DOL Proposes Changing Definition of 'Prevailing Wage' Under Davis-Bacon Act

​The U.S. Department of Labor (DOL) proposed returning the definition of "prevailing wage" under the Davis-Bacon Act to one last used nearly 40 years ago, dismissing arguments made when the definition was changed during the Reagan administration that the old definition contributed to inflation. The definition applied since 1983 has resulted in an overuse of weighted averages, according to the DOL, which explained why it is recommending returning to a three-step process in determining the prevailing wage instead of the current two-step process.

"The proposed change will make it easier for a union to have its CBA [collective bargaining agreement] rate set as the prevailing wage in the locality," said Patrick Dalin, an attorney with Fisher Phillips in Philadelphia.

The proposed rule will increase the cost of federal and federally assisted construction projects covered by the Davis-Bacon Act because the proposed definition of prevailing wage will substantially increase prevailing wage rates and fringe benefits, said Alfred Robinson Jr., an attorney with Ogletree Deakins in Greenville, S.C.

Davis-Bacon Act

The Supreme Court has described the Davis-Bacon Act as "a minimum wage law designed for the benefit of construction workers," the DOL noted in its summary of the proposed rule. The Davis-Bacon Act, enacted in 1931, requires the payment of locally prevailing wages and fringe benefits on federal contracts for construction. The law applies to workers on contracts in excess of $2,000 entered into by federal agencies and the District of Columbia for the construction, alteration or repair of public buildings or public works.

The act's purpose is to protect local wage standards by preventing contractors from basing their bids on wages lower than those prevailing in the area, the Supreme Court has noted.

The DOL last engaged in a comprehensive revision of the regulations governing the Davis-Bacon Act and the Related Acts in a 1981-1982 rulemaking, which went into effect on April 29, 1983. The Davis-Bacon Act and 71 Related Acts collectively apply to an estimated $217 billion in federal and federally assisted construction spending per year and provide minimum wage rates for an estimated 1.2 million U.S. construction workers. The department expects these numbers to grow as federal and state governments address the significant infrastructure needs of the country, the DOL noted.

Congress has delegated authority to the department to issue prevailing wage determinations and issue rules for contractors and subcontractors on construction projects covered by the Davis-Bacon Act as a result of Reorganization Plan No. 14 of 1950.

In 1979, the Government Accountability Office urged Congress to repeal the act because of inflationary concerns. The House Subcommittee on Labor Standards reviewed the report during oversight hearings in 1979, but Congress did not amend or repeal the act and instead continued to expand its reach.

Proposed Return to the Three-Step Process

From 1935 until the 1981-1982 rulemaking, the DOL used a three-step process to identify the most frequently used wage rate for each classification of workers in a locality.

This three-step process, which the DOL recommends returning to, identified as prevailing:

• Any wage rate paid to a majority of workers.
• If there was no wage rate paid to a majority of workers, then the wage rate paid to the greatest number of workers, provided it was paid to at least 30 percent of workers—the so-called 30-percent rule.
• If the 30-percent rule wasn't met, the weighted average rate.

The three-step process relegated the average rate to a final, fallback method of determining the prevailing rate.

In 1962 congressional testimony, Solicitor of Labor Charlese Donahue explained the reasoning for the three-step process. An average rate "does not reflect a true rate [that] is actually being paid by any group of contractors in the community being surveyed," he said. Instead, "it represents an artificial rate which we create ourselves, and [that] does not reflect that which a predominant amount of workers are paid."

The rule that took effect in 1983 eliminated the second step. The DOL at the time said it agreed with concerns expressed by certain commenters that the 30-percent rule was inflationary and gave undue weight to collectively bargained rates.

Change Called 'Mistaken' or in Tension with the Law

Now the DOL has determined that this change was mistaken or resulted in outcomes in tension with the Davis-Bacon Act.

Recent research shows that wage increases, particularly at the low end of the distribution, do not cause significant economywide price increases, the DOL said. "Under the 30-percent rule, some prevailing wage determinations may increase and others decrease, but the magnitude of these changes will, overall, be negligible," the department stated.

"The department thus does not believe that any limited net wage increase for the approximately 1.2 million covered workers—less than 1 percent of the total national workforce—will significantly increase prices or have any appreciable effect on the macro economy," it added.

Moreover, since the Davis-Bacon Act legislates that a minimum wage must be paid to workers on construction projects, the effect of such requirement is not a permissible basis for change, according to the department.

In his message accompanying Reorganization Plan No. 14 of 1950, President Harry Truman noted that "since the principal objective of the plan is more effective enforcement of labor standards, it is not probable that it will result in savings. But it will provide more uniform and more adequate protection for workers through the expenditures made for the enforcement of the existing legislation."

As for the overuse of weighted averages, the DOL said their application has increased from 15 percent of classification rates across all wage determinations prior to the 1982 final rule to 64 percent of classification determinations.

This overuse is inconsistent with the text and purpose of the law, the DOL said.

Other Proposed Changes

The proposed new regulations also would change the frequency with which the regulation will be updated in order to more accurately align with changes in state and local prevailing wages, said Thomas V. McCarron, an attorney with Semmes, Bowen & Semmes in Baltimore. This will allow for adjustments between surveys that form the basis for the setting of the prevailing wage, he noted.

In addition, there are some new anti-retaliation provisions in the proposed rule.