New Davis-Bacon Rule Advances Despite Legal Challenges

Grant Collins

In a major win for SMACNA members, the Department of Labor’s Final Rule — “Updating the Davis-Bacon and Related Acts Regulations” —  went into effect (“DBA Rule”). This is the DOL’s first update to the Davis-Bacon Act (DBA) regulations in over 40 years.

For SMACNA members performing work covered by the DBA, key portions of the DBA Rule include:

• Returning to the 30% Rule for factoring “prevailing wage.”
• Clarifying and expanding the scope of DBA coverage.
• Automatically incorporating contract clauses and wage determinations into federal contractors.
• Streamlining the calculation of the prevailing wage.

What is the Davis-Bacon Act?
The DBA applies to every U.S. contract in excess of $2,000 for construction, alteration and/or repair of public buildings or public works in the U.S. The DBA requires contractors and subcontractors to “pay all mechanics and laborers employed directly on the site of the work” the prevailing wage.

The “prevailing wage” is a minimum wage “determined by the Secretary of Labor to be prevailing for the corresponding classes of laborers and mechanics employed on projects of a character similar to the contract work.”

Key Portions of the DBA Rule
The DBA Rule includes several provisions that are particularly important to SMACNA members.  

• Return of the “30-Percent Rule” – The DBA Rule reinstates the pre-1982 30% Rule for determining whether a wage is “prevailing.” That is, a union wage rate need only represent 30% of the wage survey results in order for the wage to be considered the “prevailing wage” in a given area. Under the old rule, union wage rates needed to exceed 50% of wage survey respondents for the wage to be considered the “prevailing wage.” If the union rate failed to exceed 50%, then a weighted average was used and, under this system, low-wage, non-union competitors could easily drive down prevailing wage rates.
• Clarifying and Expanding DBA Coverage – The DBA generally covers “construction activities of all types” but does not cover “manufacturing, furnishing of materials, or servicing and maintenance work.” The DBA Rule clarifies that covered “construction activities” includes modern construction activities such as “solar panels, wind turbines, broadband installation, and installation of electric car chargers.” The DBA Rule clarifies that covered activities include “construction activity” involving a portion of a building or the installation of equipment or components into a building. As part of the DBA Rule, the DOL has “ruled on numerous occasions that repair or alteration of boilers, generators, furnaces, etc. constitutes [work covered by the DBA].”  
• The DBA Rule also includes a new term: “secondary construction site.” A “secondary construction site” is covered by the DBA if the following three requirements are met: (1) a “significant portion” of the building or work is constructed; (2) the “significant portion” is constructed for “specific use in that building or work and does not simply reflect the manufacture or construction of a product made available to the general public”; and (3) the site is “either established specifically for the performance of the contract or project or is dedicated to the performance of the contract or project for a specific period of time.” The DBA Rule makes clear that fabrication plants are not primary or secondary construction sites if they were in operation prior to bid openings or operate without regard to the federal project.

Operation of Law
The DBA Rule provides that the labor standards contract clauses and appropriate wage determinations are effective “by operation of law” and are incorporated even when they have been wrongly omitted from a covered contract. 

Prevailing Wage Determinations
The Final Rule expressly permits the DOL to adopt state or local prevailing wage rates if doing so would be consistent with the purpose of the DBA. 

Legal Challenges
In November, two trade groups — Associated Builders and Contractors (ABC) and Associated General Contractors of America (AGC) — filed lawsuits in Texas seeking to invalidate portions of the DBA Rule.   

The ABC lawsuit is broad. ABC seeks to invalidate the entire DBA Rule, arguing that the rule is contrary to law, arbitrary and capricious, and promulgated in violation of the Regulatory Flexibility Act and the Administrative Procedure Act. ABC also argues that the rule is invalid because DOL Secretary Julie Su’s appointment violated the U.S. Constitution’s Appointments Clause.

The AGC lawsuit challenges only Sections 5.2 and 5.5(e) of the DBA Rule, which relate to off-site construction and the “operation of law” provision.
While both suits are filed, the DOL has not answered them. It will take time for the suits to progress through the courts, and ABC and AGC are not seeking to prevent the DOL from enforcing the DBA Rule. 

Grant Collins is a specialist in labor and employment law at Felhaber Larson. Reach him at gcollins@felhaber.com.