January 14, 2009 on 3:38 pm | In Labor Laws | Comments Off

The Davis-Bacon Act is the law that requires the Labor Department to ascertain “prevailing wages” in various construction trades, publish those wage rates (by geographical divisions) and also requires all contracting officers to include in any construction contract over $2000 a requirement that these DOL-approved rates be paid to workers on government construction projects. Putting aside the $2000 threshold which has never been updated for inflation since the Act’s passage in 1931, the real issue is the wage rates themselves.

As I have demonstrated in many classes, the nature of the process has a strong inflationary push upward on the rates. Once DOL establishes the “prevailing” wage rate, it essentially becomes the floor. A survey conducted the very next day would be higher simply because the bottom half has been dropped off. Unions tend to like this, and where wage rates are depressed, or management is taking unfair advantage of the worker, it can serve a very valid and useful purpose. The problem is that these inflated, but so-called “prevailing” rates serve primarily to inflate the cost of government projects with no discernable benefit to either the project or society as a whole. Recall that Davis-Bacon fits squarely within the “Sociological School of Jurisprudence.” The law has, in fact, caused dissension within a company’s workforce since people doing the EXACT same job on a public project get paid more than those working on a private project. No one says that the lower rate isn’t fair until someone is suddenly making more – not because the effort is worth more in a free market, but because of government manipulation, the requirement is to pay more.

Unions, and by definition those who adhere to a more liberal political leaning, use Davis Bacon as a litmus test often to see if someone is “liberal enough.” You may recall that this was a significant battle when the Katrina funding was approved in Congress. Republicans wanted to exempt those funds from Davis Bacon applicability in order to stretch the dollars being spent and to offer jobs at reasonable wages to more people rather than fewer jobs to higher-paid workers. The Davis-Bacon proponents won. There is a rational argument, however, given the vast array of public work projects that seem to be on the horizon, that the wages SHOULD be a little below average rather than higher. By making the wages lower, the wealth can be spread around to more people (Didn’t Barry tell Joe the Plumber that he wanted to do that?), and as the economy recovers and higher-paying private-sector jobs become available, people can move into them and free up their public work job for the otherwise un- or under-employed. This was actually the process used by FDR in the stimulus projects of his day.

But we are not likely to see that out of the Democratically controlled Congress. There is a time and a place for wage-fixing, as there is a time and a place for Unions. These times of economic crisis do not seem to be the place for either, but will probably not dissuade our law-makers. So if you are joining the ranks of government contractors with this next wave of stimulus funding, or have been there all along, make sure that the proper wage determination is in your contract, that you and your subs have the ability to provide certified payrolls, and that you actually pay the workers in accordance with the wage determination for their skill category in the right geographical area. And add the cost of all of that overhead to administer Davis-Bacon into your contract as well. At least that will give a new job to a payroll clerk!

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