The Construction Counselor

This is the fourth post in a series that explores the reasoning and practical impact of the recent federal court decision that blocked certain provisions in the U.S. Department of Labor’s (DOL) new Davis-Bacon Act (DBA) rule. In this post, I discuss the DOL’s attempt to impose DBA requirements through operation of law, the reasoning behind the court’s decision to block that effort, and what the court decision means for contractors and subcontractors today.

Background

Last fall, I wrote a 3-part series on the DOL overhaul of DBA regulations. On November 7, 2023, two weeks after the Final DBA Rule went into effect, a group of plaintiffs led by Associated General Contractors of America (AGC) filed a lawsuit challenging three specific aspects of the Final DBA Rule (the AGC case).

On June 24, 2024, a federal court in Texas issued a nationwide preliminary injunction blocking three key provisions in the Final DBA Rule that expanded DBA coverage, including extension of DBA to (1) delivery truck drivers and (2) material suppliers, and (3) implementation of DBA requirements by “operation of law” (together the Blocked Rules). The court decision reverts DBA requirements related to the Blocked Rules back to the prior requirements — for now.

In my first post, I introduced five key things to understand about the recent decision. My second post explored the practical impacts for material truck drivers and my third post considered the impact on material suppliers.

DBA Requirement Imposed by Contract Clauses, Not by Operation of Law

DOL Rule Said DBA Labor Standards Are in the Contract, Even if They Are Not

Under the Final DBA Rules, even if the federal agency or prime recipient forgot to include the DBA clauses or wage determination in your contract, those requirements would be read into the contract “by operation of law.” As a result, contractors could find themselves dealing with immediate back pay obligations and increased contract costs that were not considered in the project pricing.

If DBA requirements were “read into” a contract after-the-fact, then contractors on federal construction contracts could seek equitable adjustment from the federal government agency that awarded the contract. For prime contractors, this is a complicated and time sensitive process designed to make the contractor whole for changes in the scope or cost of work on a contract. For lower-tier contractors surprised by DBA obligations, the potential and process for contract price adjustments is defined by contract terms. Subcontractors are likely to find themselves involved in time-consuming and expensive negotiations related to DBA risk allocation and indemnification.

Imposition of DBA by operation of law is even more fraught on federally assisted construction projects, such as HUD or IIJA projects, where there is no federal agency at the top of the contract, and therefore, no avenue to seek government funding of an equitable adjustment for increased costs. As a result, after-the-fact application of DBA is likely to lead to increased disputes among grantees and contractors.

Court Blocked Rule Imposing DBA Requirements Operation of Law

The court found that the plaintiffs are likely to succeed on their claim that the operation of law provision would harm contractors by creating uncertainty for bidders in competitive bids regarding what terms would apply. Noting the proliferation of new federal funding programs, the court expressed concern that state and local public agencies that do not normally administer projects subject to DBA requirements may fail to include DBA in contracts. And if DBA applied was “read into” those contracts after-the-fact, it would create unreasonable costs and untenable risks to contractors. For instance, the court noted the administrative expense and time to (1) issue restitution to affected workers, (2) complete and submit certified payroll records, and (3) ensure compliance by subcontractors. The court also expressed alarm regarding the significant consequences, including suspension and debarment, that face contractors that cannot demonstrate DBA compliance. In cases where DBA is read into contracts after-the-fact, it would be almost impossible to ensure full compliance with the DBA — especially once the workers and subcontractors have completed their work on the project.  

The court focused on the statutory language of the DBA, which requires notice of DBA in advertised specifications and requires contracts to contain DBA provisions to conclude that imposing DBA by operation of law, rather than contract, was a substantive amendment to DBA. In addition, the court was concerned that the lack of notice about DBA requirements would violate contractor rights.

Current Requirement

DBA requirements apply to projects through contract clauses, and they will not be read into your contract. Specifically, even though you will still see this language in the DBA regulations, the following language of the new regulations in 29 CFR 5.5(e) has been blocked for now:

(e) Incorporation by operation of law. The contract clauses set forth in this section (or their equivalent under the Federal Acquisition Regulation), along with the correct wage determinations, will be considered to be a part of every prime contract required by the applicable statutes referenced by § 5.1 to include such clauses, and will be effective by operation of law, whether or not they are included or incorporated by reference into such contract, unless the Administrator grants a variance, tolerance, or exemption from the application of this paragraph. Where the clauses and applicable wage determinations are effective by operation of law under this paragraph, the prime contractor must be compensated for any resulting increase in wages in accordance with applicable law.

Conclusion

The Government Contracts & Grants Group and the Construction Law 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 and court challenges 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.