The Construction Counselor

On October 23, 2023, substantial changes to U.S. Department of Labor (DOL) regulations governing federally funded construction projects subject to the Davis-Bacon Act and Related Acts (DBA) go into effect. The DOL Final DBA Rule Changes are wide-ranging and require close consideration by contractors because they are expected to impose higher wages on most projects and increase the stakes of noncompliance.

The 1931 Davis-Bacon Act labor standards apply to contractors and subcontractors performing work on federally funded or federally assisted contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works. DBA labor standards have been extended to all manner of federally assisted construction projects through 71 active “Related Acts,” which provide grant funding for construction projects.

For the first time in 40 years, the DOL overhauled the DBA regulations through a dense 222-page rule that alters nearly every aspect of the DBA landscape in some manner. DOL intended to increase wages and strengthen and streamline enforcement. In many cases, the new rule took the principles from existing DOL guidance and made them into rules.

The new rules are widely criticized by industry and expected to face legal challenges. The DOL offers a helpful summary of how the new rule compares to prior regulations, but even that summary is dense.

This is the first post in a three-part series that will explain the key changes in the law and help contractors understand how those changes will impact current and future projects.

This post examines how the new rule expands DBA coverage. The second post will examine how the new rule expands the scope of liability and recordkeeping. The final post will examine how the new rule impacts wages and fringe benefits.

Key Takeaways

• Proceed with caution before pursuing any federal infrastructure projects, such as those funded by the Infrastructure Act, the Inflation Reduction Act, and the CHIPS Act, because the DBA requirements apply to those projects.
• Modular construction companies need to reassess whether and how DBA could apply to work at their own facilities, because DBA now applies to secondary facilities that are dedicated exclusively, or nearly so, to covered construction projects—even for a short period of time.
• Energy infrastructure projects, such as wind, electric car chargers, and broadband, are subject to DBA if they have federal funding, even if the construction work is done on otherwise privately owned facilities. Wind developers and those involved in renewable energy projects are likely to see DBA requirements in their funding agreements and may find themselves (and their owners) cast as prime contractors, subject to strict liability for downstream DBA compliance.
• Demolition and site remediation activities to prepare a site can be covered by DBA if the future project will be federally funded—or could be; so be prepared to see DBA obligations in surprising places and consider whether to push back on their inclusion.
• If your business has been relying on an exemption from DBA coverage due to the type of work your employees do or where they do it, make sure the exemption still applies. The rule specifically defines when DBA applies to off-site traffic directors and flaggers, survey professionals, and truck drivers.
• Material suppliers now have an express exemption from DBA, but the scope of that exemption is much more limited than before and companies relying on it must reassess whether they still qualify.
• We recommend creating an internal checklist to determine DBA coverage at the pre-bid stage of a project.

DBA Labor Standards Apply to ALL Infrastructure Projects with Federal Funding

Many contractors are surprised to find DBA labor standards in their grant-funded projects, but the DBA labor standards extend far beyond traditional federal construction projects. DBA applies to projects funded by the flood of federal spending on infrastructure through the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act (IRA). Even tax incentives under the IRA offer bonus credit for contractor compliance with DBA labor standards.

Contractors without prior DBA experience may now find themselves presented with exciting opportunities to perform work on grant-funded projects. If you choose to bid on these projects, do not get caught off guard. Make sure you understand whether DBA labor standards will apply to your contract, have a compliance plan and price your bids accordingly.

DBA Coverage Expanded

Throughout the new rule, DOL asserts that it is not expanding the reach of DBA, but merely clarifying what was already required, but this is not true. The new rules cast a much wider net.

DBA Extends to Secondary Construction Sites, Reaching “Dedicated” Sites for Pre-Engineering and Modular Construction

DBA already reached certain secondary facilities that were established specifically for a DBA-covered project. The new rule extends DBA coverage to any secondary site that is dedicated exclusively or “nearly so” to building significant portions of the project for a specific period of time, even if that site was not established for the project. In this way, the new rule extends DBA labor standards to existing contractor facilities if they are dedicated for a period of time to “off-site” pre-engineering or modular construction of a significant portion of the project.

DOL defines a “significant portion” as one or more entire portions or modules of the building or work, such as completed rooms or structures, that require minimal construction work, such as installation or final assembly, once they arrive at the permanent project location. The rule clarifies that “significant portion” does not include materials or prefabricated component parts such as prefab housing components.

Although DOL claims that the rule change should have little impact and application of the term “significant portion” is self-evident, industry generally views this as a significant expansion in the scope of DBA labor standards.

DBA Extended to Energy Projects

The new rule expressly states that DBA applies to “modern construction activities” such as solar panels, wind turbines, broadband installation and installation of electric car chargers. DOL claims this is a clarification of existing requirements aimed to ensure that everyone is on notice that energy infrastructure projects are covered by DBA. DOL explains that DBA applies to “improvements of all types” and DBA has always applied to energy infrastructure. Most industry experts disagree.

Extension of DBA to all manner of energy infrastructure funding by IIJA and IRA will create large administrative burdens on developers and small subcontractors, leading to increased cost and uncertainty in development process. If your company is involved in federally assisted energy infrastructure projects, be on notice that DBA labor standards apply to the construction work.

DBA Covers Projects Involving Portions of a Building

The new rule clarifies that DBA covers projects even if they do not involve an entire building or facility. DBA labor standards apply even if the construction work will occur on just a portion of a facility, or only involves the installation of equipment or components into an existing facilities. For example, DOL explained that a contract for tenant improvements to a space for government use will be subject to DBA, even if the building is otherwise privately owned and occupied. In another example, DOL explained that DBA reaches projects to install wind turbines or electric car chargers on private property for public use if that work is federally funded.

DBA Extended to Demolition, Remediation and Removal 

The new rule expressly extends DBA to demolition, remediation and removal activities when those activities alone constitute construction, alteration or repair of a building or work. For example, removal and disposal of contaminated soil in preparation for construction, or demolition of a parking lot to build a park would both be covered by DBA if the subsequent project is covered by DBA.

Even if the future site plans are not definite, DOL says that DBA will apply to the demolition and removal work if the future construction project is planned or even contemplated to be wholly or partially DBA-covered. The new rule advises that the stated intent of the local government as to future plans or the fact that an application for federal funding was submitted could be sufficient to require DBA coverage.

In response to this ambiguous extension of DBA obligations, owners and contractors that are responsible for DBA compliance may take aggressive positions to guard against future liability and decide to include the clause and related indemnification obligations in contracts that ultimately are outside its scope.

DBA Extended to Off-Site Flaggers

DBA labor standards apply to the “site of work” and the new rule expands the definition of “site of work” to wherever flaggers and traffic operators are working if they are nearby the construction site, such as a few blocks away or a short distance down a highway.

DBA Extended to Truck Drivers

Truck drivers must be paid, per DBA, for all onsite driving time related to offsite delivery (such as hauling materials from one part of the site to the other), for time spent transporting “significant portions” of public works to and from secondary construction sites, for any time spent transporting materials to or from adjacent or virtually adjacent dedicated support sites, and for any onsite time related to offsite delivery if that time is not de minimus. If workers spend a significant portion of their week or day onsite, those short times could be combined to find that the worker time on site is not de minimus and DBA wages are due.

Material Supplier Exemption Finally Defined, But Narrowly

For the first time, the new rule adopts a definition of “material supplier” and clarifies the scope of the material supplier exception. Under the new rule, to qualify as a material supplier, an employer’s obligation for work on a contract must be limited to supplying materials or equipment. This can include activities incidental to supplying the materials, such as delivery, pickup, drop off and waiting time. However, if a material supplier performs any construction work at the site, then they no longer fit the definition of “material supplier,” and they will be considered a subcontractor.

DOL maintains that the new rule does not alter the current exemption, but the material supplier rule is widely criticized for expanding the reach of DBA. The new rule expressly discards the prior common understanding that material suppliers could perform a small amount of non-delivery on-site work and still be considered a material supplier exempt from DBA labor standards. If your company has been relying on the material supplier exemption in the past, review the new rule closely to determine whether the new exemption applies to your work. 

Contractors must also be aware that the material supplier exemption will not apply to all DBA-covered projects. There are a handful of federal funding acts that apply DBA labor standards to “all laborers and mechanics employed in a project’s development” rather than just to laborers and mechanics employed by contractors or subcontractors.

DBA Extended to Certain Survey Crew Members

The new rule explains that survey crew members who spend most of their time on a covered project taking or assisting in taking measurements must be paid prevailing wages unless they are otherwise exempt employees. DOL explains that surveyors employed by surveying or design firms are not covered by DBA, but survey crew members who are employed by a contractor or subcontractor will be subject to DBA depending on the nature of their work on site.

Conclusion

The Government Contracts and Grants Group at Fredrikson is closely monitoring the DBA rules and guidance. We welcome the opportunity to help you understand the impact of the new DBA rules on your business.

Our team regularly helps prime contractors, general contractors, subcontractors, and material suppliers pursue, negotiate, comply with, and resolve disputes related to government-funded infrastructure projects.