This article was featured in the November 2024 edition of the Utility Contractors Association of New England, Inc.’s Construction Outlook.
Last September, we discussed a new Department of Labor (“DOL”) “Final Rule” relating to the Davis-Bacon Act and Related Acts (“Davis-Bacon”). According to the DOL, the Final Rule was designed to “update regulations that implement” Davis-Bacon in order “to better the needs of construction workers on federal construction investments.” The DOL had commented that the new updates – which became effective on October 23, 2023 – were the “most comprehensive in decades.” The DOL had summarized notable changes as follows:
- Creating new efficiencies in the prevailing wage update system and making sure prevailing wage rates keep up with actual wages which, over time, would mean higher wages for workers.
- Returning to the definition of “prevailing wage” used from 1935 to 1983 to ensure prevailing wages reflect actual wages paid to workers in the local community.
- Periodically updating prevailing wage rates to address out-of-date wage determinations.
- Providing broader authority to adopt state or local wage determinations when certain criteria are met.
- Issuing supplemental rates for key job classifications when no survey data exists.
- Updating the regulatory language to better reflect modern construction practices.
- Strengthening worker protections and enforcement, including debarment and anti-retaliation provisions.
However, the Final Rule is extremely detailed and included content beyond what the DOL had summarized above. A complete and detailed summary of the Final Rule is beyond the scope of this article.
Not long after the DOL announced its new Final Rule, the DOL faced a legal challenge. In the final quarter of 2023, a group of plaintiffs (including a nationwide association representing general contractors) filed an action in the United States District Court for the Northern District of Texas challenging specific portions of the Final Rule that they alleged would adversely impact contractors, namely:
- The Final Rule’s “operation of law” provision purporting to automatically impose Davis-Bacon requirements upon certain contracts even if not spelled out for such contracts as required by statute.
- The Final Rule’s “material supplier” provision, which purported to extend Davis-Bacon beyond mechanics and laborers to include certain material supply workers.
- The Final Rule’s “onsite trucking” provision, which purported to extend the scope of Davis-Bacon to trucker time spent on site that is not de minimis.
The Court granted the plaintiffs’ request for a nationwide injunction barring implementation of these provisions of the Final Rule. The decision is now pending on appeal before the United States Court of Appeals for the Fifth Circuit. Given there is often room for interpretation, it is not yet clear how the Fifth Circuit will rule on appeal. In the meantime, the following is a very high-level summary of the Court’s decision, which is both detailed and dense.
Operation of Law Provision
As described by the Court, the Final Rule included a provision that purported to incorporate labor standards contract clauses and wage determinations “even when they have been wrongly omitted from a covered contract.” Under this provision, neither the DOL nor any other federal administrative body would be required to make a determination of the applicability of Davis-Bacon to a given contract. The Court described this provision as follows: “the Final Rule amends [Davis-Bacon] by imposing a self-implementing [Davis-Bacon] requirement into contracts by an operation-of-law provision that contradicts the express statutory language of [Davis-Bacon].”
The plaintiffs alleged that automatic applicability provision would adversely impact the bidding process. The Court agreed, stating that “[c]ontractors bidding a contract need to know up front what the requirements are for the contract so that they can bid accordingly.” As to whether the requirements of Davis-Bacon apply to a given contract, the Court stated that “contractors must know if the [Davis-Bacon] requirements are in the contract or not.” The Court went on to note that “traditionally, the [Davis-Bacon] requirements are explicitly included in a provision in the contract, as required by the express language of [Davis-Bacon].”
If the operation-of-law provision were to remain in effect, contractors could find themselves bound by Davis-Bacon requirements even if not spelled out in the contract. This was problematic because – in light of the COVID-19 pandemic – “there was an increase of federal funds that went to areas and construction projects that traditionally never received federal funds or rarely received federal funds.” Thus, there were a host of projects that were suddenly subject to Davis-Bacon requirements even though they would not have been subject to Davis-Bacon requirements historically.
The Court acknowledged that contractors could be “adversely impacted when the [Davis-Bacon] provisions are not included in the bid specification and contract at the time of bid but are then added later during the project or after the project is completed.” The Court added that retroactive application of Davis-Bacon requirements (including with respect to subcontractors that had already completed their work) would be “nearly impossible.” The Court concluded that this provision failed to provide contractors with sufficient notice of Davis-Bacon requirements in violation of basic contract and procedural due process principles.
Material Supplier Provision
The Court also took issue with the aspect of the Final Rule that would require contractors that have material supply operations to “pay prevailing wages and administer the [Davis-Bacon] requirements where they use their own material supply operations on their projects.” The Court acknowledged that some contractors “have a material supply operation because it is an investment in their business and enables them to gain a competitive advantage over those contractors that do not have a material supply operation.” However, those that have a material supply operation would find themselves at a “competitive[] disadvantage[]” under the Final Rule because their material supply operation would need to comply with Davis-Bacon, whereas “their competitors who only provide material supply on the same project” would not be subject to Davis-Bacon under the Final Rule. According to the Court, the Final Rule “amount[ed] to a fundamental amendment to [Davis-Bacon]” which “would reclassify employees of bona fide material suppliers as ‘mechanics and laborers,’ in a manner clearly contrary to the plain language of [Davis-Bacon].” In so doing, the Final Rule “arbitrarily and capriciously discriminates” against contractors that also have material supply operations.
On Site Trucking Provision
The Court also found that contractors would be adversely affected by the “on site trucking” provision of the Final Rule which purported to “require contractors to track their truck drivers’ time on the job site to ensure any time that is more than a de minimis amount of time spent on-site is recorded on the certified payroll records and paid at least the applicable [Davis-Bacon] rate.” The Final Rule did not define what constituted a de miminis amount of time. Therefore, the Final Rule would require contractors to undertake the administrative costs and burdens associated with attempting to track truck drivers’ time or incur the costs of applying the Davis-Bacon rate to the “entire time” so as not to “run afoul” of the Final Rule. The Court stated that these costs could “be the difference between winning a bid and not.” The Court concluded that this provision violated the “plain,” “simple” and “unambiguous” language of the statute, which applies “only to ‘mechanics and laborers employed directly on the site of the work.’”
Conclusions
The plaintiffs alleged that these provisions of the Final Rule were unconstitutional, unlawfully extended Davis-Bacon, and issued in excess of the DOL’s statutory authority. The Court agreed, and granted the plaintiffs’ request for a nationwide injunction halting implementation and enforcement of these specific aspects of the Final Rule. The Court concluded that the DOL exceeded its statutory authority and engaged in “egregious violations” of the Constitution by “usurp[ing] Congress’ law-making power” by attempting to impose substantive amendments to the statute via its Final Rule. At least for now, this injunction remains in effect. The injunction is limited to the specifically challenged aspects of the Final Rule.
