and for distributed energy projects in the commercial and industrial market, including transportation facilities.

3. Highway: Highway construction category includes the construction, alter­ation, or repair of roads, streets, highways, alleys, parking areas, and other similar projects not incidental to the main category of construction, which is either residential or building for housing de­velopment projects. 
    
4. Heavy: Heavy construction category includes those projects that are not properly classified as “residential,” “building,” or “highway.” Some examples that may apply to LPO projects include transmission lines, refineries (other than buildings), pipelines, dams (including pumped hydro), and railways or subways.

NOTE: There can be a single or multiple wage decision for a single project. 
 

Conformances

At times, the wage decision will not contain some of the work classification and wage rates that are needed for the construction project­. In such cases, an additional classification and wage rate may be approved by DOL where: 

1. The requested work classification is used in the area of the project by the construction industry.
2. The work that will be performed is not performed by a work classi­fication already contained in the wage decision.
3. The proposed wage rate bears a reasonable relationship to the wage rates on the wage decision.
4. The workers that will be employed in the requested work classifi­cation (if known) or the workers’ representatives (if any) agree with the proposed wage rate. 

NOTE: All conformance requests should be processed through the assigned LPO DBA Compliance Officer after financial close. 

Certified Payrolls

Payrolls and related basic records must be maintained by the contractor during the course of the work and for three years thereafter for all laborers and mechanics working at the site of the work.

Such records must contain the name, address, and social security number of each such worker; his or her correct classification; hourly rates of wages paid (including rates of contributions or costs anticipated for bona fide fringe benefits or cash equivalents thereof of the types described in section 1(b)(2)(B) of the DBA); daily and weekly number of hours worked; deductions made; and actual wages paid. 29 CFR 5.5(a)(3).

The contractor must submit weekly for any week in which any contract work is performed a copy of all payrolls. 29 C.F.R. § 5.5(a)(3)(ii)(A).

Each weekly payroll submitted must be accompanied by a “Statement of Compliance.” 29 C.F.R. § 5.5(a)(3)(ii)(B).

Deductions

The employer may make payroll deductions as permitted by DOL regulations in 29 CFR Part 3. These regulations prohibit the employer from requiring employees to “kick back” any of their earnings. Deductions may include employee obligations for income taxes, social s­ecurity payments, insurance premiums, retirement contributions, savings ac­counts, and any other legally permissible deduction authorized by the employee. Deductions may also be made for payments on judgments and other financial obligations legally imposed against the employee (which will require documentation).

Apprenticeship Program

An apprentice is any person employed and individually registered in a bona fide apprenticeship program. Bona fide programs are those that have been registered with DOL’s Office of Apprenticeship or with a DOL-recognized State Apprenticeship Agency. A person who is employed as a “pre-apprentice” (i.e., a preparatory position that may result in registration in an apprenticeship program) is not considered to be an “apprentice.”

Project Borrower Roles and Responsibilities at a Glance

• Work with LPO to determine the applicable wage determination(s) for the project.
• Require contractors or subcontractors to pay all mechanics and laborers at least once per week. 
• Prohibit contractors or subcontractors from taking deductions or rebates from wages earned by laborers and mechanics.
• Require contractors or subcontractors to pay prevailing wages to all laborers and mechanics employed on the site of the work per the appropriate work classifications regardless of their skill level and regardless of any contractual relationship alleged to exist between the laborers and mechanics and the contractor or subcontractor.
• Require contractors or subcontractors to post the DBA posters and applicable wage determinations to be p­aid in a prominent and accessible place at the work site.
• Permit the withholding of payments due to a contractor on ac­count of wage restitution that may be found due to the contractor’s laborers and mechanics.
• Permit the payment of wage restitution from amounts withheld from contract payments.
• Investigate and resolve DBA-related issues or complaints and report to DOE. Notify DOE if you are aware of a non-compliance issue or if you have been contacted by another agency.
• Refer compliance issues to the DOL as appropriate.
• Support DOE’s efforts to ascertain whether required contractual clauses and applicable wage determinations are included in all contracts subject to the labor standards provisions of the DBA (29 CFR 5.6(a)(1)).
• Ensure they are current on all wage obligations when certifying for an advance of loan proceeds.
• Send contractor conformance requests for new job classifications to the DOE for review and submission to the DOL.
• Comply with DBA requirements under the Loan Guarantee Agreement.
• Comply with DBA contract provisions as defined in 29 CFR § 5.5, including ensuring that each of their construction contracts include the required flow-through provisions.
• Ensure that laborers and mechanics are paid the appropriate wage rate and fringe benefits (5.5 CFR(a)(1)).
• Allow DOE and DOL access to the site(s) of work to conduct employee interviews and site visits.
• Notify compliance officers when contractors and subcontractors have entered into a new DBA-covered construction contract on the project.

Potential Consequences of Non-Compliance

• Debarment (29 CFR 5.5(a)(7)).
• Default under Loan Guarantee Agreement. 
• Full restitution of wages for incorrectly paid employees.
• Disbursement delays or suspension of funds (29 CFR 5.9).
• Withholding (29 CFR 5.5(a)(2)).
• Impact on labor relations with workers.

Recommended Resources

• Wage determinations: 
  https://sam.gov
• Wage determination/conformance request guide: 
  Wage and Hour Division Davis-Bacon Wage Determination Conformance Request Guide, September 2021 | U.S. Department of Labor (dol.gov)
• Wage and Hour Division: 
  http://www.dol.gov/agencies/whd/government-contracts
• Laws and related materials to Davis-Bacon and Related Acts: 
  Davis-Bacon and Related Acts | U.S. Department of Labor (dol.gov)
  Final rule updates: Final Rule: Updating the Davis-Bacon and Related Acts Regulations | U.S. Department of Labor (dol.gov)
  ATVM Loan Program Requirement: 42 U.S.C. 17013(d)(2)
  Title 17 Loan Guarantee Program Requirement: 42 U.S.C. 16512(k) 
• WHD Protections for Workers in Construction Under the Bipartisan Infrastructure Law: 
  https://www.dol.gov/agencies/whd/government-contracts/protections-for-workers-in-construction
• Resource book: 
  Prevailing Wage Resource Book May 2015 | U.S. Department of Labor (dol.gov)
• Office of /the Administrative Law Judges law library: 
  https://www.dol.gov/agencies/oalj/topics/libraries/LIBDBA
• Prevailing wage topic video: 
  https://www.dol.gov/agencies/whd/government-contracts/construction/presentations

* The guidance provided in this blog does not constitute legal advice. Nor is this guidance a substitute for a careful review of the DBA provisions, applicable DBA statutes and regulations. The actual terms and conditions regarding DBA and DBRA compliance will be included in definitive financing documents for any loan or loan guarantee.