They Are Final—Davis Bacon Final Rules Are A Game Changer

08.16.2023

On August 8, 2023, the U.S. Department of Labor (“DOL”) issued over 800 pages representing its final rule “updating the Davis-Bacon and Related Acts Regulation” (“DBRA”).

The regulations were initially issued in a Notice of Proposed Rulemaking nearly 18 months ago. The DOL pretty much ignored the comments by contractors.

We are still conducting a thorough analysis of the comprehensive changes that will be effective 60 days subsequent to the publication in the Federal Register, but wanted to highlight some changes.

These rules have been on the DOL’s agenda since President Reagan rolled back many of the provisions of DBRA in 1982. For example, the final rule implements the Wage and Hour Division’s (“WHD”) original methodology for determining prevailing wages, known as the “three step process” that was in effect before 1983. According to the three step process, in the absence of a wage rate paid to a majority of workers in a particular classification, a wage rate will be considered prevailing, if it is paid to at least 30% percent of such workers. Only if no wage rate is paid to at least 30% of the workers in a classification will a weighted average rate be used.

Moreover, the WHD is allowed to periodically adjust certain noncollectively bargained rates based on the employment cost index published by the U.S. Bureau of Labor Statistics. In other words, the rates will automatically be increased once every three years.

It is critical for California employer contractors to know that the final rule allows the WHD to avoid conducting wage surveys by simply adopting the California prevailing wage rates. It will be interesting to see whether the wage determinations will adopt all of the specifics of the California wage determination, e.g. travel subsistence, holiday pay. What about daily overtime?

While the final rule purportedly does not expand the types of projects subject to DBRA, it does expressly cover energy infrastructure projects that are considered “building or work” as defined by DBRA. For example, these types of projects include solar panels, wind turbines, broadband installation, and installation of electric car chargers.

A concern to all contractors is the expansion of the law to include a “secondary construction site,” which is defined as any other site where a significant portion of the building or work is constructed, provided that such construction is 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 provided further that the site is either established specifically for the performance of the contract or project, or is dedicated exclusively, or nearly so, to the performance of the contract or project for a specific period of time. The regulations further define a “significant portion” of a building or work to mean one or more entire portion(s) or module(s) of the building or work, such as completed room or structure with minimal construction work remaining other than the installation and/or final assembly of the portions or modules at the place where the building or work will remain.

Surprisingly, the regulations explain, that “[a] ‘significant portion’ does not include materials or prefabricated component parts such as prefabricated housing components.” However, offsite manufacture of modular rooms or components will likely be covered.

The final rule also now requires contractors to pay DBRA wages to delivery drivers for onsite time related to on site delivery if such time is not de minimis. The Department has generally excluded periods of a few minutes on site just to drop off materials as de minimis. However, the total amount of time a driver spends on the site of the work during a typical day or work week—not just amount of time that each delivery takes—should be considered and determined whether the driver’s onsite time is de minimis. This rule is coupled with the material supplier exemption which has been extremely narrowed. A “material supplier” is now defined as employers whose only obligation for work on the contract or project is the delivery of materials, articles, supplies or equipment. The final rule clarifies that activities that are incidental to material supply, such as loading, unloading, and pickup (when performed in conjunction with delivery), would not constitute construction activity that would render the material supplier exemption inapplicable.

Of critical importance to nonunion contractors, is fringe benefit plans that are considered unfunded plans must be approved by the Secretary of Labor to qualify as bona fide fringe benefits plans, in order to take a credit against the prevailing wage. A contractor must seek written approval prior to claiming credit for the reasonable anticipated cost of an unfunded benefits plan, including with respect to vacation and holiday plans. Unfunded plans that are not approved by the Secretary of Labor are not creditable against the fringe benefits obligation.

This alert is simply a tip of the iceberg of what is contained in the final regulations. It is almost certain there will be a legal challenge to the expansion and interpretation of DBRA. AALRR will present a more comprehensive seminar on the final regulations. Once they are in place, we recommend you contact legal counsel to ensure that you are in compliance since debarment and penalties have been expanded.