Davis-Bacon Act: Methodological Expertise Critical for Improving Survey Quality
Published: 2011-04-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses the Department of Labor's (Labor) procedures for determining prevailing wage rates under the Davis-Bacon Act. Davis-Bacon wages must be paid to workers on certain federally funded construction projects, and their vulnerability to the use of inaccurate data has long been an issue for Congress, employers, and workers. More recently, the passage of the American Recovery and Reinvestment Act of 2009, focused attention on the need for accurate and timely wage determinations, with more than $300 billion estimated to provide substantial funding for, among other things, federally funded building and infrastructure work potentially subject to Davis-Bacon wage rates. In the 1990s, we issued two reports that found process changes were needed to increase confidence that wage rates were based on accurate data. A third report found that changes then planned by Labor, if successfully implemented, had the potential to improve the wage determination process. However, in 2004, Labor's Office of Inspector General (OIG) found that wage data errors and the timeliness of surveys used to gather wage information from contractors and others, continued to be issues. The testimony will discuss (1) the extent to which Labor has addressed concerns regarding the quality of the Davis-Bacon wage determination process and (2) additional issues identified by stakeholders regarding the wage determination process. This testimony is based on our recently issued report, titled "Davis-Bacon Act: Methodological Changes Needed to Improve Wage Survey."
section_title: What GAO Found
paragraphs: In summary, we found that recent efforts to improve the Davis-Bacon wage survey have not yet addressed key issues with survey quality, such as the representativeness and sufficiency of survey data collected. Labor has made some data collection and processing changes; however, we found some surveys initiated under these changes were behind Labor's processing schedule. Stakeholders said contractors may not participate in the survey because they do not understand its purpose or do not believe the resultant prevailing wages are fully accurate. In addition, they said addressing a lack of transparency in how the published wage rates are set could result in a better understanding of the process and greater participation in the survey. We suggest Congress consider amending its requirement that Labor issue wage rates by civil subdivision to allow more flexibility. To improve the quality and timeliness of the Davis-Bacon wage surveys, we recommend Labor obtain objective expert advice on its survey design and methodology. We also recommend Labor take steps to improve the transparency of its wage determinations.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of Labor’s  (Labor) procedures for determining prevailing wage rates under the Davis- Bacon Act. Davis-Bacon wages must be paid to workers on certain  federally funded construction projects, and their vulnerability to the use of  inaccurate data has long been an issue for Congress, employers, and  workers. More recently, the passage of the American Recovery and  Reinvestment Act of 2009, focused attention on the need for accurate and  timely wage determinations, with more than $300 billion estimated to  provide substantial funding for, among other things, federally funded  building and infrastructure work potentially subject to Davis-Bacon wage  rates. In the 1990s, we issued two reports that found process changes  were needed to increase confidence that wage rates were based on  accurate data. A third report found that changes then planned by Labor, if  successfully implemented, had the potential to improve the wage  determination process. However, in 2004, Labor’s Office of Inspector  General (OIG) found that wage data errors and the timeliness of surveys  used to gather wage information from contractors and others, continued  to be issues.
Today I will discuss (1) the extent to which Labor has addressed concerns  regarding the quality of the Davis-Bacon wage determination process and  (2) additional issues identified by stakeholders regarding the wage  determination process. My remarks are based on our recently issued  report, titled Davis-Bacon Act: Methodological Changes Needed to  Improve Wage Survey. To evaluate the extent to which Labor has  addressed concerns regarding the quality of the wage determination  process, we interviewed Labor officials, reviewed relevant federal laws  and regulations, and compared agency documents on current survey  practices with guidance on data quality and survey design from the Office  of Management and Budget (OMB) and Labor. We conducted site visits to  three of Labor’s five regional offices that process Davis-Bacon wage  surveys, as well as to the Construction Industry Research and Policy  Center (CIRPC), a Labor survey contractor. We compared 12 surveys  performed under Labor’s new processes against its revised timelines to  assess whether the surveys were on schedule. We also analyzed the results  of four surveys published in 2009 or 2010 and reviewed their verification  reports prepared by Labor’s contracted auditor. Further, we analyzed  currently published wage rates to determine their age and the proportion  of union-prevailing to nonunion-prevailing rates. To assess what  additional issues were concerns for stakeholders, we conducted  approximately 30 interviews with contractors and representatives from  academia, contractor associations, and unions, and performed a content  analysis of their responses. A more detailed explanation of our  methodology is available in Appendix I of our full report.
This testimony is based on work performed between September 2009 and  March 2011 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.
In summary, we found that recent efforts to improve the Davis-Bacon  wage survey have not yet addressed key issues with survey quality, such as  the representativeness and sufficiency of survey data collected. Labor has  made some data collection and processing changes; however, we found  some surveys initiated under these changes were behind Labor’s  processing schedule. Stakeholders said contractors may not participate in  the survey because they do not understand its purpose or do not believe  the resultant prevailing wages are fully accurate. In addition, they said  addressing a lack of transparency in how the published wage rates are set  could result in a better understanding of the process and greater  participation in the survey. We suggest Congress consider amending its  requirement that Labor issue wage rates by civil subdivision to allow more  flexibility. To improve the quality and timeliness of the Davis-Bacon wage  surveys, we recommend Labor obtain objective expert advice on its survey  design and methodology. We also recommend Labor take steps to improve  the transparency of its wage determinations.
subsections: section_title: Background
paragraphs: The Davis-Bacon Act was enacted in 1931, in part, to protect communities  and workers from the economic disruption caused by contractors hiring  lower-wage workers from outside their local area, thus obtaining federal  construction contracts by underbidding competitors who pay local wage  rates. Labor administers the act through its Wage and Hour Division,  which conducts voluntary surveys of construction contractors and  interested third parties on both federal and nonfederal projects to obtain  wages paid to workers in each construction job by locality. It then uses  the data submitted on these survey forms to determine locally prevailing  wage and fringe benefit rates for its four construction types: building,  heavy, highway, and residential.
To determine a prevailing wage for a specific job classification, Labor  considers sufficient information to be the receipt of wage data on at least  three workers from two different employers in its designated survey area.  Then, in accordance with its regulations, Labor calculates the prevailing  wage by determining if the same wage rate is paid to the majority (more  than 50 percent) of workers employed in a specific job classification on  similar projects in the area. If the same rate is not paid to the majority of  workers in a job classification, the prevailing wage is the average wage  rate weighted by the number of employees for which that rate was  reported. In cases where the prevailing wage is also a collectively  bargained, or union, rate, the rate is determined to be “union-prevailing.”  To issue a wage determination—a compilation of prevailing wage rates for  multiple job classifications in a given area—Labor must, according to its  procedures, also have sufficient data to determine prevailing wages for at  least 50 percent of key job classifications. Key job classifications are those  determined necessary for one or more of the four construction types.
By statute, Labor must issue wage determinations based on similar  projects in the “civil subdivision of the state” in which the federal work is  to be performed. Labor’s regulations state the civil subdivision will be the  county, unless there are insufficient wage data. When data from a county  are insufficient to issue a wage rate for a job classification, a group of  counties is created. When data are still insufficient, Labor includes data  from contiguous counties, combined in “groups” or “supergroups” of  counties, until sufficient data are available to meet threshold guidelines to  make a prevailing wage determination. Expansion to include other  counties, if necessary, may continue until data from all counties in the  state are combined. Counties are combined based on whether they are  metropolitan or rural, and cannot be mixed.
section_title: Recent Efforts to Improve Data Collection and Processing Have Not Yet Addressed Key Issues with Survey Quality
paragraphs: Labor has taken several steps over the last few years to address issues  with its Davis-Bacon wage surveys. For example, it finished 22 open  surveys that had accumulated since the agency started conducting  statewide surveys in 2002. Officials said completing these surveys will  allow them to focus on more recent surveys. Labor also changed how it  collects and processes information for its four construction types by  surveying some construction types separately rather than simultaneously,  using other available sources of wage data, adjusting survey time frames,  and processing survey data as it is received rather than waiting until a  survey closes. For highway surveys, Labor officials said they began using  certified payrolls as the primary data source because certified payrolls  provide accurate and reliable wage information and eliminate the need for  Labor to verify wage data reported in surveys. Labor officials estimated  these changes will reduce the processing time for highway surveys by  more than 80 percent, or from about 42 months to 8 months. For building  and heavy surveys, Labor began a five-survey pilot in 2009, adjusting  survey time frames—with shorter time frames for areas in which there are  many active projects—to allow Labor to better manage the quantity of  data received. In addition, Labor officials said their regional office staff  have begun processing survey data as they are received rather than  waiting until a survey closes, which, they said, will improve timeliness and  accuracy because survey respondents will be better able to recall  submitted information when contacted by regional office staff for  clarification and verification. Labor expects these changes to reduce the  time needed to process building and heavy surveys by approximately 54  percent, or from about 37 months to 17 months.
However, while it is too early to fully assess the effects of Labor’s 2009  actions, our review found that changes to data collection and processing  may not achieve expected results. We were able to analyze the timeliness  of 12 of the 16 surveys conducted under Labor’s new processes at the time  of our review. Of those 12 surveys—8 highway and 4 building and  heavy—which we assessed against Labor’s revised timelines, we found 10  behind schedule, 1 on schedule, and 1 not started as of September 10,  2010. A challenge to survey timeliness is the fact that Labor conducts a  “universe” or “census” survey of all active construction projects within a  designated time frame and geographic area. As a result, the number of  returned survey forms and the time required for the regional offices to  process the data can vary widely. For example, for 14 surveys conducted  prior to Labor’s 2009 changes, the number of forms returned per survey  ranged from less than 2,000 to more than 8,000, and the average processing  time per survey for data clarification and analysis ranged from 10 months  to more than 40. Moreover, Labor cannot entirely control when it receives  survey forms. Some regional office officials said the bulk of the forms are  returned on the last day of a survey limiting officials’ ability to gain time by  processing forms while the survey is ongoing as planned under the 2009  changes. To address these challenges, OMB guidance suggests agencies  consider the cost and benefits of conducting a sample survey (versus a  census survey) because it can often ensure data quality in a more efficient  and economical way.
The fact that Labor is behind schedule on surveys begun under the new  processes may affect its ability to update the many published nonunion- prevailing wage rates which are several years old. Labor’s fiscal year 2010  performance goal was for 90 percent of published wage rates for building,  heavy, and highway construction types to be no more than 3 years old. Our  analysis found that 61 percent of published rates for these construction  types were 3 years old or less. However, this figure can be somewhat  misleading because of the difference in how union- and nonunion- prevailing wage rates are updated. Union-prevailing rates account for  almost two-thirds of the more than 650,000 published building, heavy, and  highway rates and, according to Labor’s policy, can be updated when there  is a new collective bargaining agreement without Labor conducting a new  survey. We found almost 75 percent of those rates were 3 years old or less.  However, 36 percent of the nonunion-prevailing wage rates were 3 years  old or less and almost 46 percent were 10 or more years old. These rates  are not updated until Labor conducts a new survey. Several of the union  and contractor association representatives we interviewed said the age of  the Davis-Bacon nonunion-prevailing rates means they often do not reflect  actual prevailing wages, which can make it difficult for contractors to  successfully bid on federal projects.
Beyond concerns with processes and timelines, we also found that critical  problems with Labor’s wage survey methodology continue to hinder its  survey quality. OMB guidance states that agencies need to consider the  potential impact of response rate and nonresponse on the quality of  information obtained through a survey. A low response rate may mean the  results are misleading or inaccurate if those who respond differ  substantially and systematically from those who do not respond. However,  Labor cannot determine whether its Davis-Bacon survey results are  representative of prevailing wages because it has not calculated survey  response rates since 2002, and, other than a second letter automatically  sent to nonrespondents, does not currently have a program to  systematically follow up with or analyze nonrespondents. While a senior  Labor official said the agency is taking steps to again calculate response  rates, these changes have not been fully implemented and it is unclear if  they will result in improved survey quality.
The utility of issuing wage determinations at the county level is also  questionable. Labor’s regulations state the county will normally be the civil  subdivision for which a prevailing wage is determined; however, Labor is  often unable to issue wage rates for job classifications at the county level  because it does not collect enough data to meet its current sufficiency  standard of wage information on at least three workers from two  employers. In the results from the four surveys we reviewed, Labor issued  about 11 percent of wage rates for key job classifications using data from a  single county (see fig. 1).24, 25  Moreover, in 1997, Labor’s OIG reported that issuing rates by county may  cause wage decisions to be based on an inadequate number of responses.  In the four surveys we reviewed, more than one-quarter of the wage rates  were based on data reported for six or fewer workers (see fig. 2).
We analyzed wage rates for key job classifications because wage rates for nonkey job  classifications can only be issued at the county or group level, but not at the supergroup or  state level.
Regional office officials said they may combine rates from counties with the exact same  wage and fringe benefit data in their final wage compilation report, the WD-22. However,  the rates being combined may have been calculated at different geographic levels—for  example, one county’s rates may have been calculated at the group level while another  county’s rates my have been calculated at the supergroup level. The geographic level at  which rates for combined counties were calculated is not reported on the WD-22; therefore,  we reported the percentage of these rates separately.
section_title: Little Incentive to Participate and Lack of Transparency Remain Key Issues for Stakeholders
paragraphs: In our interviews with stakeholders, concerns about the survey process  and accuracy of the published wage determinations were cited as  disincentives to participate. Contractors may lack the necessary resources,  may not understand the purpose of the survey, or may not see the point in  responding because they believe the prevailing wages issued by Labor are  inaccurate, stakeholders told us. Officials we interviewed in Labor  regional offices echoed many of these same concerns about contractor  participation.
While 19 of the 27 contractors and interested parties we interviewed said  the survey form was generally easy to understand, some identified  challenges with completing specific sections, such as how to apply the  correct job classification. Labor officials said they did not pretest the  current survey form with respondents, and our review of reports by  Labor’s contracted auditor for four published surveys found most survey  forms, which are verified against payroll data, had errors in areas such as  number of employees and hourly and fringe benefit rates. Labor officials  said they have plans to address portions of the form that confuse  respondents, but could not provide specifics on how they intend to solicit  input from respondents—a step recommended by OMB to reduce error.
Fifteen stakeholders we interviewed said there is a lack of transparency in  wage determinations because key information is not available or hard to  find. Both contractor associations and union officials said improving  transparency in how the published wage rates are set could enhance  understanding of the process and result in greater participation in the  survey. A senior Labor official said the agency is considering posting  information used to determine wage rates online.
Finally, while the pre-survey briefing is one of Labor’s primary outreach  efforts to inform stakeholders about upcoming surveys, awareness of  these briefings was mixed. In three states that were surveyed for building  and heavy construction in 2009 or 2010—Arizona, North Carolina, and  West Virginia—all the union representatives we interviewed said they  were aware of the pre-survey briefing and representatives from four of the  six state contractor associations we interviewed said they were aware a  briefing had been conducted. However, in Florida and New York—last  surveyed in 2005 and 2006 respectively—none of the 12 contractors we  interviewed were aware that a briefing had been conducted prior to the  survey. Seven of 27 stakeholders indicated that alternative approaches,  such as webinars or audioconferences, might be helpful ways to reach  additional contractors.
section_title: Conclusions and Recommendations
paragraphs: While Labor has made some changes to improve the wage determination  process, further steps are needed to address longstanding issues with the  quality of wage determinations and enhance their transparency. In our  report, we suggested that Congress consider amending its requirement  that Labor issue wage rates by civil subdivision to provide the agency with  more flexibility. To improve the quality and timeliness of the wage  surveys, we recommended that Labor enlist an independent statistical  organization to evaluate and provide objective advice on the survey,  including its methods and design; the potential for conducting a sample  survey instead of a census survey; the collection, processing, tracking and  analysis of data; and the promotion of survey awareness. We also  recommended that Labor take steps to improve the transparency of its  wage determinations, which could encourage greater participation in its  survey. After reviewing the draft report, Labor agreed with our  recommendation to improve transparency, but said obtaining expert  survey advice may be premature, given current and planned changes. We  believe a time of change is exactly when the agency should obtain expert  advice to ensure their efforts improve the quality of the wage  determination process. A complete discussion of our recommendations,  Labor’s comments, and our response are provided in our report.
Chairman Walberg, Ranking Member Woolsey, and Members of the  Subcommittee, this concludes my prepared remarks. I would be happy to  answer any questions you may have.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information regarding this statement, please contact Andrew  Sherrill at (202) 512-7215 or sherrilla@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs may be found on the  last page of this statement. Individuals who made key contributions to this  testimony include Gretta L. Goodwin (Assistant Director), Amy Anderson,  Brenna Guarneros, Susan Aschoff, Walter Vance, Ronald Fecso (Chief  Statistician), Melinda Cordero, Mimi Nguyen, and Alexander Galuten.
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