K&L Gates published an interesting review of a GAO study that – shockingly – found flaws in Davis – Bacon Prevailing Wage Act Determinations.
As readers probably already know, the Davis-Bacon Act requires contractors on federally funded construction projects to pay employees “prevailing wages” and benefits. The Department of Labor’s Wage-Hour Division sets the “prevailing wage” rate that must be paid by a contractor. The rate varies by jurisdiction. The Department of Labor determines what the prevailing wage is in a specific area by conducting voluntary wage rate surveys of contractors on federal, state, and private construction projects. Based upon responses to those surveys, the DOL extrapolates what a majority of workers are earning on similar construction projects in the area.
While the GAO report highlighted several flaws with the DOL methodology for determine wage rates. I thought the most interesting flaw related to the concept of “union prevailing” rates.
The GAO criticized the DOL policy of defaulting to “union prevailing” wage rates when wage rate surveys found that the wage rate is the same as the union rate for the area. The main problem with the union prevailing rate is that as union adjusts their rates in response to new wage rates reflected in collective bargaining agreements, so does the DOL. In other words, once the DOL has determined the wage rate for an area is “union prevailing” the wage rate will remain pegged to the union rate in the area, until a new survey is completed. Unfortunately, completing an accurate new wage rate survey is no easy task because
“63 percent of Davis-Bacon wage determinations are based upon union prevailing wages, notwithstanding the fact that unions only represent 14 percent of construction workers nationwide. This overrepresentation is a result of the fact that unions actively mobilize their members to complete and return DOL wage surveys.”
As K&L Gates points out the problem this creates is obvious:
“if a union is present, DOL has traditionally defaulted to the union’s hourly burdened wage to establish the local prevailing wage, even if non-union contractors are performing the same type of work. This has, in effect, forced non-union contractors to pay union wages to its employees on federal construction projects.”
In order to combat this problem the GAO suggest that merit shop contractors accurately complete wage rate surveys. However, this is often a Catch – 22 scenario for merit based firms because they are often reluctant to disclose sensitive wage rate data based on a well founded fear that they will be making proprietary information public and also providing foder to Big Labor who often criticize merit shop contractors for paying substandard wages.
The K&L Gates is thorough and this post only touches on the GAO finding regarding the “union prevailing” wage rate. Therefore, the remainder of the report is worth the read.
Perhaps the solutions lies with Congress who has the power to require the DOL to keep wage rate surveys private or at least anonymous. What is certain is that until this disparity is fixed, taxpayers will continue to get overpay for labor on construction projects and a majority of non-union merit based firms will continue to get squeezed out of federal founded projects.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
