Prevailing wage and Davis-Bacon for contractors

Federal: Davis-Bacon and the Related Acts

The Davis-Bacon Act at 40 U.S.C. § 3142 applies to "every contract in excess of $2,000, to which the Federal Government or the District of Columbia is a party" for the "construction, alteration, or repair, including painting and decorating, of public buildings and public works." Contractors must pay no less than the wages the Secretary of Labor determines to be prevailing for the corresponding classes of laborers and mechanics on similar work in the locality.

The bigger exposure for most contractors is the Davis-Bacon Related Acts: dozens of statutes that extend prevailing wage requirements to construction assisted by federal funds. That is how a locally administered project ends up federally covered: HUD-funded housing authority work, federal highway aid on a county road, EPA state revolving fund water and sewer work, FTA-funded transit facilities, and a wide range of grant-funded construction. If federal money touches the project, ask whether Davis-Bacon rides along before you bid. See how to win public housing authority contracts.

State: little Davis-Bacon acts

Roughly two-thirds of states have their own law. The variation is the point:

Several states, including Georgia, Florida, Virginia (with limited local exceptions), the Carolinas and a number of others, have no general state prevailing wage law at all, which means state and local public work in those states is unregulated on wages unless federal funds are involved. That single fact drives large differences in public bid pricing across state lines.

The rule where both apply: you pay the higher rate, classification by classification. Not the higher schedule overall: the higher rate for each individual trade classification on the job.

The wage determination is an appendix to the solicitation, and it is a pricing document. Read it before you estimate, not after you win.

Federal determinations are published on SAM.gov and identified by a code such as a general determination number, county coverage and a modification number. State determinations come from the state labor department: in California, from the Department of Industrial Relations, with rates issued twice a year and often with predetermined increases scheduled into future years.

What to extract:

• Which determination applies. Building, residential, heavy or highway. The same trade can have materially different rates across these schedules, and a project can carry more than one.
• The county. Rates are geographic. A determination for the wrong county is a costly error.
• The classifications and their rates. Each shows a basic hourly rate and a separate fringe rate.
• Predetermined increases. Common in state determinations and in union-based rates. On a two-year project you are contractually bound to pay the scheduled increases, so build them into your price.
• The lock-in date. Federally, the determination in effect at bid opening generally governs for the life of a fixed-price contract. State rules vary. California generally ties the applicable rate to the date the project is advertised for bid.
• The modification number. An addendum can substitute a newer determination. See how to respond to an RFP on why addenda need an owner.

Contractors are also required to post the applicable wage determination at the site. 29 CFR 5.5(a)(1)(i) requires the wage determination and the Davis-Bacon poster (WH-1321) to be "posted at all times by the contractor and its subcontractors at the site of the work in a prominent and accessible place where it can be easily seen by the workers." Investigators check this first.

Classification is determined by the work actually performed, not by the title on your payroll, not by what you have always called the role, and not by which classification is cheaper.

The rules that matter:

• Split-classification days. A worker who spends four hours as a laborer and four as a cement mason must be paid each classification's rate for the hours actually worked in it, with accurate time records to support it. Paying the lower rate for the whole day is a violation.
• Working foremen. A foreman who performs manual work is covered for those hours. Salaried supervisory staff who perform no manual labor generally are not.
• Apprentices. May be paid the reduced apprentice rate only if enrolled in a program registered with the Department of Labor's Office of Apprenticeship or a recognized state apprenticeship agency, and only within the program's permitted ratio of apprentices to journeyworkers. An unregistered "apprentice", or one over ratio, must be paid the full journeyworker rate.
• Owner-operators and truck drivers. Coverage of material delivery is narrow and fact-specific. Drivers spending significant time on site, or hauling between the site and a dedicated facility, are frequently covered.
• Conformance. If a classification you need is not on the determination, do not invent a rate. There is a formal conformance process to add a classification and rate.
• Overtime. Overtime premium is computed on the basic hourly rate, not on the basic rate plus fringes. Several states also require daily overtime. California requires it after 8 hours in a day on public works.

Misclassification is the most common finding in enforcement actions, and it produces back-wage liability for every affected hour of every affected worker across the whole project.

A prevailing wage rate has two components. If the determination shows a basic rate of $38.40 and a fringe rate of $16.75, your obligation is $55.15 per hour. You may discharge the fringe portion in either of two ways.

Pay it in cash. Add the full fringe amount to the hourly cash wage. Simple, and it is what most non-union contractors do, but it increases payroll taxes, workers' compensation premium and any overtime base tied to cash wages, because it is all wages.

Provide bona fide benefits. Health insurance, a qualifying retirement plan, vacation, apprenticeship training. The credit is the hourly equivalent of the employer's contribution, annualized correctly. You divide the annual cost by total annual hours worked, including private commercial work, not only by public-job hours. Getting the annualization wrong is a common finding.

The economics of the choice are real. On a crew working 10,000 prevailing wage hours a year at a $16 fringe rate, that is $160,000 of obligation. Paying it in cash exposes the whole amount to payroll burden; providing it as bona fide benefits does not, which for many contractors saves 15 to 25 percent on that portion. Do not improvise this. Have a payroll provider or CPA experienced in prevailing wage set it up.

What does not count as a fringe credit: paying the worker's own share of anything, unfunded promises, the employer's legally required payments such as FICA, unemployment insurance or workers' compensation, and any benefit that is not communicated in writing to employees.

Certified payroll is the compliance instrument, and it is weekly. Under 29 CFR 5.5(a)(3), contractors and subcontractors must submit payroll documentation weekly for each week in which Davis-Bacon covered work is performed, and each submission must be accompanied by a signed statement of compliance certifying that the payroll information is correct and complete, that each worker was paid the full weekly wages earned without unlawful deduction, and that each was paid not less than the applicable wage rate and fringe benefits for the classification of work performed. The prime contractor is responsible for ensuring its subcontractors submit theirs.

Federally the standard format is Form WH-347, though any format containing the required information is acceptable. Records (regular payrolls and other basic records) must be maintained during the work and preserved "for a period of at least 3 years after all the work on the prime contract is completed."

States layer their own systems on top. California requires electronic certified payroll records to be submitted to the Department of Industrial Relations, in addition to whatever the awarding body requires. Many agencies and their consultants use compliance platforms such as LCPtracker, eComply or eMars, and you will be given a login and expected to upload weekly.

Budget for the administrative load honestly. For a contractor running 15 to 30 field employees on covered work, certified payroll and related compliance realistically consumes 4 to 10 hours a week of an administrator's time, plus software costs. That is a real line in your overhead, and it is one of the costs to weigh in how much does it cost to bid on a government contract?.

Other obligations that travel with the wage determination: posting the determination and WH-1321 at the site; the Copeland Anti-Kickback Act rules limiting payroll deductions; and on covered contracts, the Contract Work Hours and Safety Standards Act overtime provisions.

Enforcement is real and the penalties compound.

• Back wages. The difference between what you paid and what you owed, for every affected worker and every affected hour of the project. On a crew of twelve underpaid by $6 an hour for a nine-month job, that is well over $100,000 before anything else.
• Withheld contract funds. Federal contracts include a withholding provision allowing the agency to hold payments to cover computed back wages. Your cash flow stops while the dispute runs.
• Liquidated damages. Available under the Contract Work Hours and Safety Standards Act for overtime violations, computed per employee per violation day.
• Debarment. The most serious outcome. Davis-Bacon debarment for disregard of obligations runs three years and is government-wide. State debarment periods vary. California's penalty regime under the Labor Code includes both per-worker-per-day penalties and debarment.
• State penalties on top. California, for example, imposes statutory penalties for each worker for each day of underpayment, plus penalties for failure to submit certified payroll records, plus liability that can flow up to the prime for a subcontractor's violations.

Two operational points follow. First, you are exposed to your subcontractors' violations, so verify their certified payrolls rather than merely collecting them. Second, most findings come from routine audits and worker complaints, not from investigations of suspected fraud, which means clean records are usually the entire defense.

The mistake is treating prevailing wage as a percentage uplift on your normal labor cost. It is not; it is a substitution of a different rate, and the delta varies by trade, county and schedule. Do it properly:

1. Build the estimate from the determination, not from your payroll. Take the base plus fringe for each classification you will use, in the correct county and schedule.
2. Apply your real burden to the correct base. Payroll taxes and workers' compensation apply to cash wages. If you pay fringes in cash, your burden applies to the whole amount; if you provide bona fide benefits, it does not.
3. Add scheduled increases. If the determination carries predetermined increases in month 14, price months 14 onward at the higher rate.
4. Price the compliance overhead. Certified payroll preparation, software, and the time to chase subcontractor submissions.
5. Check the productivity assumption. Higher rates do not automatically mean higher unit costs (a properly staffed crew at determination rates is often more productive than a cheaper one), but do not carry your commercial production rates over unexamined.
6. Confirm registration and eligibility. In California a contractor must be registered with the DIR under Labor Code § 1725.5 to bid on or perform public work. That costs $400 per fiscal year. Check equivalents in your state before bidding.

Prevailing wage work is good work: the rates are known, the funding is public, and the competitive field narrows to firms willing to do the administration. It is only a trap for contractors who price it like private work. If you want help identifying which covered projects in your area actually fit your crew and cost structure, book a call.