Recovery Act: Officials' Views Vary on Impacts of Davis-Bacon Act Prevailing Wage Provision
Published: 2010-02-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The American Recovery and Reinvestment Act of 2009 (Recovery Act) has the broad purpose of stimulating the economy. It includes substantial appropriations for construction projects that, under the act's prevailing wage provision, are subject to Davis-Bacon Act requirements. That is, contractors must pay laborers and mechanics who work on those projects at least the prevailing wage rates set for their local area by the Secretary of Labor. In addition, contractors must submit certified payrolls and pay their workers weekly. Prior to the Recovery Act, some federal programs with construction projects were already subject to Davis-Bacon Act requirements. Others, however, are subject to the requirements for the first time because the Recovery Act extended the requirements to all construction projects supported by the act. GAO was asked to (1) identify the programs that are newly affected by the Recovery Act's prevailing wage provision and (2) examine the extent to which that provision is expected to affect each of those newly affected programs. GAO obtained data from 27 agencies and spoke with federal, state, and local officials as well as contractors involved with the newly affected programs. Although GAO is not making recommendations in this report, these findings may be helpful in considering and designing legislation with similar objectives.
section_title: What GAO Found
paragraphs: Fortyprograms are newly subject to Davis-Bacon requirements as a result of the Recovery Act's prevailing wage provision, according to federal agency officials. Of these, 33 programs existed prior to the Recovery Act and are subject to Davis-Bacon requirements for the first time under the act, while 7 are newly created programs. Together, the 40 programs account for about $102 billion of the $309 billion that was appropriated by the Recovery Act for projects and activities. However, a smaller amount of these funds will be subject to Davis-Bacon requirements because not all of the funds will be used for construction activities and only a portion of those funds will be used to pay labor wages. For those programs that are newly subject to Davis-Bacon requirements, officials had mixed views on the impact of these requirements on program costs and goal achievement. In some cases, officials said Davis-Bacon requirements would have little or no impact on program costs for a few reasons, such as (1) the program having a small amount of construction activities, (2) prevailing wage rates that were in line with expectations, and (3) companies' previous experience with weekly payrolls. In other cases, officials said the requirements would have a moderate to large impact on program costs and/or goals. For example, officials from the Department of Energy's (DOE) Energy Efficiency and Conservation Block Grants program anticipated a potentially large cost impact as a result of the significant amount of funds to be spent on construction labor wages. Officials from DOE's Weatherization Assistance Program reported that weatherization projects in buildings taller than four stories will require workers to be paid a commercial prevailing wage rate under the Davis-Bacon Act that is higher than what would otherwise be used and could potentially reduce the number of homes weatherized. Additionally, weatherization officials said that Davis-Bacon requirements affected the program's timing because prevailing wage rates for weatherization workers were not fully available until September 2009. Further, officials from the Department of Housing and Urban Development's Lead Hazard Reduction Program noted that Davis-Bacon requirements would require a more detailed payroll tracking system that could be particularly burdensome for small companies. Those officials also explained that because administrative costs are likely to increase, the department is in the process of increasing the cap on how much recipients can spend on administrative costs.

section_title: Letter
paragraphs: The nation faces what is generally reported to be the most serious  economic crisis since the Great Depression. In response, the American  Recovery and Reinvestment Act of 2009 (Recovery Act) was enacted to  promote economic recovery, make investments, and minimize and avoid  reductions in state and local government services. In early 2009, the  Congressional Budget Office estimated that the combined spending and  tax provisions in the Recovery Act will cost an estimated $787 billion from  2009 through 2019. Of that total, more than a third comes from Division A  of the act, which provides substantial funding for, among other things,  construction and infrastructure projects. These projects, which are  supported by various federal agencies, encompass construction,  alteration, and repair efforts for roads, bridges, public transit, water  systems, and federal buildings and facilities.
Under the Recovery Act’s prevailing wage provision, all construction  projects funded directly by or assisted in whole or in part by the federal  government through Division A of the act are subject to the requirements  of the Davis-Bacon Act. That is, all laborers and mechanics employed by  contractors and subcontractors must be paid at least the prevailing wage  rate, including fringe benefits, in the local area in which they are  employed, as determined by the Secretary of Labor. In addition,  contractors are required to pay these workers weekly and submit weekly  certified payroll records to the contracting or administering agency. Prior  to the Recovery Act, numerous federal programs that included  construction projects were subject to the Davis-Bacon Act. Because these  programs were already required to comply with Davis-Bacon  requirements, they were not newly affected by the Recovery Act’s  prevailing wage provision. However, because the Recovery Act extended  Davis-Bacon requirements to all construction projects that it supported  through Division A of the act, some federal programs became subject to  these requirements for the first time.
In this context, you asked us to (1) identify programs that are newly  affected by the Recovery Act’s prevailing wage provision and (2) examine  the extent to which that provision is expected to affect each of those  newly affected programs. Separately, we are also reporting on the extent  to which federal requirements, including Davis-Bacon requirements, are  expected to affect the timing of Recovery Act projects.
To identify programs that are newly affected by the Recovery Act’s  prevailing wage provision, we requested data from 27 of the agencies that  received funding under Division A of the act. Although the Recovery Act  was initially estimated to provide $787 billion in spending and tax  provisions, we focused on the appropriation portion because the act’s  prevailing wage provision only applied to Division A.
U.S. Army Corps of Engineers    Education    Energy    Health and Human Services    Homeland Security    Housing and Urban Development    Justice    Labor    State    Transportation    Treasury    Veterans Affairs  The independent agencies included the    Corporation for National and Community Service    Environmental Protection Agency    Federal Communications Commission    General Services Administration    National Aeronautics and Space Administration    National Endowment for the Arts    National Science Foundation    Small Business Administration    Smithsonian Institution    Social Security Administration    U.S. Agency for International Development  We asked each agency to specify which of its programs were newly  subject to Davis-Bacon requirements under the Recovery Act. We verified  the agency-provided data with agency officials and checked their  appropriation figures with appropriation values in the Recovery Act. We  also interviewed officials from the Department of Labor and the  Congressional Research Service to learn about the universe of newly  subject programs and the application of Davis-Bacon requirements.
To examine the extent to which the Recovery Act’s prevailing wage  provision is expected to affect each newly affected program, we  conducted semi-structured interviews with federal officials from most of  these programs, and for the other programs we obtained federal officials’  written responses to our questions. We also interviewed state and local  officials in the 16 states and the District of Columbia that we are reviewing  for our bimonthly reports to Congress on Recovery Act implementation.  These 16 states are Arizona, California, Colorado, Florida, Georgia, Illinois,  Iowa, Massachusetts, Michigan, Mississippi, New Jersey, New York, North  Carolina, Ohio, Pennsylvania, and Texas. We also conducted interviews  with, and obtained relevant documentation from, two national contractor  associations (Associated General Contractors of America and Associated  Builders and Contractors); a national union (AFL-CIO); the National  Association of State Auditors, Comptrollers and Treasurers; the National  Association of Counties; and the National Governors Association. To  further understand how Davis-Bacon requirements might affect specific  programs that are newly subject to those requirements, we interviewed  and collected additional data from state and local officials and contractors  associated with five of the programs that fell within the scope of our  work. We selected these five programs because they existed prior to the  Recovery Act, are currently being implemented, and have a significant  portion of their funding going toward construction activities. The local  officials and contractors interviewed were referrals identified by federal  and state officials. We ensured a range of officials and contractors were  selected by asking for contacts from geographically disbursed states for  different Recovery Act programs. The examples we provide in this report  are illustrative only and not generalizable.
We conducted this performance audit from September 2009 to February  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Davis-Bacon Act requires contractors and subcontractors working on  federally funded contracts in excess of $2,000 to pay at least locally  prevailing wages to laborers and mechanics. The act covers both new  construction and the alteration or repair of existing public buildings and  works. The Department of Labor sets prevailing wage rates for various job  categories in a local area on the basis of periodic surveys it conducts of  contractors, unions, public officials, and other interested parties. The  Davis-Bacon Act stems from a Depression-era practice of transporting  workers from lower-paying areas to bypass local workers who would  demand a higher wage. The prevailing wage requirement was meant to  prevent this practice by ensuring that workers on federal projects were  paid at least the locally prevailing wage. Congress has extended this  requirement beyond projects funded directly by the federal government by  including Davis-Bacon Act prevailing wage provisions in numerous related  laws under which federal agencies assist construction projects through  grants, loans, guarantees, insurance, and other methods. Examples of  related laws include the Federal-Aid Highway Acts, the Housing and  Community Development Act of 1974, and the Federal Water Pollution  Control Act. Contractors on projects subject to Davis-Bacon  requirements may also be subject to additional prevailing wage  requirements under state and local laws.
In addition to paying no less than locally prevailing wages, contractors for  construction projects that are subject to the Davis-Bacon Act must pay  their workers on a weekly basis and submit weekly certified payroll  records. The federal contracting or administering agency has primary  responsibility for enforcing these requirements, while the Department of  Labor has coordination and oversight responsibilities, including the  authority to establish regulations and investigate compliance with labor  standards as warranted.
The prevailing wage provision in section 1606 of the Recovery Act broadly  applies Davis-Bacon requirements to all construction projects funded  directly or assisted by the federal government under Division A of the  act. It reinforces Davis-Bacon Act coverage of construction projects  where the federal government is a party to the contract, extends it to projects assisted in whole or in part by Division A of the act, and overri any limitation to Davis-Bacon coverage in related laws under which  federal agencies provide financial assistance, such as grants and loan  guarantees, to recipients to use for construction projects. It also extends  the prevailing wage requirement to some federally assisted projects th would not otherwise be subject to that req uirement.
section_title: Federal Agency Officials Reported That 40 Programs Are Newly Subject to Davis-Bacon Requirements because of the Recovery Act’s Prevailing Wage Provision
paragraphs: According to federal agency officials, 40 programs are newly subject to  Davis-Bacon requirements as a result of the Recovery Act’s prevailing  wage provision, as shown in table 1. These programs are spread across  12 of 27 federal agencies that received funding under Division A of the ac Most of the programs existed prior to the Recovery Act and are subject to  Davis-Bacon requirements for the first time under the act, while some are  newly created programs. t.
section_title: Program Officials’ Views on Davis-Bacon Requirements
paragraphs: Federal, state, and local officials involved with the 40 Recovery Act  programs that are newly subject to Davis-Bacon requirements differed on  whether those requirements would increase program costs. However,  these officials generally did not expect Davis-Bacon requirements to  inhibit their ability to achieve Recovery Act and program goals. Federal  officials responsible for most of the programs did not expect Davis-Bacon  requirements to affect the timing of their program’s Recovery Act efforts,  though officials for some programs expected an impact.
subsections: section_title: Program Officials Differed on Whether Davis-Bacon Requirements Would Increase Programs’ Costs
paragraphs: Federal officials responsible for programs that are newly subject to Davis- Bacon requirements—the prevailing wage rate requirement and the  administrative requirements associated with weekly payroll processes— had mixed views on the extent to which they expected these requirements  to affect program costs, as table 2 shows.
Officials for the 40 programs provided a range of explanations for the  extent to which the prevailing wage rate requirement might impact  program costs. Specifically:    Little to no impact. Department of Energy officials responsible for two  programs said construction firms generally pay prevailing wage rates as a  standard practice and therefore the prevailing wage rate requirement  would have no impact on program costs. According to other program  officials, the impact would be small because a relatively small amount of  program funds are to be spent on construction activities that are subject to  Davis-Bacon requirements. For example, Department of Justice officials  responsible for the Transitional Housing Assistance Grants for Victims of  Domestic Violence, Dating Violence, Stalking, or Sexual Assault Program  said only a small number of grantees requested funds for construction and  that less than 5 percent would be allocated for this purpose. Department  of Energy officials responsible for the Geothermal Technologies program  noted that the prevailing wage rates were in line with what they expected,  and Electricity Delivery and Energy Reliability program officials said  existing wage rates paid by utility companies were generally high already  so any increase in wage expenses due to prevailing wage rates would  probably be minimal.
Moderate impact. Officials from the Department of Energy’s  Weatherization Assistance Program explained that the prevailing wage  rate requirement will have at least a moderate impact on program costs.  They explained that weatherization projects in buildings taller than four  stories will require that workers be paid commercial prevailing wage rates  that are higher than the wage rates that would otherwise be used for  weatherization projects. Department of Energy officials responsible for  the Wind and Hydropower Technologies program explained that the  prevailing wage rates for construction workers are sometimes 20 percent  higher than what would have been paid for similar work and could  increase labor costs by 20 percent. Conversely, these officials said the  payment of higher wages could attract a more highly trained laborer and  thus possibly result in savings in rework or in adherence to safety  guidelines.
Large impact. Department of Energy officials from the State Energy  Program explained that in some of the areas hardest hit economically,  construction workers are paid less than the prevailing wage rate for the  county. Therefore, paying the Davis-Bacon prevailing wage rate will  increase costs. Likewise, Department of Justice officials responsible for  the Correctional Facilities on Tribal Lands Program explained that in some  cases the prevailing wage rate may be significantly higher than what the  tribe would normally pay for construction. Department of Energy  officials responsible for the Energy Efficiency and Conservation Block  Grants program anticipated a potentially large impact as a result of the  large number of grantees and significant proportion of funds that would be  spent on construction labor wages.
State and local officials we interviewed also had mixed views about the  expected impact of the prevailing wage rate requirement on program  costs. District of Columbia weatherization officials explained that the  prevailing wage rates were generally in line with what they would expect  to pay and some state weatherization officials in California said the  prevailing wage rates may be less than what some service providers are  currently paying. Data provided by State Energy Program officials in  Georgia indicated that contractor wage rates are higher than Davis-Bacon  prevailing wage rates in a subset of counties. Conversely, Iowa state  weatherization officials explained that the average cost increase would be  about 9 percent per home, and one local Lead Hazard Reduction Program  official reported that, based on historical experience, the prevailing wage  rate requirement could increase program costs by 10 to 13 percent per  home. One Mississippi contractor we interviewed said the wage rates  would not have an impact on costs because the hourly rates that the  company pays its employees are and always have been higher than the  Davis-Bacon rates.
As table 2 also shows, federal officials reported mixed views on the extent  to which they expected Davis-Bacon administrative requirements, such as  paying workers weekly, to affect program administrative costs. For  example:    Little to no impact. Department of Health and Human Services officials  responsible for the Capital Improvement Program and Facility Investment  Program for Health Centers said the requirements should have no impact  on program costs since grantees were asked to include Davis-Bacon  compliance in their proposals. Department of Energy officials responsible  for the Solar Energy Technologies program expected the administrative  requirements to have a small impact because less than 5 percent of funds  will be used for construction-related activities subject to Davis-Bacon  requirements. Department of Housing and Urban Development officials  responsible for the Green Retrofit Program for Multifamily Housing said  the administrative requirements would have a small impact because the  grant recipients had previous experience with the Davis-Bacon  requirements through other federal housing programs and were  accustomed to requirements such as paying workers on a weekly basis.  Environmental Protection Agency officials responsible for the Diesel  Emission Reduction Act Grants program said the impact would be small  because the majority of the grant funds are used to purchase equipment  and are therefore not subject to the administrative requirements. These  program officials added that while the requirements are new to most  grantees, the grantees will become familiar with them over time.
Moderate impact. State Energy Program officials noted that many  construction companies involved with their projects do not maintain  payroll records sufficient to meet Davis-Bacon requirements, and as a  result, the administrative requirement to pay workers weekly may add to  their administrative costs.
Large impact. Federal officials responsible for the Weatherization  Assistance Program and the Lead Hazard Reduction Program said Davis- Bacon administrative requirements would require a more detailed payroll  tracking system, which would be particularly burdensome for small  companies. According to Weatherization Assistance Program officials,  smaller companies are the ones, generally speaking, that do not usually  have experience with the Davis-Bacon requirement for certified weekly  payrolls. For these employers, who often employ fewer than five people, it  is particularly burdensome to certify payrolls weekly. Lead Hazard  Reduction Program officials explained that additional administrative  duties necessary for weekly payroll processing will increase administrative  costs. To accommodate this increase, the agency is in the process of  increasing the cap on how much recipients can spend on administrative  costs from 10 to 15 percent of their award.
State and local officials we interviewed had mixed views on the impact of  Davis-Bacon administrative requirements on program costs. Clean Water  State Revolving Fund officials in Georgia and the District of Columbia said  they do not anticipate any additional costs as a result of the administrative  requirements, whereas program officials in Mississippi and New Jersey  noted the requirements would likely increase project costs. Local  agencies involved with the Weatherization Assistance Program in  California, Michigan, New York, and Ohio reported hiring new staff to  process Davis-Bacon paperwork, and local weatherization officials from  California noted that the administrative requirements might be particularly  burdensome on smaller businesses. Local officials responsible for a Lead  Hazard Reduction program in New York said their subcontractor is  familiar with the administrative requirements, and the subcontractor has  not indicated that these requirements are problematic.
section_title: Program Officials Generally Expected Davis- Bacon Requirements to Have Little Impact on Achieving Program and Recovery Act Goals
paragraphs: Despite these potential cost increases for some Recovery Act programs,  most federal officials said the Davis-Bacon requirements will have little, if  any, impact on their ability to support their program and Recovery Act  goals. Federal officials responsible for 15 of the 40 programs said Davis- Bacon requirements would have no impact on their program’s ability to  achieve its goals, and officials from 12 programs reported that the  requirements would have little impact (see table 3). However, federal  officials from four programs—the Weatherization Assistance Program,  State Energy Program, Energy Efficiency and Conservation Block Grants,  and Correctional Facilities on Tribal Lands Program—noted that the  Davis-Bacon requirements could have a large impact on their ability to  support the Recovery Act goal of preserving or creating new jobs. For  example, Weatherization Assistance Program officials said that Davis- Bacon requirements will have a large impact in urban areas because they  have to pay commercial construction rates to weatherize buildings over  four stories tall. These commercial construction wage rates are higher  than the wage rates officials were expecting to pay and officials said  program goals would be affected because they will have to reduce the  number of homes weatherized.
State and local officials we interviewed and collected data from also  reported that the Davis-Bacon requirements would generally have little  impact on their ability to achieve program and Recovery Act goals.  California state officials responsible for the State Energy Program stated  that even though the requirements may have been an inhibiting factor for  some applicants, they do not believe that the requirements will negatively  affect the ability to achieve energy policy goals. While Ohio state officials  responsible for weatherization said their program goals have not been  affected, District of Columbia Lead Hazard Reduction program officials  said they had to reduce the number of homes to be treated. Florida  officials responsible for the Clean Water State Revolving Fund and  Drinking Water State Revolving Fund programs reported that the addition  of Davis-Bacon requirements had little impact on their program’s ability to  support the underlying Recovery Act goals, such as creating jobs, in part  due to the ultra-competitive behavior during the economic downturn and  the enormous demand for environmental infrastructure  funding. Conversely, Michigan state weatherization officials said the  requirements might affect their ability to support the Recovery Act goal of  job creation, especially for smaller businesses and contractors. According  to these officials, some smaller local contractors who performed  weatherization work before the Recovery Act sometimes may not have the  capacity to take advantage of the Recovery Act weatherization work  because of requirements such as the weekly payroll certifications.
section_title: Program Officials Generally Did Not Expect Davis-Bacon Requirements to Affect the Timing of Recovery Act Efforts
paragraphs: According to federal officials responsible for most programs that are  newly subject to Davis-Bacon requirements, the requirements are not  likely to affect the timing of their program’s Recovery Act efforts.  However, officials for some programs expected an impact on their  program’s timing.
Federal officials for 23 of the 40 programs said they did not expect Davis- Bacon requirements to affect their program’s timing. For example, an  official for the National Science Foundation’s Academic Research  Infrastructure Program—Recovery and Reinvestment noted that while  they had to spend time consulting with the Office of Management and  Budget and the Department of Labor on Davis-Bacon requirements, this  effort had not significantly altered the program’s timing. Federal officials  for 2 programs were uncertain about how Davis-Bacon requirements might  affect their program’s timing, while officials for 7 programs did not provide  a response in time for our report.
In contrast, federal officials for 8 programs expected Davis-Bacon  requirements to have an impact on the timing of their program’s Recovery  Act efforts. For example, officials with the Department of Energy’s  Weatherization Assistance Program stated that Davis-Bacon requirements  had significantly affected their program’s timing because the program is  newly subject to the requirements so prevailing wage rates for  weatherization workers were not immediately available. Some states  decided to wait to begin weatherizing homes until the Department of  Labor had determined county-by-county prevailing wage rates for their  state to avoid having to pay back wages to weatherization workers who  started working before the prevailing wage rates were known. For  example, state weatherization officials in Arizona said that all but one of  their local service providers decided to wait to weatherize homes using  Recovery Act funds until the prevailing wage rates were determined  because they were concerned about the time required to reconcile  differences in wage rates. The timing of the Weatherization Assistance  Program’s Recovery Act efforts was also affected by concerns about  complying with Davis-Bacon requirements. For example, Pennsylvania  weatherization officials stated that delays occurred because some local  agencies had initially submitted management plans that had not included  language describing how they would comply with those requirements.  Officials with the Department of Energy’s Energy Efficiency and  Conservation Block Grants and State Energy Program also expected  Davis-Bacon requirements to affect the timing of their Recovery Act  efforts, while officials with the Department of Housing and Urban  Development’s Lead Hazard Reduction Program reported that grantees  were provided additional time to complete their work plans to ensure  contractors understood the requirements.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to all 27 agencies and the Office of  Management and Budget for their review and comment. Two agencies  provided technical comments that were incorporated into the report as  appropriate. The other agencies had no comments. We also provided a  copy of relevant sections of the report to GAO teams responsible for  reviewing Recovery Act work in the states mentioned in this report. In  some cases, those teams forwarded relevant sections to officials within  those states. We included these comments as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to all 27 agencies reviewed in  this report, and other interested parties. The report will also be available  at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or daltonp@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix I.
section_title: Appendix I: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: Other key contributors to this report were Mark Gaffigan, (Director), Ric  Cheston (Assistant Director), Kim Gianopoulos (Assistant Director), David  Marroni (Analyst-in-Charge), Angela Miles, and Alise Nacson. Important  contributions were also made by Anne Rhodes-Kline, Carol Herrnstadt  Shulman, and Barbara Timmerman.