Recovery Act: Officials' Views Vary on Impacts of Davis-Bacon Act Prevailing Wage Provision
Released: 2010-03-24T00:00:00

Letter

Background

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.

Federal Agency Officials Reported That 40 Programs Are Newly Subject to Davis-Bacon Requirements because of the Recovery Act’s Prevailing Wage Provision

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.

Program Officials’ Views on Davis-Bacon Requirements

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.

Program Officials Differed on Whether Davis-Bacon Requirements Would Increase Programs’ Costs

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.

Program Officials Generally Expected Davis- Bacon Requirements to Have Little Impact on Achieving Program and Recovery Act Goals

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.

Program Officials Generally Did Not Expect Davis-Bacon Requirements to Affect the Timing of Recovery Act Efforts

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.

Agency Comments and Our Evaluation

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.

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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.

Appendix I: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

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.