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. 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. 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. 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. 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. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: 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." 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.