Neal I. Sklar | Daily Business Review | May 19, 2016
The U.S. Court of Appeals for the District of Columbia ruled that the Davis-Bacon Act of 1931 does not require payment of prevailing wages on public-private partnership, or P3, projects where the United States or District of Columbia government is not a party to a construction contract and where the government is not the owner of the resulting project.
The decision issued April 5 has been applauded throughout the P3 community which, while in pursuit of billions of dollars of infrastructure projects, was fearful that the Davis-Bacon Act may drive up costs significantly and thereby render many projects not worth pursuing. South Florida municipalities are in the midst of working with the private sector on several significant P3 projects, including transportation initiatives, which will greatly benefit from this decision by avoiding the significant cost impacts an opposite ruling would have had.
The Davis-Bacon Act requires payment of “prevailing wages” to workers when the federal government or agency enters into a contract for the construction of public works. The act and related legislation apply to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration or repair of public buildings or public works. These contractors and subcontractors must pay their laborers employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. The act directs the U.S. Department of Labor to determine locally prevailing wage rates.
Passed with the specific intent of preventing non-unionized black and immigrant laborers from competing with unionized white workers for scarce jobs during the Depression, the Davis-Bacon Act over the years has had devastating discriminatory effects on various classes of minorities who tend to be vastly underrepresented in highly unionized skilled trades and over-represented in the pool of unskilled workers who would have greater access to work if these prevailing wage laws did not exist.
In practice, Davis-Bacon wage determinations usually require the payment of higher union wages to workers, often significantly increasing the cost of construction. Workers who are not members of a union or another bargaining unit must be paid these prevailing wages, health and welfare benefits, as well as other benefits set forth in Department of Labor prevailing wage determinations for the area where the construction site is located. As a result, some projects are never built and many jobs are lost.
This decision was highly favorable for the developers of the CityCenterDC project, which entered into a 99-year lease with the District of Columbia for the construction of a mixed-use facility with over $20 million in labor costs, and could have had a chilling effect on the project.
Not Public Work
More importantly, however, is the fact that privately funded projects built on government land using nontraditional P3 methodologies are now established as not being subject to Davis-Bacon wages. This is because the court found that neither the federal government nor the District of Columbia was a party to the construction contracts for the project and the project should not have been considered a public work because its construction was not publicly funded and it was not for a government-owned or government-operated facility.
The court concluded its decision by stating, “The U.S. Department of Labor has advanced a novel reading of the Davis-Bacon Act that would significantly enlarge the number and kinds of construction projects covered by the act. Expanding the coverage of the Davis-Bacon Act in this way may or may not be a wise policy decision. But that choice belongs to the political branches, which may enact new legislation if they so choose. Our job is to construe the statute as written and long understood. The department’s interpretation of the Davis-Bacon Act contravenes the statute.”
The court, however, left open a few important questions in its decision:…