Rule2023-17221
Updating the Davis-Bacon and Related Acts Regulations
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 23, 2023
Effective
October 23, 2023
Issuing agencies
Labor Department
Abstract
In this final rule, the Department of Labor (Department or DOL) updates regulations issued under the Davis-Bacon and Related Acts. As the first comprehensive regulatory review in nearly 40 years, revisions to these regulations will promote compliance, provide appropriate and updated guidance, and enhance their usefulness in the modern economy.
Full Text
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<title>Federal Register, Volume 88 Issue 162 (Wednesday, August 23, 2023)</title>
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[Federal Register Volume 88, Number 162 (Wednesday, August 23, 2023)]
[Rules and Regulations]
[Pages 57526-57747]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17221]
[[Page 57525]]
Vol. 88
Wednesday,
No. 162
August 23, 2023
Part II
Department of Labor
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29 CFR Parts 1, 3, and 5
Updating the Davis-Bacon and Related Acts Regulations; Final Rule
Federal Register / Vol. 88, No. 162 / Wednesday, August 23, 2023 /
Rules and Regulations
[[Page 57526]]
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DEPARTMENT OF LABOR
Office of the Secretary
29 CFR Parts 1, 3, and 5
RIN 1235-AA40
Updating the Davis-Bacon and Related Acts Regulations
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule.
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SUMMARY: In this final rule, the Department of Labor (Department or
DOL) updates regulations issued under the Davis-Bacon and Related Acts.
As the first comprehensive regulatory review in nearly 40 years,
revisions to these regulations will promote compliance, provide
appropriate and updated guidance, and enhance their usefulness in the
modern economy.
DATES:
Effective date: This final rule is effective on October 23, 2023.
Applicability date: The provisions of this final rule regarding
wage determination methodology and related part 1 provisions
prescribing the content of wage determinations may be applied only to
wage determination revisions completed by the Department on or after
October 23, 2023. Except with regard to Sec. 1.6(c)(2)(iii), the
provisions of this final rule are applicable only to contracts entered
into after October 23, 2023. Contracting agencies must apply the terms
of Sec. 1.6(c)(2)(iii) to existing contracts of the types addressed in
that regulatory provision, without regard to the date a contract was
entered into, if practicable and consistent with applicable law. For
additional information, see the discussion of Applicability Date in
section III.C. below.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Director, Division of
Regulations, Legislation, and Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Alternative formats are available upon request by calling
1-866-487-9243. If you are deaf, hard of hearing, or have a speech
disability, please dial 7-1-1 to access telecommunications relay
services.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at <a href="https://www.dol.gov////offices">https://www.dol.gov////offices</a> for a
nationwide listing of WHD district and area offices.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
In order to provide greater clarity and enhance their usefulness in
the modern economy, on March 18, 2022, the Department published a
notice of proposed rulemaking (NPRM), 87 FR 15698, proposing to update
and modernize the regulations at 29 CFR parts 1, 3, and 5, which
implement the Davis-Bacon Act and the Davis-Bacon Related Acts
(collectively, the DBRA). The Davis-Bacon Act (DBA or Act), enacted in
1931, requires the payment of locally prevailing wages and fringe
benefits on Federal contracts for construction. See 40 U.S.C. 3142. The
DBA applies to workers on contracts entered into by Federal agencies
and the District of Columbia that are in excess of $2,000 and for the
construction, alteration, or repair of public buildings or public
works. Congress subsequently incorporated DBA prevailing wage
requirements into numerous statutes (referred to as ``Related Acts'')
under which Federal agencies assist construction projects through
grants, loans, loan guarantees, insurance, and other methods.
The Supreme Court has described the DBA as ``a minimum wage law
designed for the benefit of construction workers.'' United States v.
Binghamton Constr. Co., 347 U.S. 171, 178 (1954). The Act's purpose is
``to protect local wage standards by preventing contractors from basing
their bids on wages lower than those prevailing in the area.'' Univs.
Research Ass'n, Inc. v. Coutu, 450 U.S. 754, 773 (1981) (quoting H.
Comm. on Educ. & Lab., Legislative History of the Davis-Bacon Act, 87th
Cong., 2d Sess., 1 (Comm. Print 1962)). By requiring the payment of
minimum prevailing wages, Congress sought to ``ensure that Government
construction and federally assisted construction would not be conducted
at the expense of depressing local wage standards.'' Determination of
Wage Rates Under the Davis-Bacon & Serv. Cont. Acts, 5 Op. O.L.C. 174,
176 (1981) (citation and internal quotation marks omitted).\1\
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\1\ Available at: <a href="https://www.justice.gov/sites/default/files/olc/opinions/1981/06/31/op-olc-v005-p0174_0.pdf">https://www.justice.gov/sites/default/files/olc/opinions/1981/06/31/op-olc-v005-p0174_0.pdf</a>.
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Congress has delegated authority to the Department to issue
prevailing wage determinations and prescribe rules and regulations for
contractors and subcontractors on DBA-covered construction projects.\2\
See 40 U.S.C. secs. 3142, 3145. It has also directed the Department,
through Reorganization Plan No. 14 of 1950, to ``prescribe appropriate
standards, regulations and procedures'' to be observed by Federal
agencies responsible for the administration of the Davis-Bacon and
Related Acts. 15 FR 3173, 3176 effective May 24, 1950, reprinted as
amended in 5 U.S.C. app. 1 and in 64 Stat. 1267. These regulations,
which have been updated and revised periodically over time, are
primarily located in parts 1, 3, and 5 of title 29 of the Code of
Federal Regulations.
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\2\ The DBA and the Related Acts apply to both prime contracts
and subcontracts of any tier thereunder. In this final rule, as in
the regulations themselves, where the terms ``contracts'' or
``contractors'' are used, they are intended to include reference to
subcontracts and subcontractors of any tier.
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The Department last engaged in a comprehensive revision of the
regulations governing the DBA and the Related Acts in a 1981-1982
rulemaking.\3\ Since that time, Congress has expanded the reach of the
Davis-Bacon \4\ labor standards \5\ significantly, adding numerous
Related Act statutes to which these regulations apply. The Davis-Bacon
Act and now more than 70 active Related Acts \6\ collectively apply to
an estimated $217 billion in Federal and federally assisted
construction spending per year and provide minimum wage rates for an
estimated 1.2 million U.S. construction workers.\7\ The Department
expects these numbers to continue to grow as Federal and State
governments seek to address the significant infrastructure needs of the
country, including, in particular, the energy and transportation
infrastructure necessary to mitigate climate change.\8\
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\3\ See 46 FR 41444 (1981 NPRM); 47 FR 23644 (1982 final rule);
48 FR 19532 (1983 revised final rule).
\4\ The term ``Davis-Bacon'' is used in this final rule as a
shorthand reference for the Davis-Bacon and Related Acts.
\5\ In this final rule, the term ``Davis-Bacon labor standards''
means, as defined in Sec. 5.2 of the final rule, ``the requirements
of the Davis-Bacon Act, the Contract Work Hours and Safety Standards
Act (other than those relating to safety and health), the Copeland
Act, and the prevailing wage provisions of the other statutes
referenced in Sec. 5.1, and the regulations in parts 1 and 3 of
this subtitle and this part.''
\6\ The Department maintains a list of the Related Acts at
<a href="https://www.dol.gov/agencies/whd/government-contracts/">https://www.dol.gov/agencies/whd/government-contracts/</a>.
\7\ These estimates are discussed below in section V (Executive
Order 12866, Regulatory Planning and Review et al.).
\8\ See Executive Order 14008, ``Tackling the Climate Crisis at
Home and Abroad,'' section 206 (Jan. 27, 2021), available at:
<a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/">https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/</a>.
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[[Page 57527]]
In addition to the expansion of the prevailing wage rate
requirements of the DBA and the Related Acts, the Federal contracting
system itself has undergone significant changes since the 1981-1982
rulemaking. Federal agencies have dramatically increased spending
through interagency Federal schedules such as the Multiple Award
Schedule (MAS). Contractors have increased their use of single-purpose
entities, such as joint ventures and teaming agreements, in
construction contracts with Federal, State and local governments.
Federal procurement regulations have been overhauled and consolidated
in the Federal Acquisition Regulation (FAR; 48 CFR chapter 1), which
contains a subpart on the Davis-Bacon Act and related contract clauses.
See 48 CFR 22.400 et seq. Court and agency administrative decisions
have developed and clarified myriad aspects of the laws governing
Federal procurement.
During the past 40 years, the Department's DBRA program also has
continued to evolve. Where the program initially was focused on
individual project-specific wage determinations, contracting agencies
now incorporate the Department's general wage determinations for the
construction type in the locality in which the construction project is
to occur. The program also now uniformly uses wage surveys to develop
general wage determinations, eliminating an earlier practice of
developing wage determinations based solely on other evidence about the
general level of unionization in the targeted area. In a 2006 decision,
the Department's Administrative Review Board (ARB) identified several
survey-related wage determination procedures as inconsistent with the
1982 final rule. See Mistick Constr., ARB No. 04-051, 2006 WL 861357,
at *5-7 (Mar. 31, 2006).\9\ As a consequence of these developments, the
use of averages of wage rates from survey responses has increasingly
become the methodology used to issue new wage determinations--
notwithstanding the Department's long-held interpretation that the DBA
allows the use of such averages only as a methodology of last resort.
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\9\ Decisions of the ARB from 1996 to the present are available
on the Department's website at <a href="https://www.dol.gov/agencies/arb/decisions">https://www.dol.gov/agencies/arb/decisions</a>.
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The Department has also received significant feedback from
stakeholders and others since the last comprehensive rulemaking. In a
2011 report, the Government Accountability Office (GAO) reviewed the
Department's wage survey and wage determination process and found that
the Department was often behind schedule in completing wage surveys,
leading to a backlog of wage determinations and the use of out-of-date
wage determinations in some areas.\10\ The report also identified
dissatisfaction among regulated parties regarding the rigidity of the
Department's county-based system for identifying prevailing rates,\11\
and missing wage rates requiring an overuse of ``conformances'' for
wage rates for specific job classifications.\12\ A 2019 report from the
Department's Office of the Inspector General (OIG) made similar
findings regarding out-of-date wage determinations.\13\
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\10\ See Gov't Accountability Office, GAO-11-152, ``Davis-Bacon
Act: Methodological Changes Needed to Improve Wage Survey'' (2011)
(2011 GAO Report), at 12-19, available at: <a href="https://www.gao.gov/assets/gao-11-152.pdf">https://www.gao.gov/assets/gao-11-152.pdf</a>.
\11\ Id. at 23-24.
\12\ Id. at 32-33.
\13\ See Department of Labor, Office of the Inspector General,
``Better Strategies Are Needed to Improve the Timeliness and
Accuracy of Davis-Bacon Act Prevailing Wage Rates'' (2019) (2019 OIG
Report), at 10, available at: https://www.oversight.gov/sites/
default/files/oig-reports/04-19-001_Davis%20Bacon.pdf.
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Ensuring that construction workers are paid the wages required
under the DBRA also requires effective enforcement in addition to an
efficient wage determination process. In the last decade, enforcement
efforts at the Department have resulted in the recovery of more than
$229 million in back wages for over 76,000 workers.\14\ But the
Department has also encountered significant enforcement challenges.
Among the most critical of these is the omission of DBRA contract
clauses from contracts that are clearly covered by the DBRA. In one
recent case, a contracting agency agreed with the Department that a
blanket purchase agreement (BPA) it had entered into with a contractor
had mistakenly omitted the Davis-Bacon clauses and wage determination,
but the omission still resulted in an 8-year delay before the workers
were paid the wages they were owed.
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\14\ The listed figures have been corrected from the NPRM. The
updated figures reflect the sum of the annual enforcement statistics
from 2010-2019 in Gov't Accountability Office, GAO-21-13, ``Fair
Labor Standards Act: Tracking Additional Complaint Data Could
Improve DOL's Enforcement'' (2020) (2020 GAO Report), at 39,
available at: <a href="https://www.gao.gov/assets/gao-21-13.pdf">https://www.gao.gov/assets/gao-21-13.pdf</a>.
_____________________________________-
Through this rulemaking, the Department seeks to address a number
of these outstanding challenges in the program while also providing
greater clarity in the DBRA regulations and enhancing their usefulness
in the modern economy. In the NPRM, the Department proposed to update
and modernize the regulations implementing the DBRA at 29 CFR parts 1,
3, and 5. In some of these proposed revisions, the Department had
determined that changes it made in the 1981-1982 rulemaking were
mistaken or ultimately resulted in outcomes that are increasingly in
tension with the DBA statute itself. In others, the Department sought
to expand further on procedures that were introduced in that last major
revision, or to propose new procedures that will increase efficiency of
administration of the DBRA and enhance protections for covered
construction workers. The Department invited comments on these proposed
updates and received 40,938 timely comments after a 60-day comment
period.
The comments were from a broad array of constituencies, including
contractors, unions, employer and industry associations, worker
advocacy groups, non-profit organizations, social scientists, law
firms, think tanks, Members of Congress, a state attorney general, a
state department of labor, and other interested members of the public.
All timely received comments may be viewed on the <a href="http://regulations.gov">regulations.gov</a>
website, docket ID WHD-2022-0001. Some of the comments the Department
received were general statements of support or opposition, and the
Department also received approximately 40,200 ``campaign'' comments
sent in response to organized initiatives. Commenters expressed a wide
variety of views on the merits of particular aspects of the
Department's proposal; however, most commenters favored some, if not
all, of the changes proposed in the NPRM. The Department has considered
the timely submitted comments addressing the proposed changes.
The Department also received a number of comments that are beyond
the scope of this rulemaking. These included requests that would
require Congress to amend statutory language in the DBRA. For example,
many commenters suggested a change to the $2,000 threshold for DBA and
certain Related Acts to apply. Others suggested eliminating or changing
the weekly certified payroll requirement that is expressly required by
40 U.S.C. sec 3145.
Other comments beyond the scope of the rulemaking included those
that suggested significant new regulatory provisions or changes that
were not proposed in the NPRM. Among these, for example, the Iron
Workers International Union suggested the codification of the
requirement to thoroughly investigate ``area practice'' issues that
arise during the wage survey
[[Page 57528]]
process. See Fry Bros. Corp., WAB No. 76-06, 1977 WL 24823, at *6 (June
14, 1977), aff'd sub nom. Fry Bros. Corp. v. Dep't of Hous. & Urb.
Dev., 614 F.2d 732, 732-33 (10th Cir. 1980). The Iron Workers also
suggested creation of a new administrative process for issuing ``right
to sue'' notices to workers to pursue rights of action authorized by 40
U.S.C. sec 3144(a)(2). As noted in the comment, such an initiative
would be better proposed in a separate and subsequent notice-and-
comment rulemaking.
The Department reviewed the comments submitted in particular for
assertions by interested parties of their reliance on the existing
regulations in a way that would be adversely affected by the proposed
rule. Although many comments stated that the current regulations had
been in place for many years, few specified that parties had relied on
the regulations so as to raise questions about the fairness or
reasonableness of amending them in the current rulemaking. Nonetheless,
the Department considered whether the rule as a whole, as well as its
individual proposed provisions, could plausibly implicate significant
and legitimate reliance interests, and the Department has concluded
that the proposed amendments to the regulations do not raise reliance
interests that would outweigh the agency objectives discussed
throughout this preamble.
The Department did not identify significant reliance interests
among contractors or others in the existing part 1 regulations. The
part 1 regulations involve the Department's methodology for determining
the prevailing wage rates that are required on covered contracts. Some
of the changes the Department proposed to this part may lead to higher
required wage rates in places and lower wage rates in others, and the
new periodic adjustments of certain non-collectively bargained wage
rates will result in a smoother increase in such wage rates over time
instead of longer periods of the same wage rates for an area followed
by steeper increases after the publication of new survey rates.
Similarly, the new language clarifying the procedure for incorporating
prevailing wage rates into multiple award schedules and other similar
contracts may result in more frequent updates to prevailing wage rates
on such contracts when options are executed. These types of changes,
however, should not be significantly different in their effect on
contractors than the fluctuations in prevailing wage rates that already
occur between wage surveys as a result of changes in local economies
and shifts in regional labor markets. Even if the part 1 changes were
to have significant effects on prevailing wage rates in certain local
areas, any reliance interests of local contractors, governmental
agencies, or workers on prior prevailing wage rates would be limited,
given that the changes to the wage determination processes generally
will not affect current contracts--which will continue to be governed
by the wage determinations incorporated at the time of their award,
with limited exceptions. Most of the revisions to part 1 will only
apply to wage surveys that are finalized after the rule becomes
effective, and thus they will generally apply only to contracts awarded
after such new wage determinations are issued.\15\ Contractors will
therefore be able to factor any new wage rates into their bids on
future contracts.
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\15\ As explained in Sec. 1.6(c), whenever a new wage
determination is issued (either after the completion of a new wage
survey or through the new periodic adjustment mechanism), that
revision as a general matter does not and will not apply to
contracts which have already been awarded, with three exceptions.
These exceptions are explained in Sec. 1.6(c)(2)(iii), and they
include where a contract or order is changed to include substantial
covered work that was not within the original scope of work, where
an option is exercised, and also certain ongoing contracts that are
not for specific construction, for which new wage determinations
must be incorporated on an annual basis under Sec.
1.6(c)(2)(iii)(B) of the final rule. The final rule instructs
contracting agencies to apply the terms of Sec. 1.6(c)(2)(iii) to
all existing contracts, without regard to the date of contract
award, if practicable and consistent with applicable law. The
Department does not anticipate that the application of the amended
wage determination methodologies in these situations will result in
unfair harm to reliance interests in a manner sufficient to outweigh
the benefits of the final rule implementation as planned. See also
section III.C. (``Applicability Date'') below.
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Many of the amendments to part 5 of the regulations are regulatory
changes that codify the Department's current practices and
interpretations of existing regulations. As a result, such changes do
not, in practical terms, impose new obligations on contractors or
contracting agencies. Other changes, such as the new anti-retaliation
provision, provide new remedies to address conduct that already may
subject contractors to potential debarment. Any reliance interest in
the ability to carry out such conduct with lesser potential
consequences is particularly weak. Regardless, these new amendments to
part 5 will generally only apply to contracts that are awarded after
the effective date of this final rule. Contractors entering into new
contracts issued after the rule is published and becomes applicable
will have notice of the regulatory changes and will be able to take the
changes into consideration as they analyze internal controls and
develop their bids or negotiate contract pricing.
ABC argued that the Department's denial of requests to extend the
public comment period beyond the 60 days provided was arbitrary and
capricious, and other commenters expressed disappointment that the
comment period had not been extended. As explained in the Department's
public response to the extension requests in <a href="http://regulations.gov">regulations.gov</a>, the
Department concluded that the 60-day period provided the public with a
meaningful opportunity to comment on the proposed rule. The Davis-Bacon
and Related Acts' applicability is limited to Federal and federally
assisted construction projects, and therefore applies to a defined
group of stakeholders. Additionally, various elements of the proposed
and final rules codify or clarify longstanding policies, practices, and
interpretations. As a result, stakeholders were familiar with many of
the issues addressed in the NPRM. The public had additional time to
review the NPRM, which was available on the Department's website on
March 11, 2022, seven days in advance of its publication in the Federal
Register. The comprehensive nature and substance of the comments
received--both in favor of and opposing the proposed rule--support the
Department's view that the 60-day period was appropriate and
sufficient. Finally, the Department and the Office of Management and
Budget have participated in several meetings pursuant to E.O. 12866 at
which stakeholders have had opportunities to elaborate on their public
comments.
Finally, some commenters raised concerns about the administrative
or paperwork burdens contractors might face while adjusting to, and
under, the Department's final rule. The Department considered such
concerns in its economic analyses and concluded that the paperwork
burdens associated with the rule are limited and are outweighed by the
benefits of the regulation.
Having considered all of the comments, the Department has decided
to adopt the NPRM's proposed changes with some modifications.
Significant issues raised in the comments are discussed in more detail
below in section III (``Final Regulatory Revisions''), along with the
Department's responses to those comments.
This final rule includes several elements targeted at increasing
the amount of information available for wage determinations and
speeding up the determination process. In particular, the final rule
amends Sec. 1.3 of the
[[Page 57529]]
regulations by outlining a new methodology to expressly give the Wage
and Hour Division (WHD) Administrator authority and discretion to adopt
State or local wage determinations as the Davis-Bacon prevailing wage
where certain specified criteria are satisfied. Such a change will help
improve the currentness and accuracy of wage determinations, as many
States and localities conduct surveys more frequently than the
Department and have relationships with stakeholders that may facilitate
the process and foster more widespread participation. This revision
will also increase efficiency and reduce confusion for the regulated
community where projects are covered by both DBRA and local or State
prevailing wage laws and contractors are already familiar with
complying with the local or State prevailing wage requirement.
The Department also amends the definition of ``prevailing wage'' in
Sec. 1.2, and in Sec. 1.7, the scope of data considered to identify
the prevailing wage in a given area. To address the overuse of weighted
average rates, the Department returns to the definition of ``prevailing
wage'' in Sec. 1.2 that it used from 1935 to 1983.\16\ Currently, a
wage rate may be identified as prevailing in the area only if it is
paid to a majority of workers in a classification on the wage survey;
otherwise, a weighted average is used. The Department returns instead
to the ``three-step'' method that was in effect before 1983. Under that
method (also known as the 30-percent rule), in the absence of a wage
rate paid to a majority of workers in a particular classification, a
wage rate will be considered prevailing if it is paid to at least 30
percent of such workers. The Department also returns to a prior policy
on another change made during the 1981-1982 rulemaking related to the
delineation of wage survey data submitted for ``metropolitan'' or
``rural'' counties in Sec. 1.7(b). Through this change, the Department
will more accurately reflect modern labor force realities, allow more
wage rates to be determined at smaller levels of geographical
aggregation, and will increase the sufficiency of data at the statewide
level.
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\16\ The 1981-1982 rulemaking went into effect on Apr. 29, 1983.
48 FR 19532.
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Revisions to Sec. Sec. 1.3 and 5.5 are aimed at reducing the need
for the use of ``conformances'' where the Department has received
insufficient data to publish a prevailing wage for a classification of
worker--a process that currently is burdensome on contracting agencies,
contractors, and the Department. This final rule codifies a new
procedure through which the Department may identify (and list on the
wage determination) wage and fringe benefit rates for certain
classifications for which WHD received insufficient data through its
wage survey program. The procedure will reduce the need for
conformances of classifications for which conformances are now often
required.
The Department also revises Sec. 1.6(c)(1) to provide a mechanism
to regularly update certain non-collectively bargained prevailing wage
rates based on the Employment Cost Index (ECI) published by the Bureau
of Labor Statistics (BLS).\17\ The mechanism is intended to keep such
rates more current between surveys so that they do not become out-of-
date and fall behind prevailing rates in the area.
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\17\ Available at: <a href="https://www.bls.gov/news.release/eci.toc.htm">https://www.bls.gov/news.release/eci.toc.htm</a>.
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The Department also strengthens enforcement in several critical
ways. The Department addresses the challenges caused by the omission of
contract clauses. In a manner similar to its rule under Executive Order
11246 (Equal Employment Opportunity), the Department designates the
DBRA contract clauses in Sec. 5.5(a) and (b), and applicable wage
determinations, as effective by ``operation of law'' notwithstanding
their mistaken omission from a contract. This is an extension of the
retroactive modification procedures that were put into effect in Sec.
1.6 by the 1981-1982 rulemaking, and it will expedite enforcement
efforts to ensure the timely payment of prevailing wages to all workers
who are owed such wages under the relevant statutes.
In addition, the Department finalizes new anti-retaliation
provisions in the Davis-Bacon contract clauses in new paragraphs at
Sec. 5.5(a)(11) (DBRA) and (b)(5) (Contract Work Hours and Safety
Standards Act (CWHSSA)), and in a new section of part 5 at Sec. 5.18.
The language ensures that workers who raise concerns about payment
practices or assist agencies or the Department in investigations are
protected from termination or other adverse employment actions.
Finally, to reinforce the remedies available when violations are
discovered, the Department clarifies and strengthens the cross-
withholding procedure for recovering back wages by including new
language in the withholding contract clauses at Sec. 5.5(a)(2) (DBRA)
and (b)(3) (CWHSSA) to clarify that cross-withholding may be
accomplished on contracts held by agencies other than the agency that
awarded the contract. The Department also creates a mechanism through
which contractors will be required to consent to cross-withholding for
back wages owed on contracts held by different but related legal
entities in appropriate circumstances--if, for example, those entities
are controlled by the same controlling shareholder or are joint
venturers or partners on a Federal contract. The revisions also include
a harmonization of the DBA and Related Act debarment standards.
II. Background
A. Statutory and Regulatory History
The Davis-Bacon Act, as enacted in 1931 and subsequently amended,
requires the payment of minimum prevailing wages determined by the
Department to laborers and mechanics working on Federal contracts in
excess of $2,000 for the construction, alteration, or repair, including
painting and decorating, of public buildings and public works. See 40
U.S.C. 3141 et seq. Congress has also included the Davis-Bacon
requirements in numerous other laws, known as the Davis-Bacon Related
Acts (the Related Acts and, collectively with the Davis-Bacon Act, the
DBRA), which provide Federal assistance for construction projects
through grants, loans, loan guarantees, insurance, and other methods.
Congress intended the Davis-Bacon Act to ``protect local wage standards
by preventing contractors from basing their bids on wages lower than
those prevailing in the area.'' Coutu, 450 U.S. at 773 (quoting H.
Comm. on Educ. and Lab., Legis. History of the Davis-Bacon Act, 87th
Cong., 2d Sess., 1 (Comm. Print 1962)).
The Copeland Act, enacted in 1934, added the requirement that
contractors working on Davis-Bacon projects must submit weekly
certified payrolls for work performed on the contract. See 40 U.S.C.
3145. The Copeland Act also prohibits contractors from inducing any
worker to give up any portion of the wages due to them on such
projects. See 18 U.S.C. 874. In 1962, Congress passed CWHSSA, which, as
amended, requires an overtime payment of additional half-time for hours
worked over 40 in the workweek by laborers and mechanics, including
watchpersons and guards, on Federal contracts or federally assisted
contracts containing Federal prevailing wage standards. See 40 U.S.C.
3701 et seq.
As initially enacted, the DBA did not take into consideration the
provision of fringe benefits to workers. In 1964, Congress expanded the
Act to require the Department to include an analysis of fringe benefits
as part of the wage determination process. The amendment
[[Page 57530]]
requires contractors and subcontractors to provide fringe benefits
(such as vacation pay, sick leave, health insurance, and retirement
benefits), or the cash equivalent thereof, to their workers at the
level prevailing for the labor classification on projects of a similar
character in the locality. See Act of July 2, 1964, Public Law 88-349,
78 Stat. 238.
Congress has delegated broad rulemaking authority under the DBRA to
the Department. The DBA, as amended, contemplates regulatory and
administrative action by the Department to determine the prevailing
wages that must be paid and to ``prescribe reasonable regulations'' for
contractors and subcontractors. 40 U.S.C. 3142(b); 40 U.S.C. 3145.
Congress also, through Reorganization Plan No. 14 of 1950, directed the
Department to ``prescribe appropriate standards, regulations and
procedures'' to be observed by Federal agencies responsible for the
administration of the Davis-Bacon and Related Acts. 15 FR 3176; 5
U.S.C. app. 1.
The Department promulgated its initial regulations implementing the
Act in 1935 and has since periodically revised them. See U.S.
Department of Labor, Regulations No. 503 (Sept. 30, 1935). In 1938,
these initial regulations, which set forth the procedures for the
Department to follow in determining prevailing wages, were included in
part 1 of Title 29 of the new Code of Federal Regulations. See 29 CFR
1.1 et seq. (1938). The Department later added regulations to implement
the payroll submission and anti-kickback provisions of the Copeland
Act--first in part 2 and then relocated to part 3 of Title 29. See 6 FR
1210 (Mar. 1, 1941); 7 FR 687 (Feb. 4, 1942); 29 CFR part 2 (1942); 29
CFR part 3 (1943). After the Reorganization Plan No. 14 of 1950, the
Department issued regulations setting forth procedures for the
administration and enforcement of the Davis-Bacon and Related Acts in a
new part 5. 16 FR 4430 (May 12, 1951); 29 CFR part 5. The Department
made significant revisions to the regulations in 1964, and again in the
1981-1982 rulemaking.\18\
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\18\ See 29 FR 13462 (Sept. 30, 1964); 46 FR 41444-70 (NPRM
parts 1 and 5) (Aug. 14, 1981); 47 FR 23644-79 (final rule parts 1,
3, and 5) (May 28, 1982). The Department also proposed a significant
revision of parts 1 and 5 of the regulations in 1979 and issued a
final rule in 1981. See 44 FR 77026 (Dec. 28, 1979) (NPRM Part 1);
44 FR 77080 (Dec. 28, 1979) (NPRM part 5); 46 FR 4306 (Jan. 16,
1981) (final rule part 1); 46 FR 4380 (Jan. 16, 1981) (final rule
part 5). The 1981 final rules, however, were delayed and
subsequently replaced by the 1981-1982 rulemaking. The 1982 final
rule was delayed by litigation and re-published with amendments in
1983 and 1985. 48 FR 19532-53 (Apr. 29, 1983) (final rule parts 1
and 5); 50 FR 4506 (Jan. 31, 1985) (final rule Sec. Sec. 1.3(d) and
1.7(b)).
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While the Department has made periodic revisions to the regulations
in recent years, such as to better protect the personal privacy of
workers, 73 FR 77511 (Dec. 19, 2008); to remove references to the
``Employment Standards Administration,'' 82 FR 2225 (Jan. 9, 2017); and
to adjust Federal civil money penalties, 81 FR 43450 (July 1, 2016), 83
FR 12 (Jan. 2, 2018), 84 FR 218 (Jan. 23, 2019), 87 FR 2328 (Jan. 14,
2022), 88 FR 2210 (Jan. 13, 2023), the Department has not engaged in a
comprehensive review and revision since the 1981-1982 rulemaking.
B. Overview of the Davis-Bacon Program
WHD, an agency within the U.S. Department of Labor, administers the
Davis-Bacon program for the Department. WHD carries out its
responsibilities in partnership with the Federal agencies that enter
into direct DBA-covered contracts for construction and/or administer
Federal assistance to State and local governments and other funding
recipients that is covered by the Related Acts. The State and local
governmental agencies and authorities that receive covered financial
assistance also have important responsibilities in administering
Related Act program rules, as they manage programs through which
covered funding flows or the agencies themselves directly enter into
covered contracts for construction.
The DBRA program includes three basic components in which these
government entities have responsibilities: (1) wage surveys and wage
determinations; (2) contract formation and administration; and (3)
enforcement and remedies.
1. Wage Surveys and Determinations
The DBA delegates to the Secretary of Labor the responsibility to
determine the wage rates that are ``prevailing'' for each
classification of covered laborers and mechanics on similar projects
``in the civil subdivision of the State in which the work is to be
performed.'' 40 U.S.C. 3142(b). WHD carries out this responsibility for
the Department through its wage survey program and derives the
prevailing wage rates from survey information that responding
contractors and other interested parties voluntarily provide. The
program is carried out in accordance with the program regulations in
part 1 of Title 29 of the Code of Federal Regulations, see 29 CFR 1.1
through 1.7, and its procedures are described in guidance documents
such as the ``Davis-Bacon Construction Wage Determinations Manual of
Operations'' (1986) (Manual of Operations) and ``Prevailing Wage
Resource Book'' (2015) (PWRB).\19\ Although part 1 of the regulations
provides the authority for WHD to create project-specific wage
determinations, such project wage determinations, once more common, now
are rarely employed. Instead, nearly all wage determinations are
general wage determinations issued for general types of construction
(building, residential, highway, and heavy) and applicable to a
specific geographic area. General wage determinations can be
incorporated into the vast majority of contracts and create uniform
application of the DBRA for that area.
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\19\ The Manual of Operations is a 1986 guidance document that
is still used internally for reference within WHD. The PWRB is a
2015 document that is intended to provide practical information to
contracting agencies and other interested parties, and is available
at <a href="https://www.dol.gov/agencies/whd/government-contracts/prevailing-wage-resource-book">https://www.dol.gov/agencies/whd/government-contracts/prevailing-wage-resource-book</a>.
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2. Contract Formation and Administration
The Federal agencies that enter into DBA-covered contracts or
administer Related Act programs have the initial responsibility to
determine whether a contract is covered by the DBA or one of the
Related Acts and identify the contract clauses and the applicable wage
determinations that must be included in the contract. See 29 CFR
1.6(b). In addition to the Department's regulations, this process is
also guided by parallel regulations in part 22 of the FAR for those
contracts that are subject to the FAR. See 48 CFR part 22. Federal
agencies also maintain their own regulations and guidance governing
agency-specific aspects of the process. See, e.g., 48 CFR subpart 222.4
(Defense); 48 CFR subpart 622.4 (State); U.S. Department of Housing and
Urban Development (HUD), HUD Handbook 1344.1, Federal Labor Standards
Requirements in Housing and Urban Development Programs (2013).\20\
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\20\ Available at: <a href="https://www.hud.gov/sites/dfiles/OCHCO/documents/Work-Schedule-Request.pdf">https://www.hud.gov/sites/dfiles/OCHCO/documents/Work-Schedule-Request.pdf</a>.
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Where contracting agencies or interested parties have questions
about such matters as coverage under the DBRA or the applicability of
the appropriate wage determination to a specific contract, they are
directed to submit those questions to the Administrator of WHD (the
Administrator) for resolution. See 29 CFR 5.13. The Administrator
responds to such questions and provides periodic guidance on other
aspects of the DBRA program to contracting agencies and other
interested parties, particularly through All Agency Memoranda
[[Page 57531]]
(AAMs) and ruling letters. In addition, the Department maintains a
guidance document, the Field Operations Handbook (FOH), to provide
guidance for the regulated community and for WHD investigators and
staff on contract administration and enforcement policies.\21\
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\21\ The FOH reflects policies established through changes in
legislation, regulations, significant court decisions, and the
decisions and opinions of the WHD Administrator. It is not used as a
device for establishing interpretive policy. Chapter 15 of the FOH
covers the DBRA, including CWHSSA, and is available at <a href="https://www.dol.gov/agencies/whd/field-operations-handbook/Chapter-15">https://www.dol.gov/agencies/whd/field-operations-handbook/Chapter-15</a>.
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During the administration of a DBRA-covered contract, contractors
and subcontractors are required to provide certified payrolls to the
contracting agency to demonstrate their compliance with the
incorporated wage determinations on a weekly basis. See generally 29
CFR part 3. Contracting agencies have the duty to ensure compliance by
engaging in periodic audits or investigations of contracts, including
examinations of payroll data and confidential interviews with workers.
See 29 CFR 5.6. Prime contractors have the responsibility for the
compliance of all the subcontractors on a covered prime contract. 29
CFR 5.5(a)(6). WHD conducts investigations of covered contracts, which
include determining if the DBRA contract clauses or appropriate wage
determinations were mistakenly omitted from the contract. See 29 CFR
1.6(f). If WHD determines that there was such an omission, it will
request that the contracting agency either terminate and resolicit the
contract or modify it to incorporate the required clauses or wage
determinations retroactively. Id.
3. Enforcement and Remedies
In addition to WHD, contracting agencies have enforcement authority
under the DBRA. When a contracting agency's investigation reveals
underpayments of wages of the DBA or one of the Related Acts, the
Federal agency generally is required to provide a report of its
investigation to WHD, and to seek to recover the underpayments from the
contractor responsible. See 29 CFR 5.6(a), 5.7. If violations
identified by the contracting agency or by WHD through its own
investigation are not promptly remedied, contracting agencies are
required to suspend payment on the contract until sufficient funds are
withheld to compensate the workers for the underpayments. 29 CFR 5.9.
The DBRA contract clauses also provide for ``cross-withholding'' if
sufficient funds are no longer available on the contract under which
the violations took place. Under this procedure, funds may be withheld
from any other covered Federal contract or federally assisted contract
held by the same prime contractor in order to remedy the underpayments
on the contract at issue. See 29 CFR 5.5(a)(2), (b)(3). Contractors
that violate the DBRA may also be subject to debarment from future
Federal contracts and federally assisted contracts. See 29 CFR 5.12.
Where WHD conducts an investigation and finds that violations have
occurred, it will notify the affected prime contractor(s) and
subcontractor(s) of the findings of the investigation--including any
determination that workers are owed back wages and whether there is
reasonable cause to believe the contractor may be subject to debarment.
See 29 CFR 5.11(b). Contractors can request a hearing regarding these
findings through the Department's Office of Administrative Law Judges
(OALJ) and may appeal any ruling by the OALJ to the Department's ARB.
Id.; see also 29 CFR parts 6 and 7 (OALJ and ARB rules of practice for
Davis-Bacon proceedings). Decisions of the ARB are final agency actions
that may be reviewable under the Administrative Procedure Act (APA) in
Federal district court. See 5 U.S.C. 702, 704.\22\
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\22\ In addition to reviewing liability determinations and
debarment, the ARB, the Secretary (when exercising discretionary
review), and the courts also have jurisdiction in certain
circumstances to review general wage determinations. Judicial
review, however, is strictly limited to any procedural
irregularities, as there is no jurisdiction to review the
substantive correctness of a wage determination under the DBA. See
Binghamton Constr. Co., 347 U.S. at 177.
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III. Final Regulatory Revisions
A. Legal Authority
The Davis-Bacon Act, as enacted in 1931 and subsequently amended,
requires the payment of certain minimum ``prevailing'' wages determined
by the Department to laborers and mechanics working on Federal
contracts in excess of $2,000 for the construction, alteration, or
repair, including painting and decorating, of public buildings and
public works. See 40 U.S.C. 3141 et seq. The DBA authorizes the
Secretary of Labor to develop a definition for the term ``prevailing''
wage and a methodology for setting it based on wages paid on similar
projects in the civil subdivision of the State in which a covered
project will occur. See 40 U.S.C. 3142(b); Bldg. & Constr. Trades'
Dep't, AFL-CIO v. Donovan, 712 F.2d 611, 616 (D.C. Cir. 1983).
The Secretary of Labor has the responsibility to ``prescribe
reasonable regulations'' for contractors and subcontractors on covered
projects. 40 U.S.C. 3145. The Secretary, through Reorganization Plan
No. 14 of 1950, also has the responsibility to ``prescribe appropriate
standards, regulations and procedures'' to be observed by Federal
agencies responsible for the administration of the Davis-Bacon and
Related Acts ``[i]n order to assure coordination of administration and
consistency of enforcement of the labor standards provisions'' of the
DBRA. 15 FR 3176; 5 U.S.C. app. 1.
The Secretary has delegated authority to promulgate these
regulations to the Administrator and to the Deputy Administrator of the
WHD if the Administrator position is vacant. See Secretary's Order No.
01-2014, 79 FR 77527 (Dec. 24, 2014); Secretary's Order No. 01-2017, 82
FR 6653 (Jan. 19, 2017).
B. Overview of the Final Rule
The Department finalizes its proposals to update and modernize the
regulations at 29 CFR parts 1, 3, and 5, which implement the DBRA. The
sections below address these regulatory revisions as adopted in the
final rule.
1. 29 CFR Part 1
The procedures for determining the prevailing wage rates and fringe
benefits applicable to laborers and mechanics engaged in construction
activity covered by the Davis-Bacon and Related Acts are set forth in
29 CFR part 1. The regulations in this part also set forth the
procedures for the application of such prevailing wage determinations
to covered construction projects.
i. Section 1.1 Purpose and Scope
The Department proposed technical revisions to Sec. 1.1 to update
the statutory reference to the Davis-Bacon Act, now recodified at 40
U.S.C. 3141 et seq. The Department also proposed to eliminate outdated
references to the Deputy Under Secretary of Labor for Employment
Standards at the Employment Standards Administration. The Employment
Standards Administration was eliminated as part of an agency
reorganization in 2009, and its authorities and responsibilities were
devolved into its constituent components, including the WHD. See
Secretary's Order No. 09-2009 (Nov. 6, 2009), 74 FR 58836 (Nov. 13,
2009), 82 FR 2221 (Jan. 9, 2017). The Department further proposed to
revise Sec. 1.1 to reflect the removal of Appendix A of part 1, as
discussed below. The Department also proposed to add new paragraph
(a)(1) to reference the WHD website (https://
[[Page 57532]]
<a href="http://www.dol.gov/agencies/whd/government-contracts">www.dol.gov/agencies/whd/government-contracts</a>, or its successor
website) on which a listing of laws requiring the payment of wages at
rates predetermined by the Secretary of Labor under the Davis-Bacon Act
is currently found.
The Department received one comment in favor of this proposal. The
United Association of Journeymen and Apprentices of the Plumbing and
Pipe Fitting Industry of the United States & Canada (UA) commented in
support of the proposal, noting that the current information was
outdated. The final rule therefore adopts this change as proposed, with
one technical edit to delete an unnecessary conjunction that is not
intended to reflect a change in the substance of this section.
ii. Section 1.2 Definitions
(A) Prevailing Wage
Section 1.2 contains the definition of the term ``prevailing
wage.'' The DBA and the Related Acts require laborers and mechanics on
covered projects to be paid a prevailing wage as set by the Secretary
of Labor, but the statutes do not define the term ``prevailing.'' The
Department's regulatory definition of the term ``prevailing wage'' in
29 CFR 1.2 specifies the basic methodology with which the Department
determines whether a certain wage rate is prevailing in a given
geographic area. The Department uses this methodology to prepare wage
determinations that are incorporated into DBRA-covered contracts to set
minimum wage rates for each classification of covered workers on a
project.
In the NPRM, the Department proposed to redefine the term
``prevailing wage'' in Sec. 1.2 to return to the original methodology
for determining whether a wage rate is prevailing. This original
methodology has been referred to as the ``three-step process.''
Since 1935, the Secretary has interpreted the word ``prevailing''
in the Davis-Bacon Act to be consistent with the common understanding
of the term as meaning ``predominant'' or ``most frequent.'' From 1935
until the 1981-1982 rulemaking, the Department employed a three-step
process to identify the most frequently used wage rate for each
classification of workers in a locality. See Regulation 503 section 2
(1935); 47 FR 23644.\23\ This process identified as prevailing: (1) any
wage rate paid to a majority of workers; and, if there was none, then
(2) the wage rate paid to the greatest number of workers, provided it
was paid to at least 30 percent of workers, and, if there was none,
then (3) the weighted average rate. The second step has been referred
to as the ``30-percent rule.''
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\23\ Implemented Apr. 29, 1983. See 48 FR 19532.
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The three-step process relegated the average rate to a final,
fallback method of determining the prevailing wage. In 1962
congressional testimony, Solicitor of Labor Charles Donahue explained
the reasoning for this sequence in the determination: An average rate
``does not reflect a true rate which is actually being paid by any
group of contractors in the community being surveyed.'' Instead, ``it
represents an artificial rate which we create ourselves, and which does
not reflect that which a predominant amount of workers are paid.'' \24\
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\24\ Administration of the Davis Bacon Act: Hearings before the
Spec. Subcomm. of Lab. of the H. Comm. on Educ. & Lab., 87th Cong.
811-12 (1962) (testimony of Charles Donahue, Solicitor of Labor).
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In 1982, the Department published a final rule that amended the
definition of ``prevailing wage'' by eliminating the second step in the
three-step process--the 30-percent threshold. See 47 FR 23644. The new
process required only two steps: first identifying if there was a wage
rate paid to more than 50 percent of workers, and then, if not, relying
on a weighted average of all the wage rates paid. Id. at 23644-45.
In eliminating the 30-percent threshold, however, the Department
did not change its underlying interpretation of the word
``prevailing''--that it means ``the most widely paid rate'' must be the
``definition of first choice'' for the prevailing wage. 47 FR 23645.
While the 1982 rule continued to allow the Department to use an average
rate as a fallback, the Department rejected commenters' suggestions
that the weighted average could be used in all cases. See 47 FR 23644-
45. As the Department explained, this was because the term
``prevailing'' contemplates that wage determinations mirror, to the
extent possible, those rates ``actually paid'' to workers. 47 FR 23645.
This interpretation--that the definition of first choice for the
term ``prevailing wage'' should be an actual wage rate that is most
widely paid--has now been shared across administrations for over 85
years. In the intervening decades, Congress has amended and expanded
the reach of the Act's prevailing wage requirements dozens of times
without altering the term ``prevailing'' or the grant of broad
authority to the Secretary of Labor to define it.\25\ In addition, the
question was also reviewed by the Office of Legal Counsel (OLC) at the
Department of Justice, which independently reached the same
conclusions: ``prevailing wage'' means the current and predominant
actual rate paid, and an average rate should only be used as a last
resort. See Determination of Wage Rates Under the Davis-Bacon & Serv.
Cont. Acts, 5 Op. O.L.C. 174, 176-77 (1981).\26\
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\25\ See, e.g., Act of Mar. 23, 1941, ch. 26, 55 Stat. 53 (1941)
(applying the Act to alternative contract types); CWHSSA of 1962,
Public Law 87-581, 76 Stat. 357 (1962) (requiring payment of
overtime on contracts covered by the Act); Act of July 2, 1964,
Public Law 88-349, 78 Stat. 238 (1964) (extending the Act to cover
fringe benefits); 29 CFR 5.1 (referencing 57 Related Acts into which
Congress incorporated Davis-Bacon Act requirements between 1935 and
1978).
\26\ Available at: <a href="https://www.justice.gov/sites/default/files/olc/opinions/1981/06/31/op-olc-v005-p0174_0.pdf">https://www.justice.gov/sites/default/files/olc/opinions/1981/06/31/op-olc-v005-p0174_0.pdf</a>.
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In the 1982 final rule, when the Department eliminated the 30-
percent threshold, it anticipated that this change would increase the
use of artificial average rates. 47 FR 23648-49. Nonetheless, the
Department believed a change was preferable because the 30-percent
threshold could in some cases not account for up to 70 percent of the
remaining workers. See 46 FR 41444. The Department also stated that it
agreed with the concerns expressed by certain commenters that
establishing a prevailing wage rate based on 30-percent of survey wage
rates was ``inflationary'' and gave ``undue weight to collectively
bargained rates.'' 47 FR 23644-45.
After reviewing the development of the Davis-Bacon Act program
since the 1981-1982 rulemaking, the Department has concluded that
eliminating the 30-percent threshold has ultimately resulted in an
overuse of average rates. On paper, the weighted average remains the
fallback method to be used only when there is no majority rate. In
practice, though, it has become a central mechanism to set the
prevailing wage rates included in Davis-Bacon wage determinations and
covered contracts.
Prior to the 1982 rule change, the use of averages to set a
prevailing wage rate was relatively rare. In a Ford Administration
study of Davis-Bacon Act prevailing wage rates in commercial-type
construction in 19 cities, none of the rates were based on averages
because all of the wage rates were ``negotiated'' rates, i.e., based on
collective bargaining agreements (CBAs) that represented a predominant
wage rate in the locality.\27\ The Department
[[Page 57533]]
estimates that prior to the 1982 final rule, as low as 15 percent of
classification rates across all wage determinations were based on
averages. After the 1982 rule was implemented, the use of averages may
have initially increased to approximately 26 percent of all wage
determinations.\28\
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\27\ See Robert S. Goldfarb & John F. Morrall, ``An Analysis of
Certain Aspects of the Administration of the Davis-Bacon Act,''
Council on Wage and Price Stability (May 1976), reprinted in Bureau
of Nat'l Affs., Construction Labor Report, No. 1079, D-1, D-2
(1976).
\28\ See Oversight Hearing on the Davis-Bacon Act, Before the
Subcomm. on Lab. Standards of the H. Comm. on Educ. & Lab., 96th
Cong. 58 (1979) (statement of Ray Marshall, Secretary of Labor)
(discussing study of 1978 determinations showing only 24 percent of
classification rates were based on the 30-percent rule); Jerome
Staller, ``Communications to the Editor,'' Policy Analysis, Vol. 5,
No. 3 (Summer 1979), pp. 397-98 (noting that 60 percent of
determinations in the internal Department 1976 and 1978 studies were
based on the 30-percent rule or the average-rate rule). The authors
of the Council on Wage and Price Stability study, however, pointed
out that the Department's figures were for rates that had been based
on survey data, while 57 percent of rates in the mid-1970's were
based solely on CBAs without the use of surveys (a practice that the
Department no longer uses to determine new rates). See Robert S.
Goldfarb & John F. Morrall II., ``The Davis-Bacon Act: An Appraisal
of Recent Studies,'' 34 Indus. & Lab. Rel. Rev. 191, 199-200 & n.35
(1981). Thus, the actual percentage of annual classification
determinations that were based on average rule before 1982 may have
been as low as 15 percent, and the percent based on the average rule
after 1982 would have been expected to be around 26 percent.
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The Department's current use of weighted averages is now
significantly higher than this 26 percent figure. To analyze the
current use of weighted averages and the potential impacts of this
rulemaking, the Department compiled data for select classifications for
19 recent wage surveys--nearly all of the completed surveys that WHD
began in 2015 or later. The data show that the Department's reliance on
average rates has increased significantly, and now accounts for 63
percent of the observed classification determinations in this recent
time period.\29\
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\29\ See below section V (Executive Order 12866, Regulatory
Planning and Review et al.).
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Such an overuse of weighted averages is inconsistent with the
Department's longstanding interpretation of Congress's use of the word
``prevailing'' in the text of the Act--including the Department's
statements in the preamble to the 1982 rule itself that the definition
of first choice for the ``prevailing'' wage should be the most widely
paid rate that is actually paid to workers in the relevant locality. If
nearly two-thirds of rates that are now being published based on recent
surveys are based on a weighted average, it is no longer fair to say
that it is a fallback method of determining the prevailing wage.
The use of averages as the dominant methodology for issuing wage
determinations is also in tension with the recognized purpose of the
Act ``to protect local wage standards by preventing contractors from
basing their bids on wages lower than those prevailing in the area.''
Coutu, 450 U.S. at 773 (internal quotation marks and citation omitted).
Using an average to determine the minimum wage rate on contracts allows
a single low-wage contractor in the area to depress wage rates on
Federal contracts below the higher rate that may be generally more
prevalent in the community--by factoring into (and lowering) the
calculation of the average that is used to set the minimum wage rates
on local Federal contracts.\30\
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\30\ For example, the 2001 wage determination for electricians
in Eddy County, New Mexico, was an average rate based on responses
that included lower-paid workers that had been brought in from Texas
by a Texas electrical contractor to work on a single job. As the ARB
noted in reviewing a challenge to the wage determination, the result
was that ``contract labor from Texas, where wages reportedly are
lower, effectively has determined the prevailing wage for
electricians in this New Mexico county.'' New Mexico Nat'l Elec.
Contractors Ass'n, ARB No. 03-020, 2004 WL 1261216, at *8 (May 28,
2004).
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To address the increasing tension between the current methodology
and the purpose and definition of ``prevailing,'' the Department
proposed in the NPRM to return to the original three-step process. The
Department expects that re-introducing the 30-percent threshold will
reduce the use of average rates roughly by half--from 63 percent to 31
percent. The data from the regulatory impact analysis included in
section V suggests that returning to the three-step process will
continue to result in 37 percent of prevailing wage rates based on the
majority rule, with the balance of 32 percent based on the 30-percent
threshold, and 31 percent based on the weighted average.
As part of its review of the wage determination definition and
methodology, the Department also considered, but decided against,
proposing to use the median wage rate as the ``prevailing'' rate. The
median, like the average (mean), is a number that can be unrelated to
the wage rate paid with the greatest frequency to employees working in
the locality. Using either the median or the average as the primary
method of determining the prevailing rate is not consistent with the
Department's long-held interpretation of the meaning of the term
``prevailing'' in the Davis-Bacon Act. See 47 FR 23645. The Department
therefore proposed to return to the three-step process and the 30-
percent threshold, and did not propose as alternatives the use of
either the median or mean as the primary or sole methods for making
wage determinations.
(1) Comments on the Definition of ``Prevailing Wage''
The Department received many comments regarding the definition of
the term ``prevailing wage'' and the proposed return to the three-step
process and the 30-percent threshold. These included comments in favor
of the proposal, comments in favor of keeping the current definition,
comments suggesting that the Department abandon the ``modal''
methodology entirely and use only an average, and comments suggesting
the Department should use data from sources other than its wage surveys
before applying any specific methodology. Having reviewed and
considered all the comments, the Department has decided that the best
course is to adopt the re-definition of ``prevailing wage'' as proposed
and return to the three-step process that was in effect from 1935 to
1983.
The Department continues to believe, as it has consistently for
over 85 years, that the best methodology for determining the
``prevailing wage'' under the Davis-Bacon Act is one that uses a
mathematical mode to determine ``the most widely paid rate'' as the
``definition of first choice.'' 47 FR 23645. The modal definition of
prevailing as ``the most widely paid rate'' is the methodology that is
most consistent with Congress's use of the word ``prevailing'' in the
statutory text. Commenters in support of the Department's proposal
cited to various dictionary definitions of the word ``prevailing'' that
support this conclusion. The Construction Employers of America (CEA),
for example, noted the definition of ``prevailing'' as ``most
frequent'' or ``generally current'' and descriptive of ``what is in
general or wide circulation or use'' from Webster's Third New
International Dictionary (1976). Accord 5 Op. O.L.C. at 175. The
Department agrees that this and other similar dictionary definitions
support the use of a modal methodology as the method of first choice.
Although the legislative history of the Act does not suggest that
Congress understood there to be only one possible way of determining
the prevailing wage,\31\ there is no question that a modal methodology
was within the common and ordinary public meaning of the term
``prevailing'' at the time. One
[[Page 57534]]
contemporaneous exchange from 1932 is particularly instructive. During
an early debate over potential amendments to the Act, the Associated
General Contractors (AGC) explained that union representatives believed
the prevailing rate should always be a collectively bargained union
wage, while the contractors, many members of Congress, and Federal
contracting agencies believed it should be ``the rate paid to the
largest number in a particular locality at a given time''--in other
words, the modal rate.\32\
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\31\ See, e.g., 74 Cong. Rec. H6516 (daily ed. Feb 28, 1931)
(statement of Rep. William Kopp) (noting that some might argue ``the
term `prevailing rate' has a vague and indefinite meaning,'' but
that this was not an obstacle because ``the power will be given . .
. to the Secretary of Labor to determine what the prevailing rates
are'').
\32\ See Regulation of Wages Paid to Employees by Contractors
Awarded Government Building Contracts: Hearings before the Committee
on Labor, House of Representatives, 72nd Cong., 1st Sess., on S.
3847 and H. R. 11865 (Apr. 28, 1932) at 34-35. The National
Association of Manufacturers, similarly, argued that the prevailing
wages should be ``considered as that being paid to the largest
number in the particular locality at a particular time.'' Id. at 71-
72. See also 5 Op. O.L.C. at 175-76 (noting that this testimony
leading up to the 1935 amendments ``indicates a common understanding
by spokesmen for labor and management, as well as individual
legislators, that the `prevailing' wage was the wage paid to the
largest number of workers in the relevant classification and
locality'').
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Several commenters on the Department's current proposal also argued
that a modal methodology is generally more consistent with the purpose
of Davis-Bacon Act. These commenters, including the National Black
Worker Center, the International Union of Bricklayers and Allied
Craftworkers, and others, argued that the use of a modal methodology
results in a prevailing wage rate that is ``actually paid'' to workers
in the area. These commenters said that average rates are less
preferable because they are ``artificial'' and may not mirror any of
the actual wage rates paid in the community. North America's Building
Trade Union (NABTU), among others, asserted that ``average rates paid
to no one are not `prevailing[.]' '' Many unions and contractor
associations, including the Washington State Building and Construction
Trades Council (WA BCTC) and NABTU, noted that the use of wage rates
that are actually paid to workers in the community is more likely to
protect local construction firms from being underbid by unscrupulous
low-wage contractors, which is the purpose of the Act.\33\ Accordingly,
commenters in favor of the proposal said averages should only be used
as a fallback method when there is no clear rate prevailing in a given
area.
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\33\ See also Staff of the H. Subcomm. on Lab., 88th Cong.,
Administration of the Davis-Bacon Act, Rep. of the Subcomm. on Lab.
of the Comm. on Educ. & Lab. (Comm. Print 1963) (1963 House
Subcommittee Report), at 7-8; 5 Op. O.L.C. at 177 (quoting the 1963
House Subcommittee Report).
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A wide range of commenters that supported the proposal agreed with
the Department that the use of an average--rather than a ``modal''
number identifying the most prevalent wage rate--is less preferable
because the use of an average allows outlier wage rates paid to very
few workers to influence the prevailing wage. The Leadership Conference
on Civil and Human Rights (LCCHR), the National Women's Law Center,
Oxfam America, and several other civil rights and worker advocacy
organizations similarly commented that ``reliance on weighted averages
creates the potential for a single employer's rates that are
exceptionally high or exceptionally low having outsize influence in
determining the prevailing wage.'' Commenters noted that this feature
of averages makes the overuse of averages less consistent with the
Act's purposes of limiting the depressive effect of low-wage
contractors on the wage rates in the local community.
Commenters supportive of the Department's proposal also argued that
this characteristic of average rates is particularly problematic for
maintaining prevailing local construction standards where the use of an
average results in a prevailing wage rate that is lower than a modal
rate. As a Professor of Economics at the University of Utah commented,
``[b]ecause the mean is sensitive to a long tail of lower wages
compared to the mode, the mode is less likely to undercut local labor
standards, including fringe benefits which underpin training and
apprenticeship programs.'' Conversely, the commenter noted, ``the modal
wage will deter market failures associated with short-run bidding
practices that incentivize bidders to jettison all but the most
necessary short-run costs of specific projects.''
In addition to determining that a modal methodology continues to be
preferable, the Department proposed to return to the lower 30-percent
threshold for using the mode, before falling back to the use of an
average rate. Several commenters, including think tanks such as
Americans for Prosperity and Institute for the American Worker (AFP-
I4AW) and Competitive Enterprise Institute (CEI), opposed this proposal
because they asserted that only a wage rate paid to a ``majority'' of
workers fits the term ``prevailing.'' The National Federation of
Independent Business (NFIB) asserted that 30 percent did not fall
within the meaning of ``prevailing'' when Congress enacted the DBA in
1931 and the Department's initial regulation was ``erroneous'' at the
time. CEI cited to a definition of ``prevailing'' as meaning
``accepted, used, or practiced by most people.'' \34\ CEI asserted that
the term ``most people'' used in that context ``can only mean `a
majority' '' and therefore that ``30 percent is not `prevailing' under
any meaningful sense of the term.''
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\34\ The comment raising this language cited to an entry for
``prevailing'' in the online version of Merriam-Webster's
dictionary. The Department was not able to find that language at the
cited location, but was able to find it in an online version of a
thesaurus from the same publisher. See Prevailing, Merriam-Webster's
Thesaurus, <a href="https://www.merriam-webster.com/thesaurus/prevailing">https://www.merriam-webster.com/thesaurus/prevailing</a>.
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On the other hand, many commenters supported the Department's
proposal and criticized the 1982 rule for seeming to conflate the
dictionary definitions of ``prevailing'' with a ``majority.'' These
commenters, including Mechanical Contractors Association of America
(MCAA), National Electrical Contractors Association (NECA), and the UA,
argued that the term ``prevailing'' is properly understood and defined
as the most common or prevalent--which may be, but is not necessarily,
a ``majority.'' If Congress had intended for the Department to
determine only a ``majority'' wage, they argue, Congress would have
explicitly stated as much in the statutory text. NECA and CEA noted
that the interpretation of ``prevailing'' as not necessarily a majority
was supported by the 1963 report of the House Subcommittee that
examined the 30-percent threshold in depth before the passage of the
1964 amendments to the Act.\35\ A joint comment from the Pennsylvania
Attorney General and the Pennsylvania State Department of Labor and
Industry (PAAG and PADLI) supported the reversion to the original
definition, noting that it ``aligns with the underlying interpretation
of the word `prevailing' as the `most widely paid rate.' ''
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\35\ 1963 House Subcommittee Report, at 8.
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The Department agrees with these commenters that the 30-percent
threshold is consistent with the meaning of the word ``prevailing''
because ``prevailing'' is not coextensive with ``majority.'' A statute
is normally interpreted with reference to the ordinary public meaning
of its terms ``at the time of its enactment.'' Bostock v. Clayton
Cnty., 140 S. Ct. 1731, 1738 (2020). Dictionaries from around the time
of the 1935 amendments to the Act, when Congress revised the DBA to
require the Secretary to predetermine prevailing wage rates, had
definitions similar to the one cited in the 1981 OLC opinion. See,
e.g., Prevailing, Merriam-Webster, Webster's Collegiate Dictionary (5th
ed. 1936) (``Very generally current; most frequent; predominant'' with
synonyms of common, widespread,
[[Page 57535]]
extensive, and prevalent); Prevailing, Oxford English Dictionary, Vol.
VIII (1933) at 1334 (``2. Predominant in extent or amount; most widely
occurring or accepted; generally current''); 5 Op. O.L.C. at 175. When
there are only two kinds being compared, the ``most frequent'' or
``most widely occurring'' of the two kinds will be a majority, and thus
only a majority will be prevailing. But the same is not true when a
variety of kinds are compared. In such circumstances, even if a
majority will still necessarily be prevailing, it does not follow that
anything less than a majority cannot be considered prevailing. Rather,
as the 1963 House Subcommittee Report concluded, `` `prevailing' means
only a greater number. It need not be a majority.'' \36\
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\36\ 1963 House Subcommittee Report, at 8.
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In opposing the proposal, AFP-I4AW noted that in the 1981-1982
rulemaking the Department had agreed with commenters that stated ``a
rate based on 30 percent does not comport with the definition of
`prevailing[.]' '' \37\ The Department did not provide further
explanation of this argument in the 1982 final rule, but had stated in
the 1981 NPRM that the 30-percent rule ``ignores the rate paid to up to
70 percent of the workers.'' See 46 FR 41444. Several commenters that
opposed the return to the 30-percent rule, including AFP-I4AW,
Associated Builders and Contractors (ABC), and Clark Pacific, stated
that they still found this reasoning persuasive.\38\
---------------------------------------------------------------------------
\37\ 47 FR 23644.
\38\ Similarly, CEI opposed the use of the 30-percent rule
because it stated that the fact that other workers may earn less
than the wage determined to be the prevailing wage is ``highly
significant,'' because it indicates that the labor market is ``more
competitive in terms of wages.'' Under this reasoning, however, only
an average rate would be sufficient, because any modal (or median)
rate would not include all of the wage rates paid. Using only an
average is not consistent with the Department's long-held
understanding of the meaning of the term ``prevailing.'' See 47 at
FR 23644-45. Neither the text nor the legislative history of the Act
suggests that the term prevailing wage was intended to necessarily
capture and reflect all of the wage rates that are paid in an area.
Instead, the Department has understood the statute as better carried
out with a methodology that seeks to determine which among those
wage rates is prevailing.
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The Department disagrees. As an initial matter, the
characterization of the 30-percent threshold as ``ignoring'' rates is
not unique to that specific threshold. Rather, it is a feature of any
rule based on a mathematical ``mode,'' in which the only value that is
ultimately used is the value of the number that appears most
frequently. This is in contrast to using a mean (average), in which the
values of all the numbers are averaged together, or a median, which
uses only the midpoint value. Both the 30-percent threshold and the
majority rule are modal rules in which the values of the non-prevailing
wage rates do not factor into the final analysis. This feature of a
modal analysis can be viewed as particularly helpful for avoiding an
unwarranted downward or upward impact from outlier wage rates. As the
International Association of Sheet Metal, Air, Rail and Transportation
Workers and the Sheet Metal and Air Conditioning Contractors National
Association (SMART and SMACNA) noted in a joint comment, ``[w]hen using
the mean, unusually low or high values distort the data; the mode, by
contrast, eliminates from the analysis data that grossly deviate from
what workers are actually paid and, therefore, would depress labor
standards if included.''
Moreover, the characterization of the 30-percent threshold as
ignoring up to 70 percent of wage rates distorts how the analysis is
applied in practice. In the three-step process, the first step is to
adopt the majority rate if there is one. Under both the proposed three-
step process and the current majority-only rule, any wage rate that is
paid to a majority of workers would be identified as prevailing. Under
either method, the weighted average will be used whenever there is no
wage rate that is paid to more than 30 percent of employees in the
survey response. The difference between the current majority process
and the three-step methodology is solely in how a wage rate is
determined when there is no majority, but there is a significant
plurality wage rate paid to between 30 and 50 percent of workers. In
that circumstance, the current ``majority'' rule uses averages instead
of the rate that is actually paid to that significant plurality of the
survey population. This is true, for example, even where the same wage
rate is paid to 45 percent of workers and no other rate is paid to as
high a percentage of workers. In such circumstances, the Department
believes that a wage rate paid to between 30 and 50 percent of
workers--instead of an average rate that may be actually paid to few
workers or none at all--is more of a ``prevailing'' wage rate.\39\
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\39\ As the OLC concluded in 1981, the use of an average instead
of the 30-percent rule may be particularly inappropriate in
circumstances where ``there is a wide variation in rates of wages
and a large minority of persons paid significantly lower wages; use
of an average in such a case might result in a contract wage well
below the actual wages paid a majority of employees.'' 5 Op. O.L.C.
at 177 n.3.
---------------------------------------------------------------------------
NABTU and other commenters in favor of the Department's proposed
return to the 30-percent threshold noted that Congress specifically
considered on numerous occasions whether to abolish the 30-percent rule
and declined to do so.\40\ Similarly, CEA commented that Congress's
repeated expansion and amendment of the Act from 1935 to 1982 without
changing or addressing the definition of prevailing wage should be
interpreted as ``persuasive evidence that the interpretation is the one
intended by Congress.' '' CFTC v. Schor, 478 U.S. 833, 846 (1986)
(quoting NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-75 (1974)
(footnotes omitted)). The Department agrees that this legislative
acquiescence is significant. It may not necessarily mean that the 30-
percent rule was the only interpretation that was intended by
Congress--especially in light of the subsequent Congressional
acquiescence to the imposition of the majority-only rule.\41\ However,
the expansion of the Act, particularly in 1964 after the extensive
hearings regarding the 30-percent rule, suggests that Congress did not
believe that the 30-percent rule was ``erroneous'' at the time of its
enactment or otherwise believe that it ``did not comport'' with the
definition of prevailing. Cf. 5. Op. O.L.C. at 176 (noting Congress had
acquiesced to the Department's interpretation of the term prevailing as
embodied in its 1935 regulations).
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\40\ See, e.g., Federal Construction Costs Reduction Act of 1977
(S. 1540, H.R. 6100); Davis-Bacon Act--Fringe Benefits (H.R. 404):
Hearings Before the General Subcomm. on Labor of the H. Comm. on
Educ. & Labor, 88th Cong. at 38-39, 125, 219, 225-230 (Mar. 1, 7,
12, 21, 22, and 26, 1963).
\41\ One individual commenter opposing the Department's proposal
asserted that Congress's inaction in reimposing the 30-percent rule
should be considered evidence that the 30-percent rule
``contravenes, rather than is required by, the statutory text.'' But
given the wide discretion the courts have found the DBA affords to
the Secretary of Labor, the Department does not believe that the
acquiescence to the Department's decision to use one specific modal
threshold can be understood as barring it from using another.
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In addition to considering questions regarding Congressional
acquiescence, the Department has also considered whether the length of
time that the majority-only rule has been in place has led to reliance
interests among regulated entities that would counsel against reversion
to the three-step process. While some commenters referred to the length
of time the rule had been in effect, their comments generally did not
focus on related reliance interests. The Department does not believe
that any potential reliance interests would be so significant as to
outweigh the objectives of seeking to align the prevailing wage
methodology better with the longstanding meaning of the term prevailing
and of seeking to better protect workers against the depressive
[[Page 57536]]
effect on wage rates of low-wage contractors. The Department's
illustrative study of the proposed methodology change, in section V.D.
below, suggests that the change may lead to higher required prevailing
wage rates in some places and lower wage rates in others. The magnitude
and direction of changes, however, should not be significantly
different in their effect on contractors than the fluctuations in
prevailing wage rates that already occur between wage surveys as a
result of changes in local economies and shifts in regional labor
markets. Even if the part 1 changes were to have significant effects on
wage rates in certain local areas, any reliance interests of local
contractors, governmental agencies, or workers on prior wage rates
would be minimal, given that the changes to the wage determination
processes generally will not affect current contracts--which will
continue to be governed by the wage determinations incorporated at the
time of their award, with limited exceptions. Most of the revisions to
part 1 will only apply to wage surveys that are finalized after the
rule becomes effective, and thus they will generally apply only to
contracts awarded after such new wage determinations are issued.\42\
Contractors will therefore be able to factor any new wage rates into
their bids or negotiations on future contracts.
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\42\ As explained in Sec. 1.6(c), whenever a new wage
determination is issued (either after the completion of a new wage
survey or through the new periodic adjustment mechanism), that
revision as a general matter does not and will not apply to
contracts which have already been awarded, with three exceptions.
These exceptions are explained in Sec. 1.6(c)(2)(iii), and they
include where a contract or order is changed to include substantial
covered work that was not within the original scope of work, where
an option is exercised, and also certain ongoing contracts that are
not for specific construction, for which new wage determinations
must be incorporated on an annual basis under Sec.
1.6(c)(2)(iii)(B) of the final rule. The final rule instructs
contracting agencies to apply the terms of Sec. 1.6(c)(2)(iii) to
all existing contracts, without regard to the date of contract
award, if practicable and consistent with applicable law. The
Department does not anticipate that the application of the amended
wage determination methodologies in these situations will result in
unfair harm to reliance interests in a manner sufficient to outweigh
the benefits of the final rule implementation as planned. See also
section III.C. (``Applicability Date'') below.
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The Department received many comments in favor of and opposed to
the use of the 30-percent threshold for other reasons. A number of
commenters commented favorably on the use of 30 percent specifically as
a reasonable modal threshold to choose. As the LCCHR, the National
Women's Law Center, Oxfam America, and several other civil rights and
worker advocacy organizations commented, the choice of the 30-percent
threshold appropriately aligns the rate selected with the actual wages
paid to ``significant shares'' of workers in a covered job
classification. The Dakotas Mechanical Contractors Association (DMCA)
and the Sheet Metal, Air Conditioning and Roofing Contractors
Association stated that if 30 percent are paid the same rate, it is
likely the prevailing rate for skilled workers in the area. The Center
for American Progress Action Fund noted that the 30-percent rule is
also followed by some states in the implementation of their own State
prevailing wage programs.\43\ Some commenters argued that a 50-percent
threshold for using a modal rate is simply too high for many geographic
areas. The DMCA, for example, noted that when there are multiple large
construction projects going on in the Dakotas, many contractors travel
from outside the area, and counting wage rates from these out-of-town
contractors can make it difficult for the actual local rate to satisfy
a 50-percent threshold.
---------------------------------------------------------------------------
\43\ See, e.g., Haw. Code R. section 12-22-2(b) (30-percent
threshold in Hawaii); 820 Ill. Comp. Stat. 130/4 section 4(a) (30-
percent threshold in Illinois). Wyoming uses a version of the three-
step process in which the prevailing wage is a majority, or 30-
percent, unless more than one wage rate reaches the 30-percent
threshold, in which case a weighted average is used. See <a href="https://dws.wyo.gov/wp-content/uploads/2022/04/Labor-Standards-2022-Prevailing-Wage-Rates.pdf">https://dws.wyo.gov/wp-content/uploads/2022/04/Labor-Standards-2022-Prevailing-Wage-Rates.pdf</a>. Minnesota and California use modal
methodologies, but do not have specific thresholds. See Minn. Stat.
section 177.42; Cal. Lab. Code section 1773.9(b)(1).
---------------------------------------------------------------------------
Several commenters opposing the proposed reversion to the 30-
percent rule asserted that a reversion to the 30-percent rule would
result in rates that are less accurate or less likely to reflect the
actual wage and fringe benefit rates in a locality, and therefore are
inherently not ``prevailing'' under the meaning of the statute. ABC
stated that a survey of its Federal contractor members showed that only
12.6 percent of its respondents stated that the reversion to the 30-
percent rule would increase the accuracy of wage determinations. The
Modular Building Institute (MBI) commented that a 30-percent threshold
is too small a sample on which to base a prevailing wage. According to
the Taxpayers Protection Alliance, returning to the 30-percent rule
``invites cherry-picking rather than serious analysis.'' On the other
hand, several commenters in favor of the Department's proposal
asserted, similar to the minority of respondents to ABC's survey, that
returning to the 30-percent rule would increase the accuracy of wage
determinations.
In making arguments about accuracy, most commenters for and against
the proposal did not reference data or evidence to support their views.
Commenters opposing the proposal that did cite data compared potential
outcomes under the 30-percent threshold--or any modal determinations
based on voluntary wage surveys--with average rates calculated by other
sources or by reference to studies that found increases in total costs
from the use of any prevailing wage at all. Commenters also argued that
accuracy can be judged by the potential for the percentage of wage
determinations based on CBAs to be higher than the union density in the
local area.\44\ The Department does not agree with these measurements
of accuracy and instead understands these arguments as fundamentally
about what the meaning of ``prevailing'' should be, or whether
prevailing wage laws are good policy in the first place. While a
comparison of costs in jurisdictions in which a State prevailing wage
law applies with those where there is no such requirement may be
helpful to understanding the cost impacts of prevailing wage
requirements, that comparison is not helpful in understanding whether a
certain prevailing wage methodology results in wage determinations that
are ``accurate'' or not, because the point of the prevailing wage law
is to eliminate the payment of substandard wage rates that may be paid
in the absence of the law. For similar reasons, a comparison with
average rates or union density does not reflect accuracy--rather it
reflects different understandings of the term ``prevailing.'' \45\
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\44\ ABC and the National Association of Home Builders (NAHB)
cited data from a 2010 GAO report and subsequent data showing that
as of 2010, a union rate prevailed in 63 percent of all then-
existing wage determinations; in 2018, a union rate prevailed in 48
percent of determinations; and in 2022, a union rate prevailed in 42
percent of determinations. The commenters contrasted these numbers
with data from the BLS that shows union density currently at less
than 20 percent of the construction labor market.
\45\ The Department also notes that, while the percentage of
overall wage determinations based on collective bargaining rates
nationwide has been higher than measures of union density in the
construction industry generally, the percentage of wage
determinations based on collectively bargained rates has
significantly declined in recent years. NAHB and ABC pointed out
that the 2011 GAO report stated that at the time 63 percent of
published wage rates were union prevailing. See 2011 GAO Report, at
20. ABC notes current statistics from the Department show 42 percent
are based on collectively bargained rates.
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AFP-I4AW asserted that it is arbitrary to choose 30 percent instead
of one of the other ``infinite percentages that might be chosen between
0 and 50 percent.'' The Department disagrees with the premise that the
30-percent threshold is arbitrary and therefore
[[Page 57537]]
impermissible. As one commenter in favor of the proposal, the Iron
Workers International Union (Iron Workers), stated, the ``30 percent''
rule can be seen as a ``middle position'' that the Department adopted
in 1935. Among modal rates, the wage rate based on a 20 percent modal
rate or even lower might also have been considered a reasonable
interpretation of the term ``prevailing wage,'' rendering 30-percent a
compromise among all of the different definitions being advanced at the
time. See Bldg. & Constr. Trades Dep't v. Donovan, 553 F. Supp. 352,
354 (D.D.C. 1982) (``There is nothing intrinsically appropriate or
inappropriate to the thirty percent rule or to any other figure as
representing the `prevailing wage.' '').\46\ The fact that the
Department could have chosen an even lower number, or no modal
threshold at all, does not make the choice of 30 percent impermissible.
The number is a familiar one that the Department used over five
decades; as commenters noted, it represents at least a significant
share of workers in a survey; and the Department has tested the
potential outcome of returning to the number and found that it will
alleviate concerns about overuse of average rates. Cf. Ralph Knight,
Inc. v. Mantel, 135 F.2d 514, 518-19 (8th Cir. 1943) (holding the
percentage threshold in an FLSA regulation was not arbitrary because it
was reasonable).
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\46\ The 1982 Donovan district court decision enjoined several
elements of the 1981-1982 rulemaking but upheld the Department's
decision to eliminate the 30-percent threshold. In affirming the
district court's decision on the 30-percent threshold, the D.C.
Circuit stated that it affirmed ``generally for the reasons stated
in [the district court's] opinion.'' Donovan, 712 F.2d at 616.
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The ABC and several other commenters criticized the Department for
proposing to return to the 30-percent threshold without addressing
concerns they have about the methodology of the wage survey program
that produces the underlying numbers to which the three-step process
would be applied. According to ABC and others, the Department should
use more sophisticated representative sampling and statistical
regression methods to come up with prevailing rates because of low
response rates, low sufficiency thresholds and therefore small sample
sizes, and response bias in the Department's voluntary Davis-Bacon wage
survey program. ABC and the National Association of Home Builders
(NAHB) referenced reports by the Department's OIG expressing concern
about low response rates to WHD's wage surveys, including a 2019 report
in which OIG calculated that as many as 53 percent of eligible
contractors had not provided wage data on 7 surveys that were
analyzed.\47\ ABC and others argued that union contractors have a
higher interest in responding to the wage surveys, and so the surveys
tend to disproportionately reflect union rates and are therefore
unreliable.\48\ In a joint comment, a group of housing industry
associations and entities stated that certain segments of the
residential building industry have ``no incentive to participate in a
survey method that provides no direct benefit to their business.''
Without making changes to the survey process to better account for non-
union contractors, ABC argued, the Department should not be changing
the threshold for identifying the prevailing wage. ABC stated that the
survey process in its current form is ``incapable of accurately
determining whether a single rate is paid to 30% (or a majority) of
local construction workers.''
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\47\ See OIG, U.S. Department of Labor, No. 04-19-001-15-001,
``Better Strategies are Needed to Improve the Timeliness and
Accuracy of Davis-Bacon Act Prevailing Wage Rates,'' 8, 15 (2019).
Available at <a href="https://www.oig.dol.gov/public/reports/oa/2019/04-19-001-15-001.pdf">https://www.oig.dol.gov/public/reports/oa/2019/04-19-001-15-001.pdf</a>.
\48\ As evidence that the Department's Davis-Bacon wage surveys
are statistically unrepresentative of the construction workforce,
ABC asserted that average wages--both economywide and in specific
occupations (construction or otherwise)--are consistently higher
than median wages in the United States and most industrialized
economies. For example, ABC points to BLS's May 2021 Occupational
Employment and Wage Statistics (OEWS) survey showing that,
nationally, average wages exceed median wages in 51 of 64 detailed
construction occupations. ABC argues that the Department's surveys
are unrepresentative because, in the wage determinations developed
using the survey data and using the majority rule, the majority rate
(which should be the same as the median) consistently exceeds wages
calculated as survey averages.
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ABC, NAHB, and other commenters stated that the Department should
have considered using data from the BLS, which performs representative
sampling on surveys with higher response rates and larger sample sizes
and uses other more sophisticated regression methods, and therefore
would be more accurate. According to ABC and an individual commenter,
the use of BLS data would result in more timely wage determinations and
decrease the costs of Federal construction, making more projects viable
and increasing construction employment. ABC acknowledged that the
Department has previously declined to use BLS data for DBA wage
determinations for a number of reasons, including that BLS data does
not have the same benefits information, data by county level, or by
construction type. But ABC asserted that none of these reasons entirely
foreclose the use of such data, and it cited the fact that the
Department already uses BLS data for wage determinations under the
Service Contract Act (SCA), which has similar statutory parameters, as
well as the Foreign Labor Certification Program, and with some
statistical modeling, for Federal employee pay under the Federal
Employee Pay Comparability Act. ABC also argued that the Department's
current use of larger county groupings to identify wage rates for
counties with insufficient data and the proposal in the NPRM to remove
the bar on cross-consideration of rural and metropolitan data both
undercut the Department's arguments against using BLS data. NAHB and
the Mortgage Bankers Association (MBA) also suggested that the
Department should consider outsourcing the wage data collection process
to third-party organizations they believe would be better equipped to
collect greater quantities of data.
A joint comment from the National Asphalt Pavement Association,
National Ready Mixed Concrete Association, and National Stone, Sand &
Gravel Association (NAPA, NRMPCA, and NSSGA) suggested that reverting
to the use of a 30-percent threshold is ``unnecessary'' because there
are other ways to improve the survey process. They suggested using the
certified payrolls that are submitted on DBRA projects to help identify
prevailing wages.\49\ They also suggested updating and standardizing
classifications that are ``outdated'' and confusing where they differ
across political subdivisions. AGC suggested that the Department should
revise the wage survey process to allow contractors to report wage
information by individual craft classifications in each county by
construction type, instead of broken-down project-by-project.
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\49\ The Department appreciates this suggestion, but notes that
using certified payrolls instead of the wage survey process would
result in prevailing rates based entirely on data from DBRA-covered
projects. While such data could be helpful in certain circumstances
in which there is not sufficient data from private sources, it could
not be used instead of the wage survey process because the DBA
contemplates a wider analysis of wage rates that includes those on
wholly privately funded projects where such data is available. See
generally infra section III.B.1.iii.(B) (``29 CFR 1.3(d)'').
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Several commenters stated that even if the 30-percent rule had been
permissible previously, the Department could not reasonably return to
it because the construction labor market has changed and prevailing
rates ``rarely occur in the modern economy.'' ABC noted that union
density has declined in the construction labor market from 34 percent
in 1981 to under 14 percent in recent years. The Association of
Washington Housing Authorities (AWHA) stated that the increase in
[[Page 57538]]
reliance on weighted averages actually reflects reality in certain
construction types where union participation is lacking. AWHA also
stated that there is no need to return to the 30-percent rule because
there is better labor market wage information now available than there
was when the 30-percent rule was last in effect, with both proprietary
and public databases now containing ``up-to-date wage and salary
information on thousands of job classifications at varying geographic
levels.''
Finally, comments from ABC and a group of U.S. Senators asserted
that the Department's reasoning for its proposal is contrary to the
D.C. Circuit's decision in Building & Construction Trades' Department
v. Donovan, 712 F.2d 611, 616-17 (D.C. Cir. 1983). In that decision,
the Department's 1981-1982 rulemaking eliminating the 30-percent
threshold had been challenged. The D.C. Circuit stated that the
Department's new definition of ``prevailing'' as, first, the majority
rate, and second, a weighted average, was ``within a common and
reasonable reading of the term'' and ``would not defeat the essential
purpose of the statute, which was to ensure that federal wages
reflected those generally paid in the area.'' Id. at 616-17. ABC stated
that this holding allowing the Department to eliminate the 30-percent
threshold could not be squared with the Department's reasoning in the
NPRM that the overuse of averages was inconsistent with the text and
purpose of the Act. See 87 FR 15704.
Considering these comments, the Department agrees with the
commenters in favor of the proposal that the 30-percent threshold is a
reasonable threshold that represents the best course for making wage
determinations based on wage rates that are actually paid to workers in
the relevant area. The Department also believes that returning to the
use of the 30-percent threshold at the second step in the wage
determination process is preferable for the same reasons that it is
preferable to use a modal methodology at all instead of using averages
or the median for all wage determinations. The mode is more consistent
with the term ``prevailing,'' and it is in general more protective of
prevailing wage rates against the depressive effect of low-wage
contractors. Even when adopting the current majority threshold for
modal wage determinations in 1982, the Department reiterated this long-
held interpretation that the ``most widely paid rate'' should be the
``definition of first choice'' for the prevailing wage, and that wage
determinations should ``mirror, to the extent possible, those rates
actually paid in appropriate labor markets.'' 47 FR 23645.
The Department disagrees that the D.C. Circuit's Donovan decision
precludes a return to the 30-percent threshold or prevents the
Department from concluding that an overuse of averages is in tension
with the Department's long-held interpretation of the Act. In Donovan,
the court stated that the majority-only rule was ``within a common and
reasonable reading'' of the term prevailing, and ``would not defeat the
essential purpose of the statute.'' 712 F.2d at 616-17. The court did
not, however, state or even suggest that the majority rule represented
the only proper reading of the statute. To the contrary, the court
stated that it was upholding the new rule because ``the statute
delegates to the Secretary, in the broadest terms imaginable, the
authority to determine which wages are prevailing.'' 712 F.2d at 616.
As the Department explained in the NPRM, there has been a
significant increase in the use of weighted averages between 1983 and
the present--from as low as 15 percent prior to the implementation of
the current regulations to 63 percent in the Department's review of 19
recent surveys. Several commenters noted that this increase in the use
of averages appears to be far beyond what was expected at the time the
Department implemented the majority-only rule and at the time of the
D.C. Circuit opinion. For example, the unions that opposed the 1981-
1982 rulemaking in court argued that it could result in ``a third or
more'' of wage rates based on weighted averages. Donovan, 712 F.2d at
616. Now, nearly double that number--two thirds--of prevailing wage
rates published from recent surveys have been based on weighted
averages. These new circumstances represent a departure from the
Department's longstanding interpretation of the Act. 5 Op. O.L.C. at
176-77.
The Department also disagrees with comments suggesting the
Department can only justify its return to the 30-percent threshold by
finding that the current majority rule is per se not allowed by the
statute and suggesting furthermore that the Donovan decision bars the
Department from reaching that conclusion. As noted, however, the
decision in Donovan reflects that there can be more than one possible
threshold for determining whether a wage rate is prevailing, and that
the statute delegates the decision about methodology to the Secretary
of Labor. 712 F.2d at 616. The Department has concluded that the
original three-step process is preferable to the majority-only rule
because it is more consistent with the meaning of the word
``prevailing'' and will be more protective against the depression of
wage rates by low-wage contractors. Under these circumstances, the
Department does not need to find that the current overuse of averages
renders the majority-only rule effectively barred by the statute.
The Department also considered the comments critiquing the
interface between the wage survey program and the Department's use of a
modal methodology to determine prevailing wages and the use of the 30-
percent modal threshold in particular. The Department does not believe
it is necessary or preferable to abandon the current Davis-Bacon wage
survey process, or to require by regulation that survey data be
adjusted with regression or other similar statistical analyses. The
process of adjusting survey data using weighting, imputation, or other
representative sampling methods would require additional data regarding
the universe of projects and classifications of workers--divided by
construction type--that does not currently exist and would be overly
burdensome and costly to obtain.\50\ Moreover, other commenters on the
rule specifically opposed the use of sampling or other similar
methodologies because the decisions about the underlying assumptions
used in the calculations or modeling would give the Department too much
discretion that would be difficult for stakeholders to scrutinize.
Finally, such sampling or other statistical methods could also
significantly increase the likelihood that the wage rates the
Department publishes would be akin to weighted averages and would not
be wage rates that are actually paid to workers in the relevant areas.
The Department declines to impose such requirements in this final rule.
---------------------------------------------------------------------------
\50\ Similarly, the 2019 OIG report noted WHD officials' concern
that using statistical sampling during the clarification process
instead of manual reviews of survey data might be less efficient and
effective than current processes, and that ``use of statistical
sampling in lieu of comprehensive clarification would likely result
in the publication of fewer, and less robust, wage determinations.''
Report at 7, 43.
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The Department also considered ABC's and others' arguments that it
should entirely discontinue the Davis-Bacon wage surveys and instead
use data from BLS surveys to determine prevailing wages in the first
instance. As ABC recognized in its comment, the Department has explored
this possibility on various occasions in the past at the recommendation
of the GAO and others. For example, ABC cited a 2004 letter
[[Page 57539]]
from the Assistant Secretary for Employment Standards, to the
Department's OIG, noting the actions the Department had taken to
consider this option, including funding pilot surveys to determine the
feasibility of collecting fringe benefit data as part of BLS's National
Compensation Survey (NCS), and working with BLS to examine the extent
to which the Occupational Employment and Wage Statistics (OEWS) survey
might provide detailed construction industry wage rate information by
locality and occupation.\51\
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\51\ Letter from Victoria A. Lipnic, Assistant Secretary for
Employment Standards, to Elliot P. Lewis, Assistant Inspector
General for Audit (Feb. 18, 2004). Available at: <a href="https://www.oig.dol.gov/public/reports/oa/2004/04-04-003-04-420x.pdf">https://www.oig.dol.gov/public/reports/oa/2004/04-04-003-04-420x.pdf</a>.
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The Department has repeatedly concluded that relying on BLS data
sources to determine prevailing wages instead of continuing to conduct
Davis-Bacon wage surveys is not preferable, and the Department again
reaches this conclusion. No BLS survey publishes, at a county level,
the wage data, fringe benefit data, data for sufficiently specific
construction craft classifications, and data by construction type, that
would align with the Department's interpretations of the statutory
requirements to determine prevailing wages for ``corresponding
class[es]'' of workers on ``projects of a character similar'' within
``civil subdivisions of the State'' in which the work is to be
performed. 40 U.S.C. 3142(b).\52\ The Department does not agree with
ABC that the Department's current use of larger geographic groupings
under certain conditions suggests that the Department should adopt BLS
data that is compiled for areas larger than a county. The scope of
consideration regulations at Sec. 1.7 allow the Department to consider
data from larger geographic areas only when there is insufficient wage
survey data in a given county. This reflects the Department's long-
established position that the county level is the appropriate level at
which to determine prevailing wage rates where possible, and as such
that the wholesale adoption of BLS data compiled for larger areas
generally would not be appropriate. The Department also considered
whether it would be possible to combine BLS surveys or use underlying
BLS microdata instead of the Department's wage surveys but determined
that the BLS's methodology does not allow such a procedure because,
among other reasons, BLS does not collect data on a project-by-project
basis and therefore does not capture circumstances in which employees
may be paid different hourly rates for work based on the type of
project. Finally, the Department's conclusion is bolstered by the
widespread practice of states, many of which have adopted prevailing
wage laws, that have likewise determined that wage surveys are an
appropriate mechanism to set prevailing wages.\53\
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\52\ The BLS OEWS program produces employment and wage estimates
for the nation as a whole, for individual states, for metropolitan
areas delineated by the Office of Management and Budget (OMB), and
nonmetropolitan areas, but it does not produce wage estimates at the
county level, which is the default ``civil subdivision'' that the
Department uses to determine prevailing wages. See Michael K. Lettau
and Dee A. Zamora, BLS, ``Wage estimates by job characteristic: NCS
and OES program data'' (2013). Available at: <a href="https://doi.org/10.21916/mlr.2013.27">https://doi.org/10.21916/mlr.2013.27</a>. Additionally, the data for metropolitan and
nonmetropolitan areas do not allow for wage rates for occupations by
industry. The NCS program provides measures of compensation trends
and the incidence of employer-sponsored benefits, but only at the
national and Census region levels. The BLS's Quarterly Census of
Employment and Wages has data at the county level, but the data are
not available by craft. Both the OEWS and NCS programs classify
occupations based on job duties and responsibilities that apply
nationwide in accordance with the Standard Occupational
Classification system. WHD's survey program, on the other hand, has
always considered local area practice in determining how work is
classified for each occupation.
\53\ See, e.g., 26 Me. Rev. Stat. Ann. section 1308 (requiring
the Maine Bureau of Labor Standards to determine prevailing wages
through a regularly conducted wage and benefits survey); Minn. R.
section 5200.1020 (providing for annual surveys to calculate
prevailing wages on covered highway and construction projects);
Mont. Code Ann. section 18-2-414 (authorizing the Montana Commission
of Labor and Industry to either perform a wage survey or adopt the
rates set by the United States Department of Labor); Tex. Gov't Code
Ann. section 2258.022 (setting the state prevailing wage either
through wage surveys or by incorporating the rates set by the United
States Department of Labor).
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ABC is correct that the Department uses BLS data for wage
determinations under the SCA, which has important statutory
similarities with the DBA in that it requires payment of wages ``in
accordance with prevailing rates in the locality.'' 41 U.S.C. 6703(1).
There are several reasons, however, why the Department's decisions have
been different under the SCA than under the DBA. The first is that the
SCA does not contain the same statutory text as the DBA requiring
prevailing wages to be based on ``projects of a character similar.'' 40
U.S.C. 3142(b). This distinction underscores the Department's need to
survey DBA wage rates by construction type, a level of detail that does
not exist in any BLS data source. In addition, the SCA contains an
alternative mechanism that gives weight to collectively bargained rates
by requiring them to govern certain successor contracts where the
predecessor contract was covered by a CBA. 41 U.S.C. 6703(1).
Comparisons between the DBA and SCA can also be fraught because
construction work is significantly different from most service work. As
a Professor of Economics at the University of Utah commented on this
rulemaking, the construction industry is based on a ``craft
classification'' model--in which crafts are understood to be a
collection of related skills that allow a craft worker to address a
range of jobs as that worker goes from project to project, and which
can only be supported with proper investment and skills training.
Protecting craft classifications where they prevail was one of the core
original purposes of the Davis-Bacon Act. See Charles Donahue, ``The
Davis-Bacon Act and the Walsh-Healey Public Contracts Act: A Comparison
of Coverage and Minimum Wage Provisions,'' 29 Law & Contemp. Probs.
488, 508 (1964) (noting the Department's deference to local craft
organization in wage determinations because ``[t]o do otherwise would
destroy craft lines which the statute seeks to preserve''); see also
Donovan, 712 F.2d at 625 (noting that Congress was ``quite clear'' in
1935 that it was an ``evasion of the Act'' to break down craft
classifications where they prevail). This industrial organization and
the legislative history support the Department's stricter approach
under the DBRA to protecting actual wage rates that prevail because
when those rates are higher than the average wage, they are often
higher because they are incorporating apprenticeship and other training
costs that are critical for the maintenance of the craft organization
of the local construction market.\54\ It also explains why the
Department does not agree with ABC's suggestions that the Davis-Bacon
program should adopt the standardized national Standard Occupational
Classification system for identifying construction worker
classifications and also abandon the division of wage rates by
``construction type,'' so as to align all Davis-Bacon classifications
with the format of BLS program data. Similarly, the differences between
the SCA and the DBA and the industry sectors they cover, and the craft-
protection focus of the DBA, also explain why the Department does not
believe it is appropriate, as ABC suggests, to adopt a single
nationwide
[[Page 57540]]
fringe benefit rate under the DBRA in the same way that it has under
the SCA.
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\54\ Notwithstanding these differences, under the SCA
regulations, the Department also may publish prevailing collectively
bargained rates rather than rely on BLS data. See 29 CFR 4.51(b)
(``Where a single rate is paid to a majority (50 percent or more) of
the workers in a class of service employees engaged in similar work
in a particular locality, that rate is determined to prevail.'').
---------------------------------------------------------------------------
ABC commented that the Department should be more flexible with how
it analyzes the statutory requirements and find that the statute
permits the use of averages or modal approximations derived from
statistical modeling rather than revert to the three-step process and
retain the current wage survey process. ABC and other commenters also
suggested the use of BLS data would have other important benefits. ABC
stated that directly using BLS data would improve the timeliness of
wage determinations because BLS surveys are updated annually. ABC and
the group of U.S. Senators stated that using BLS data would eliminate
an impediment preventing small firms from bidding on Davis-Bacon
contracts because it would eliminate the problem of missing
classifications on wage determinations. The commenters said that such
missing classifications can be an impediment for small firms because it
is costly and complicated to request conformances. ABC suggested that
the Department should consider transferring funding from WHD to BLS by
contracting with BLS to provide data, with the additional funding to
BLS going to address any ways in which BLS methods are deficient for
DBRA purposes.
Having considered these arguments, the Department continues to
believe that the best course of action is to adopt the proposed
reversion from the majority rule to the three-step process as the
methodology for making wage determinations. The Department agrees that
it is important to continue seeking ways to improve contractor
participation in its voluntary wage surveys, which will have the
benefit of increasing sample sizes for wage determinations and making
wage determinations possible for more classifications. The Department
has initiated a process to revise the wage survey form (WD-10 form)
that is used during wage surveys. In that process, it proposed a number
of changes in order to decrease the burden on contractors of responding
to the survey and lead to higher survey response rates. See 87 FR
36152, 36152-53 (June 15, 2022). The Department, through that process,
is also considering updates to the directory of classifications that is
listed on the form, and to procedures to assist in capturing
information about local area practice and industry changes in
classifications over time. Thus, the Department does not believe NAPA,
NRMPCA, and NSSGA's concerns about outdated classifications is a
persuasive reason not to adopt the changes to the methodology of
determining prevailing wages from survey data. Collecting more accurate
data and returning to the 30-percent threshold are supplementary, not
mutually exclusive, means to determining appropriate wage rates. The
Department is therefore not only returning to the use of the 30-percent
threshold in this final rule, but also will continue to promote greater
participation in its surveys and take related steps, such as its
revision to the WD-10 form outside this rulemaking, in order to
increase the pool of data that is available to determine accurate
prevailing wage rates.
While the Department appreciates AGC's suggestions regarding
revising the wage survey process to allow contractors to report data
for workers more generally instead of on a project-by-project basis,
the Department notes that the statute discusses the determination of
the prevailing wage on the basis of ``projects of a similar
character,'' 40 U.S.C. 3142(b), and that project-by-project reporting
promotes accuracy in the survey process because it more readily enables
the Department to identify the number of workers that were paid each
reported rate (and hence to properly calculate the prevailing wage) in
a given area. A data submission consisting solely of the wages and
fringe benefits paid generally to a particular classification,
particularly if such a submission did not identify how many workers
received each identified rate, would at a minimum create challenges and
inefficiencies in determining the prevailing wage rate.
The Department also agrees with commenters that addressing
timeliness issues and the overuse of conformances are important goals.
The use of BLS data, however, could cause its own problems with missing
classifications. BLS's OEWS program, for example, uses the Office of
Management and Budget's (OMB) Standard Occupational Classification
(SOC) system when publishing wage estimates. The SOC system does not
include a number of individual classifications that the Department
commonly uses to appropriately account for local area practice and the
craft system. For example, the Department often issues separate wage
rates for Plumbers, Pipefitters, and Steamfitters. The OEWS program
only issues a single wage rate in a given locality under SOC code 47-
2152 (``Plumbers, Pipefitters, and Steamfitters''). For this reason,
the Department believes that ABC's proposal to directly use the SOC
system would result in less accurate craft classifications. As
discussed further below, in this rulemaking, the Department is adopting
new methods of reducing the need for conformances and more frequently
updating wage determinations, including through the limited use of BLS
data where it can reasonably be used to estimate wage-rate increases in
between voluntary surveys. The Department believes these changes, once
implemented, will improve the wage determination program without making
a significant departure from longstanding interpretations of the
statutory text and purpose of the DBRA.
(2) Comments Regarding Costs of the 30-Percent Threshold
In proposing the return to the 30-percent threshold, the Department
also considered the other explanations it provided in 1982 for
eliminating the rule in the first place--in particular, the potential
for a possible upward pressure on wages, contract costs, or prices. In
the 1982 final rule, the Department summarized comments stating that
the rule is ``inflationary because it sometimes results in wage
determination rates higher than the average.'' 47 FR 23644. The
Department did not explain exactly what the commenters meant by the
term ``inflationary.'' See id. Later, the Department stated simply that
it ``agree[d] with the criticisms of the 30-percent rule,'' without
specifically referencing the wage-inflation concerns. Id. at 23645.
Later still, in a discussion of the final regulatory impact and
regulatory flexibility analysis, the Department estimated that
eliminating the 30-percent rule could result in a cost savings of $120
million per year. Id. at 23648. The Department then stated that it was
adopting the new rule ``not only because it will result in substantial
budgetary savings, but also because it is most consistent with the
`prevailing wage' concept contemplated in the legislation.'' Id.
In the current rulemaking, many commenters opposing the
Department's proposed reversion to the 30-percent threshold, including
several housing industry associations and entities, referenced and
restated the earlier concerns about an ``inflationary effect.'' ABC and
the group of Senators referenced criticism of the 30-percent rule by
the GAO in the 1960's and 1970's, including the 1979 report that urged
the repeal of the Act as a whole and related congressional hearings in
which the GAO referred to the 30-percent rule as resulting in
``inflated wage rates.'' \55\ Several commenters
[[Page 57541]]
pointed to two studies finding that prevailing wages under the DBA
increase costs to taxpayers. The NAHB pointed to a 2008 study by the
Beacon Hill Institute, finding that Davis-Bacon wage determinations
increase the cost of Federal construction by ``nearly 10 percent,''
\56\ and a study by the Congressional Budget Office (CBO) that
estimated a $12 billion reduction in Federal spending from 2019 through
2028 if DBA requirements were not applied to covered projects.\57\ CEI,
stating that no more recent data is available on the economic impact of
the 30-percent rule, cited a 1983 CBO estimate that the DBA's
requirements added 3.7 percent to the overall cost of Federal
construction projects.\58\ They also cited a later estimate from after
implementation of the majority rule, estimating that DBA requirements
added 3.4 percent to the cost of Federal construction projects.\59\
Comparing these two studies, CEI claimed, shows the difference between
the 30-percent threshold and the majority-only rule accounts for about
8 percent in the overall cost of complying with the Act (or, presented
differently, about 0.3 percent in the total cost of Federal
construction projects).
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\55\ See Administration of the Davis-Bacon Act, Hearings before
the Spec. Subcomm. on Lab. of the H. Comm. on Educ. & Lab., 87th
Cong. 283 (1962) (testimony of J.E. Welch, Deputy General Counsel,
General Accounting Office) (``Our experience indicates that the
methods and procedures by which minimum wage requirements for
Federal and federally assisted construction contracts are
established and enforced under present law have not kept pace with
the expansion and increased use of such requirements.''); Oversight
Hearing on the Davis-Bacon Act, Before the Subcomm. on Lab.
Standards of the H. Comm. on Educ. & Lab., 96th Cong. 4 (1979)
(testimony of Comptroller General Elmer Staats) and 60-64 (testimony
of Secretary of Labor Ray Marshall criticizing GAO methodology).
\56\ Paul Bachman, Michael Head, Sarah Glassman, & David G.
Tuerck, Beacon Hill Inst., ``The Federal Davis-Bacon Act: The
Prevailing Mismeasure of Wages,'' (2008). ABC cited this 2008
report, as well as a subsequent Beacon Hill report, which updated
it. See William F. Burke & David G. Tuerck, Beacon Hill Inst., ``The
Federal Davis-Bacon Act: Mismeasuring the Prevailing Wage,'' (2022).
\57\ CBO, ``Repeal the Davis-Bacon Act,'' Dec. 13, 2018, <a href="https://www.cbo.gov/budget-options/54786">https://www.cbo.gov/budget-options/54786</a>.
\58\ CBO, ``Modifying the Davis-Bacon Act: Implications for the
Labor Market and the Federal Budget,'' July 1983, <a href="https://www.cbo.gov/sites/default/files/98th-congress-1983-1984/reports/doc12-entire_0.pdf">https://www.cbo.gov/sites/default/files/98th-congress-1983-1984/reports/doc12-entire_0.pdf</a>.
\59\ CBO, ``Toll Funding of U.S. Highways,'' Dec. 1985, <a href="https://www.cbo.gov/sites/default/files/99th-congress-1985-1986/reports/1985_12_tollfinancing.pdf">https://www.cbo.gov/sites/default/files/99th-congress-1985-1986/reports/1985_12_tollfinancing.pdf</a>.
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Several commenters, in particular in the residential building
industry, expressed general concern that higher labor costs could put
some projects at risk of being financially infeasible. The NAHB stated
that ``relatively small price increases can have an immediate impact on
low-to moderate-income homebuyers and renters who are more susceptible
to being priced out of the market.'' According to NAHB, there are
already a number of other current difficulties with building housing
that the proposed change does not address, including rising costs for
materials, an increasingly transient and aging workforce, and the
economic impact of COVID-19. The National Association of Housing and
Redevelopment Officials (NAHRO) stated that Congress has underfunded
affordable and public housing, and that because there is a limited
amount of funding for such efforts, the number of units built will go
down if costs go up. Because of this, the organization recommended that
the HUD programs be excluded from the final rule.
Some commenters stated their opposition to the proposed reversion
to the three-step process but appeared to misunderstand that the rule
does not require, or always result in, the highest wage rate being
identified as prevailing. AFP-I4AW, for example, stated that the 30-
percent rule would ``serve to inflate the wage determination by relying
only on the highest wage earners in the locality.'' This assumption is
not correct. The 30-percent threshold does not distinguish between
rates based on whether they are higher or lower. Rather, under the
rule, the Department will determine that a wage rate is prevailing if
that wage rate is earned by the most workers in a wage survey and if
that number is also more than 30 percent of workers in the survey--
whether that wage rate is higher or lower than any other wage rate in
the survey, and whether it is collectively bargained or not. The
Department's review of recent wage surveys suggests that the return to
the 30-percent threshold will in some cases result in wage rates that
are higher than the currently used average and in other cases lower
rates. See section V.D.1.ii. This is consistent with the results of the
30-percent threshold when it was last in effect before the 1981-1982
rulemaking. See 1979 GAO Report, at 53 (noting the data showed that
under the 30-percent rule, where a lower hourly rate prevailed, the
Department identified the lower rate as the prevailing rate).
In contrast to the commenters that opposed the proposal, many
commenters that supported the proposal argued that the rule would not
significantly increase project costs or increase inflation. Several of
these commenters noted studies regarding the cost effects of prevailing
wage regulations in general. For example, the III-FFC noted that the
``economic consensus'' today is that prevailing wage requirements
generally do not raise total construction costs. III-FFC cited a
literature review that analyzed the 19 peer-reviewed studies that have
been published since 2000 about the impacts of prevailing wage
regulations in public construction (together covering more than 22,000
public works projects). See Kevin Duncan & Russell Ormiston, ``What
Does the Research Tell Us About Prevailing Wage Laws,'' 44 Lab. Stud.
J. 139, 141-42 (2018). A significant majority of those peer-reviewed
studies did not find evidence that prevailing wages affected overall
construction costs. As III-FFC noted, a key driver of this outcome is
that contractors on covered projects will tend to hire higher-skilled
workers and utilize more capital equipment. See William Blankenau &
Steven Cassou, ``Industry Differences in the Elasticity of Substitution
and Rate of Biased Technological Change between Skilled and Unskilled
Labor,'' 43 Applied Econ. 3129-42 (2011); Edward Balistreri, Christine
McDaniel, & Eina V. Wong, ``An Estimation of U.S. Industry-Level
Capital-Labor Substitution Elasticities: Support for Cobb-Douglas,'' 14
N. Am. J. of Econ. & Fin 343-56 (2003). Other commenters submitted
similar research showing that prevailing wages are associated with
higher productivity and that labor costs are only a small part of
overall project costs in many segments of the construction industry,
limiting the impact of any increased wage costs on overall project
costs. See Frank Manzo & Kevin Duncan, Midwest Econ. Policy Inst.,
Examination of Minnesota's Prevailing Wage Law: Effects on Costs,
Training, and Economic Development 4 (2018); Nooshin Mahalia, Econ.
Policy Inst., Prevailing Wages and Government Contracting Costs 3-4
(2008).
Several of these commenters specifically criticized the
Department's apparent reliance in 1982 on arguments that the 30-percent
rule had an ``inflationary effect.'' These commenters noted that the
concerns about an ``inflationary effect'' at the time were drawn from
the same 1979 GAO report on which the opponents of the proposal now
rely.\60\ The Iron Workers, for
[[Page 57542]]
example, noted that in 1979 the Department had strongly criticized the
GAO report's statistical methods. In 1979, the Department maintained
that the GAO's conclusions lacked ``statistical validity'' because it
was methodologically flawed and failed to consider important variables,
such as productivity. See 1979 GAO Report, at 15. However, in its 1982
rulemaking, the Department did not acknowledge other evidence
undermining the GAO's conclusions, or the Department's own prior
position that the 1979 GAO report could not be relied upon. Another
commenter noted that the GAO itself had conceded that its sample size
was insufficient for projecting results with statistical validity. Id.
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\60\ The GAO issued a report in 1979 urging Congress to repeal
the Act because of ``inflationary'' concerns. See Gov't
Accountability Office, HRD-79-18, ``The Davis Bacon Act Should be
Repealed'' (1979) (1979 GAO Report). Available at: <a href="https://www.gao.gov/assets/hrd-79-18.pdf">https://www.gao.gov/assets/hrd-79-18.pdf</a>. The report argued that even using
only weighted averages for prevailing rates would be inflationary
because they could increase the minimum wage paid on contracts and
therefore result in wages that were higher than they otherwise would
be. The House Subcommittee on Labor Standards reviewed the report
during oversight hearings in 1979, but Congress did not amend or
repeal the Act, and instead continued to expand its reach. See,
e.g., Cranston-Gonzalez National Affordable Housing Act, Public Law
101-625, Sec. 811(j)(6), 104 Stat. 4329 (1990); Energy Independence
and Security Act of 2007, Public Law No, 110-140, Sec. 491(d), 121
Stat. 1651 (2007); American Recovery and Reinvestment Act, Public
Law 111-5, Sec. 1606, 123 Stat. 303 (2009); Consolidated
Appropriations Act of 2021, Public Law 116-260, Sec. 9006(b), 134
Stat. 1182 (2021).
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The commenters supporting the Department's current proposed
reversion to the 30-percent rule also noted that, whatever its
persuasiveness at the time, the 1979 GAO report cannot be relied on now
because of its outdated statistical methods and because of the
existence of other, more contemporary, evidence undermining its
conclusions. Commenters noted that the three main studies relied on by
opponents of the 30-percent threshold, including the GAO report, the
Department's 1981-1982 regulatory flexibility analysis, and the Beacon
Hill studies, were all based on a ``wage differential'' calculation
methodology that has been discredited by peer-reviewed scholarship
published since the 1981-1982 rulemaking.\61\ In a comment, two
Professors of Economics argued that ``the results of any study that
measures the cost of prevailing wages based on [the wage differential
method] should be interpreted with extreme caution and is not suitable
as a basis of public policy decisions.'' Commenters noted that more
advanced statistical methods than those used by GAO have since
established that in the construction industry, the substitution of
lower-wage and lower-skilled workers for higher-paid and higher-skilled
workers does not necessarily reduce project costs because the lower
productivity of lower-skilled workers can offset incrementally higher
wages paid to more-skilled workers.\62\ That is why, they asserted, the
preponderance of peer-reviewed studies conclude that prevailing wage
laws as a whole have little or no effect on overall project costs.\63\
Given the evidence for prevailing wage laws as a whole, the commenters
expressed skepticism that the return to the 30-percent rule would have
an effect on project costs.
---------------------------------------------------------------------------
\61\ See Kevin Duncan & Russell Ormiston, ``What Does the
Research Tell Us About Prevailing Wage Laws,'' 44 Lab. Stud. J. 139,
141-42 (2018). The Beacon Hill Report was not peer-reviewed. Id. at
141. The 2022 Beacon Hill Report uses the same methodology as the
2008 Beacon Hill Report.
\62\ See William Blankenau & Steven Cassou, ``Industry
Differences in the Elasticity of Substitution and Rate of Biased
Technological Change between Skilled and Unskilled Labor,'' 43
Applied Econ. 3129-42 (2011); Edward Balistreri, Christine McDaniel,
& Eina V. Wong, ``An Estimation of U.S. Industry-Level Capital-Labor
Substitution Elasticities: Support for Cobb-Douglas,'' 14 N. Am. J.
of Econ. & Fin 343-56 (2003).
\63\ See Duncan & Ormiston, supra note 61, at 142-48 (collecting
peer-reviewed studies).
---------------------------------------------------------------------------
The Department agrees with those commenters that found the 1979 GAO
Report and the Department's 1981-1982 analysis unpersuasive. The
Department does not believe that these analyses are reliable or
accurate.\64\ For example, the Department's 1981-1982 analysis did not
consider labor market forces that could prevent contractors from
lowering wage rates in the short run. The analysis also did not attempt
to address productivity losses or other costs of setting a lower
minimum wage, such as higher turnover and a reduced ability to recruit
high-skilled workers. For these reasons, the Department does not
believe that the analysis in the 1982 final rule implies that the
current proposed reversion to the 30-percent rule would have a
significant impact on contract costs. Moreover, even if the Department
were to rely on this analysis as an accurate measure of impact, such
purported cost savings (adjusted to 2019 dollars) would only amount to
approximately two-tenths of a percent of total estimated covered
contract costs.
---------------------------------------------------------------------------
\64\ The Department has not attempted to assess the relative
accuracy of the $120 million estimate over the decades, which would
be challenging given the dynamic nature of the construction industry
and the relatively small impact of even $120 million in savings. The
Department at the time acknowledged that its estimate had been
heavily criticized by commenters and was only a ``best guess''--in
part because it could not foresee how close a correlation there
would be between the wage rates that are actually paid on covered
contracts and the wage determinations that set the Davis-Bacon
minimum wages. 47 FR 23648.
---------------------------------------------------------------------------
The two CBO reports from 1983 and 1985 cited in a comment by CEI
are not persuasive for the same reason. The 1983 CBO study projected
that the elimination of the 30-percent rule would save an average of
$112 million per year from 1984 to 1988. Id. at 36. That report,
however, was based on the Department's own analysis in the 1981-1982
rulemaking, id. at xii, which was flawed as previously noted. The 1985
CBO report did not contain an independent analysis and simply cited to
the 1983 report. See 1985 CBO Report, at 16 n.2. Thus, the reports
provide no additional helpful evidence and instead suffer from the same
analytical problems as the Department's own 1981-1982 study and other
simple wage-differential analyses.\65\
---------------------------------------------------------------------------
\65\ The 1983 CBO study acknowledged these issues. It noted that
the 1979 GAO study had been questioned because of inadequate sample
sizes, the choice of projects covering small volumes of
construction, and inappropriate assumptions. See 1983 CBO Report, at
48. It also noted that ``questions have been raised regarding the
general approach of translating wage increases directly into cost
increases.'' Such an approach, the report notes, ``may be incorrect
. . . to the extent that workers at different wage levels may not be
equally productive.'' Id. at 48-49. The 2018 CBO projection that
NAHB cites does not explain its methodology, but it estimates
savings from eliminating the entire Davis-Bacon Act as amounting to
only 0.8 percentage points in project costs associated with a
reduction in wages and benefits. See supra note 57, <a href="https://www.cbo.gov/budget-options/54786">https://www.cbo.gov/budget-options/54786</a>.
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After considering the available data, and assuming for the purposes
of this discussion that costs are in fact a permissible consideration
in defining the term ``prevailing wage,'' the Department is not
persuaded that returning to the 30 percent threshold will cause a
meaningful increase in Federal construction costs. Based on the
Department's demonstration in the economic analysis of what the
prevailing wage would be after applying the 30-percent threshold to a
sample of recently published prevailing wage rates, the Department
found no clear evidence of a systematic increase in the prevailing wage
sufficient to affect prices across the economy. The illustrative
analysis in section V.D. shows returning to the 30-percent rule will
significantly reduce the reliance on the weighted average method to
produce prevailing wage rates. Applying the 30-percent threshold, some
prevailing wage determinations may increase and others may decrease,
but the magnitude of these changes will, overall, be negligible. Even
where wage determinations may increase, the Department is persuaded by
recent peer-reviewed research, which generally has not found a
significant effect from wage increases related to prevailing wage
requirements on the total construction costs of public works projects.
For similar reasons, the Department is not persuaded that the
reversion to the 30-percent threshold would have any impact on national
inflation rates. Several commenters, including CEI and certain members
of Congress, stated that the Department's proposal is ill-timed because
of the current levels of
[[Page 57543]]
economy-wide inflation and the risks of a wage-price spiral. Returning
to the 30-percent rule, CEI claimed, ``would likely contribute to the
pressures'' that could create such a spiral. Although CEI referenced
the 1983 CBO Report to support its argument that the 30-percent
threshold would increase construction costs, CEI did not note the
conclusion in that study that the DBA as a whole ``seems to have no
measurable effect on the overall rate of inflation.'' 1983 CBO Report,
at xii, 30-31.
One individual commenter asserted that the Department should be
required to consider not only whether the 30-percent rule can alone
cause inflation, but also whether the proposal, in combination with
other regulatory and spending measures, would have an effect on
inflation and what that effect would be. The commenter stated that the
infusion of Federal infrastructure spending from the Infrastructure
Investment and Jobs Act (IIJA), Public Law 117-58, will likely lead to
substantial compensation premiums for construction workers. The
commenter stated that such wage increases would occur ``because a
sudden increase in federal infrastructure spending does not necessarily
lead to a commensurate increase in construction sector employment.''
The Department disagrees that this rule will substantially impact
inflation. As noted, the Department's illustrative analysis in section
V.D. suggests that the reimplementation of the 30-percent threshold
will result in some prevailing wage determinations increasing and
others decreasing, but the magnitude of these changes will, overall, be
negligible. In addition, even if this rule leads to an increase in some
required prevailing wage rates, it will not have an equal impact on
actual wages paid to workers on DBRA-covered contracts, because some
workers may already be earning above the new prevailing wage rate.
If wages for potentially affected workers were to increase, the
Department does not believe that it would lead to inflation. Recent
research shows that wage increases, particularly at the lower end of
the distribution, do not cause significant economy-wide price
increases.\66\ For example, a 2015 Federal Reserve Board study found
little evidence that changes in labor costs have had a material effect
on price inflation in recent years.\67\ Even in the recent period of
increased inflation, there was little evidence that the inflation was
caused by increases in wages. A study of producer price inflation and
hourly earnings from December 2020 to November 2021 found that
inflation and wage growth were uncorrelated across industries.\68\
Additionally, as two Professors of Economics commented, ``since
prevailing wages are not associated with increased construction costs,
there is no reason to assume that the policy causes inflation in the
macroeconomy.''
---------------------------------------------------------------------------
\66\ See, e.g., J.P. Morgan, ``Why Higher Wages Don't Always
Lead to Inflation'' (Feb. 7, 2018), available at: <a href="https://www.jpmorgan.com/commercial-banking/insights/higher-wages-inflation">https://www.jpmorgan.com/commercial-banking/insights/higher-wages-inflation</a>;
Daniel MacDonald & Eric Nilsson, ``The Effects of Increasing the
Minimum Wage on Prices: Analyzing the Incidence of Policy Design and
Context,'' Upjohn Institute working paper; 16-260 (June 2016),
available at <a href="https://research.upjohn.org/up_workingpapers/260/">https://research.upjohn.org/up_workingpapers/260/</a>;
Nguyen Viet Cuong, ``Do Minimum Wage Increases Cause Inflation?
Evidence from Vietnam,'' ASEAN Economic Bulletin Vol. 28, No. 3
(2011), pp. 337-59, available at: <a href="https://www.jstor.org/stable/41445397">https://www.jstor.org/stable/41445397</a>; Magnus Jonsson & Stefan Palmqvist, ``Do Higher Wages Cause
Inflation?,'' Sveriges Riksbank Working Paper Series 159 (Apr.
2004), available at: <a href="http://archive.riksbank.se/Upload/WorkingPapers/WP_159.pdf">http://archive.riksbank.se/Upload/WorkingPapers/WP_159.pdf</a>; Kenneth M. Emery & Chih-Ping Chang, ``Do
Wages Help Predict Inflation?,'' Federal Reserve Bank of Dallas,
Economic Review First Quarter 1996 (1996), available at: https://
www.dallasfed.org/~/media/documents/research/er/1996/er9601a.pdf.
\67\ Ekaterina V. Peneva & Jeremy B. Rudd, ``The Passthrough of
Labor Costs to Price Inflation,'' Federal Reserve Board (2015),
available at: <a href="https://www.federalreserve.gov/econres/feds/the-passthrough-of-labor-costs-to-price-inflation.htm">https://www.federalreserve.gov/econres/feds/the-passthrough-of-labor-costs-to-price-inflation.htm</a>.
\68\ Josh Bivens, ``U.S. Workers Have Already Been Disempowered
in the Name of Fighting Inflation,'' Figure A, Economic Policy
Institute (Jan. 2022), available at: <a href="https://www.epi.org/blog/u-s-workers-have-already-been-disempowered-in-the-name-of-fighting-inflation-policymakers-should-not-make-it-even-worse-by-raising-interest-rates-too-aggressively/">https://www.epi.org/blog/u-s-workers-have-already-been-disempowered-in-the-name-of-fighting-inflation-policymakers-should-not-make-it-even-worse-by-raising-interest-rates-too-aggressively/</a>.
---------------------------------------------------------------------------
More importantly, DBRA-covered contracts make up a small share of
overall economic output. Because federally-funded construction only
makes up approximately 13 percent of total construction output and the
number of potentially affected workers (1.2 million) is less than 1
percent of the total workforce, the Department does not believe that
any wage increase associated with this rule would significantly
increase prices or have any appreciable effect on the macroeconomy.\69\
---------------------------------------------------------------------------
\69\ Federally funded construction as a share of total
construction output can be calculated from the data in Table 3
($216,700,000,000 / $1,667,000,000,000 = 0.13). The estimate of 1.2
million potentially affected workers is calculated in section V.B.2.
---------------------------------------------------------------------------
In sum, the factual conclusions about ``inflationary effects''
underlying the 1982 elimination of the 30-percent rule are no longer
supportable because they have been discounted over the past 40 years by
more sophisticated analytical tools. Furthermore, the available
evidence does not suggest that concerns about the 30-percent threshold
increasing project costs or national inflation rates are justified.
The Department also considered the comments that express concern
about whether the 30-percent threshold may affect certain sectors or
areas, and the residential construction industry in particular,
differently than the national economy as a whole. As they are for other
types of construction, respectively, prevailing wage rates for DBRA-
covered residential construction are based on WHD wage surveys of
residential construction projects. Residential construction can be
distinguished from other construction types in several important ways:
it tends to be less capital- and skill- intensive and thus generally
has fewer barriers to entry for firms as well as for workers, projects
tend to be of smaller and shorter duration, workers tend to move more
often between firms, and firms tend to provide less training.\70\ Wages
also tend to be lower in residential construction than in
nonresidential construction types, and unionization rates have
historically been lower. Because of lower unionization rates in the
residential construction industry, where the methodology for
determining prevailing rates is based on the mode (whether majority or
30-percent threshold), the rates that prevail are more likely to come
from non-union wage rates than from higher, collectively bargained
rates. As a result, in comparison to other construction types, it is
less likely--not more likely--that the 30-percent threshold will result
in increases in prevailing wage rates on residential construction
projects. However, in the more limited circumstances in which
residential construction rates may change from averages to rates based
on CBAs, the increases in wage rates could be larger given the
generally lower wage floors in the industry.\71\
---------------------------------------------------------------------------
\70\ See Russell Ormiston et al., ``Rebuilding Residential
Construction,'' in Creating Good Jobs: An Industry-Based Strategy
75, 78-79 (Paul Osterman ed., 2020).
\71\ Although the transfer analysis presented in Section V.D.1
is simply illustrative and may not be representative of the impact
of this rule, the results of this analysis reflect that only 5
percent of the residential fringe benefit rates analyzed were
affected by the reversion to the 30-percent threshold, compared to
14 percent of building fringe rates, 19 percent of heavy fringe
rates and 23 percent of highway fringe rates. In those limited
circumstances where residential fringe rates were affected, however,
they tended to increase more significantly given their largely
nonunion baseline.
---------------------------------------------------------------------------
Moreover, even if implementation of the proposal were to lead in
some areas to increased wages, and even assuming those increased wages
resulted in increased project costs for federally financed residential
construction, the
[[Page 57544]]
effects on overall housing prices or rents would not be significant.
DBRA-covered construction makes up only a very small percentage of the
total new construction in the residential construction market--only 1
percent as of July 2022.\72\ And, annual new residential construction
itself tends to be less than 1 percent of all available residential
units.\73\ Among the residential construction covered by the DBRA, many
projects would be unaffected by the proposed reversion to the 30-
percent threshold. The Department's illustrative analysis suggests that
the proposal would only affect the methodology for approximately one-
third of new wage determinations, and of those, some would result in
decreases in the required wage rate, not an increase. See section
V.D.1.ii.\74\ The most reasonable conclusion is that any limited
potential increase in some construction costs for such a small
percentage of the residential market would not affect housing prices or
rents generally.\75\
---------------------------------------------------------------------------
\72\ According to the Census Bureau, the Seasonally Adjusted
Annual Value of Private Residential Construction Put in Place, as of
July 2022, was $920.4 billion; public residential construction was
$9.3 billion. <a href="https://www.census.gov/construction/c30/c30index.html">https://www.census.gov/construction/c30/c30index.html</a>.
\73\ See U.S. Census Bureau, National and State Housing Unit
Estimates: 2010 to 2019, <a href="https://www.census.gov/data/tables/time-series/demo/popest/2010s-total-housing-units.html">https://www.census.gov/data/tables/time-series/demo/popest/2010s-total-housing-units.html</a>,
\74\ There are additional reasons why increasing labor costs do
not have a one-to-one correlation with housing and rent prices. In
recent decades, housing prices have significantly outpaced real
construction costs. See Joseph Gyourko & Raven Molloy, ``Regulation
and Housing Supply,'' (Nat'l Bureau of Econ. Rsch., Working Paper
No. 20536, 2014), <a href="https://www.nber.org/system/files/working_papers/w20536/w20536.pdf">https://www.nber.org/system/files/working_papers/w20536/w20536.pdf</a>. Gyourko and Molloy conclude that, as a general
matter, labor and material costs do not appear to act as a major
constraint on residential development, in comparison to land-use
policy constraints.
\75\ In addition, the reversion to the 30-percent threshold will
not result in any wage increases in the short-term. Any effect on
wage increase will only occur after wage new residential
construction-type surveys are initiated and completed, and then wage
determinations based on those surveys are incorporated into new
construction contracts.
---------------------------------------------------------------------------
The Department also considered the concerns commenters raised about
the construction of publicly funded affordable housing in particular.
In a comment, two Professors of Economics said that three studies have
found that the application of prevailing wage laws in general may be
correlated with increased project costs for affordable housing
projects.\76\ But, for two reasons, these studies are of limited value
for forecasting the effects of reversion to the 30-percent rule. First,
as noted, the Department's illustrative analysis of the effects of the
30-percent threshold, which included residential construction survey
data, does not show a systematic increase in prevailing wage rates.
Second, the peer-reviewed studies showing potential increased project
costs on affordable housing projects do not compare different
prevailing wage methodologies, but instead compare whether projects are
either covered or not covered at all by prevailing wage requirements.
Where studies compare the existence of prevailing wage requirements at
all (as opposed to a simple change in wage determination
methodologies), other factors can explain project cost increases.\77\
---------------------------------------------------------------------------
\76\ See also Duncan & Ormiston, supra n. 61, at 142-48
(discussing peer-reviewed studies).
\77\ For example, cost differences may be attributable in part
to reductions in independent-contractor misclassification, failure
to pay overtime, and other basic wage violations that are
disincentivized because of the prevailing-wage requirement to submit
certified payroll. Id. at 146.
---------------------------------------------------------------------------
The Department also considered the comments regarding the potential
effects of economic conditions that may result from increased
infrastructure spending. While it is true that increases in
construction spending can lead to increases in construction wage rates
in the short run,\78\ this potential does not suggest the Department's
proposal is unwarranted. Under the 30-percent threshold, as under the
current majority rule or any other measure of prevailing wages, wage
determinations will and should generally reflect increases in wage
rates that result from separate policy decisions by Federal, State, or
Local governments, or other macro-economic phenomena. The commenters
did not suggest, and the Department did not identify, any specific
mechanism through which the 30-percent threshold would interact with
construction spending increases in a way that would materially affect
the results of the Department's illustrative analyses or suggest
outcomes other than those supported by the peer-reviewed literature.
Finally, the prevailing wage methodology in this rule is not a short-
term policy; it is intended to apply during timeframes when public
infrastructure spending is lower, as well as those when it is higher,
and during all phases of the construction industry business cycle.
---------------------------------------------------------------------------
\78\ One commenter suggested that increased infrastructure
spending could lead to an increase in demand for construction
workers, and that the supply of skilled workers might not be
commensurate in the short term, which could lead to an increase in
wage rates.
---------------------------------------------------------------------------
Finally, the Department disagrees with NAHB that the proposal
should be withdrawn because, among other reasons, the proposal does not
address certain challenges in the residential building industry,
including ``an increasingly transient and aging workforce, increased
building costs resulting from supply shortages, and the economic impact
of COVID-19, among other things.'' NAHB explains, in addition, that the
residential construction industry has been ``suffering from a skilled
labor shortage for many years.'' The Department agrees with NAHB that
these topics are important for policymakers to consider. NAHB does not
explain why the methodology for determining the prevailing wage under
the DBRA is relevant to addressing these challenges, or why a
methodology other than the Department's proposed reversion to the
three-step process would be more beneficial. However, to the extent
that the 30-percent threshold could increase wage rates in some areas,
as NAHB also asserts, such an outcome would be beneficial to the
industry by attracting more workers to the construction labor market
and allowing required prevailing wages to more often support the
maintenance of apprenticeship and training costs that will contribute
to the expansion of the skilled workforce.
In addition to all of these factual arguments about whether costs
or inflation may increase, however, several unions and contractor
associations argued that the Department should not be permitted as a
legal matter to consider contract costs or other similar effects of any
wage increases when it determines the proper prevailing wage
methodology. The United Brotherhood of Carpenters and Joiners of
America (UBC) and NABTU argued that the Department's apparent goal in
1981-1982 of reducing construction costs was not consistent with the
purpose of the Act. NABTU stated that such a reliance on cost
considerations was arbitrary and capricious under the Supreme Court's
decision in Motor Vehicle Manufacturers Ass'n of the United States v.
State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983)
(State Farm), because it relied on a factor (cost) that Congress had
not intended to be considered. To the contrary, commenters noted,
statements in the legislative history suggest that Congress's ``chief
concern'' was ``to maintain the wages of our workers and to increase
them wherever possible.'' 74 Cong. Rec. 6513 (1931) (remarks of Rep.
Mead); see also United States v. Binghamton Constr. Co., 347 U.S. 171,
176-77 (1954) (noting that the legislative history demonstrates that
the DBA was ``not enacted for the benefit of contractors, but rather to
protect their employees from substandard earnings'').
The Department agrees with these commenters that there is a
legitimate question as to whether it would be appropriate to use a
methodology that is
[[Page 57545]]
less consistent with the definition of ``prevailing wage'' in order to
reduce contract costs. Such a determination would not seem to be
consistent with Congressional intent. As Solicitor Donahue testified in
the 1962 hearings on the Act, ``Congress has not injected a cost factor
into the Davis-Bacon Act as one of the standards to be used in
determining which wage rates will apply.'' \79\ The ``basic purpose of
the Davis-Bacon Act is to protect the wages of construction workers
even if the effect is to increase costs to the [F]ederal
[G]overnment.'' Bldg. & Constr. Trades Dep't, 543 F. Supp. at 1290.
Congress considered cost concerns and enacted and expanded the DBA
notwithstanding them. Id. at 1290-91; 1963 House Subcommittee Report,
at 2-3; Reorganization Plan No. 14 of 1950, 15 FR 3176, 5 U.S.C. app.
1.\80\
---------------------------------------------------------------------------
\79\ Administration of the Davis-Bacon Act: Hearings before the
Spec. Subcomm. Of Lab. Of the H. Comm. On Educ. & Lab., 87th Cong.
153 (1962).
\80\ In his message accompanying Reorganization Plan No. 14,
President Truman noted that ``[s]ince the principal objective of the
plan is more effective enforcement of labor standards, it is not
probable that it will result in savings. But it will provide more
uniform and more adequate protection for workers through the
expenditures made for the enforcement of the existing legislation.''
15 FR 3176; 5 U.S.C. app. 1.
---------------------------------------------------------------------------
Thus, even if concerns about an inflationary effect on government
contract costs or speculative effects on the national macro economy
were used to justify eliminating the 30-percent rule in 1982, the
Department does not believe such reasoning now provides a persuasive
factual basis or legal requirement to maintain the current majority
rule. While the Department agrees with the commenters that are
skeptical about the permissibility of considering costs or cost effects
at all in deciding the appropriate definition of ``prevailing,'' the
Department considered these cost-related arguments nonetheless and does
not find them convincing, given the weakness of the wage-differential
analyses on which they are based. However, even if the reversion to the
30-percent rule were to add 0.3 percent to total Federal construction
contract costs (as CEI estimates and the Department disputes), and have
idiosyncratic cost effects in certain localities or construction types,
the Department would still conclude that this is the better course in
order to more often ensure that the prevailing wage rates incorporated
into covered contracts are rates that are actually paid to workers in
an area and that are therefore, on balance, more protective of local
construction wage rates.\81\
---------------------------------------------------------------------------
\81\ The Department also considered NAHRO's narrower suggestion
that HUD programs should be excepted from the final rule because of
concerns about potential cost impacts on affordable housing
development. As discussed, the Department disagrees with the
assertion that the reversion to the 30-percent threshold will
necessarily raise costs to affordable housing projects in a
significant or systematic manner so as to suggest the threshold
should not be applied.
---------------------------------------------------------------------------
The Department also considered whether the 30-percent threshold
gives ``undue weight'' to collectively bargained rates. In the 1982
final rule, the Department noted criticism of the 30-percent rule on
that basis, and later--though without specifically discussing the
issue--the Department stated generally that it agreed with the comments
criticizing the rule. Now, certain commenters opposing the Department's
proposal to return to the 30-percent rule have made similar arguments.
ABC pointed to the phenomenon of ``wage dispersion,'' which affects
non-union contractors more than it does union contractors. According to
ABC, non-union contractors more often base compensation on skills or
productivity rather than job category, unlike union contractors. Thus,
they argue, union contractors are more likely than non-union
contractors to pay their workers the same rate.\82\ AFP-I4AW commented
that nothing in the NPRM contradicts the conclusion in 1982 that the
30-percent rule gives undue weight to collectively bargained rates.
---------------------------------------------------------------------------
\82\ See also 1979 GAO Report, at 52 (describing the difference
between CBA pay scales and non-union contractor pay practices).
---------------------------------------------------------------------------
On the other hand, commenters supporting a return to the 30-percent
rule criticized the reasoning in 1982 that the 30-percent rule provided
``undue weight'' to collectively bargained rates. These commenters
argued that this reasoning was a symptom of anti-union bias and had no
basis in the statute. The Iron Workers quoted the 1962 congressional
testimony of Solicitor of Labor Charles Donahue regarding the interface
between the rule and union rates. As Solicitor Donahue pointed out, the
30-percent rule did not uniformly lead to the identification of union
rates as prevailing, but, in any case, the question of whether union or
non-union contractors are disadvantaged by the Department's prevailing
wage determinations is not something that the Department should be
properly taking into consideration in making its wage
determinations.\83\ In a related comment, two Professors of Economics
noted that the potential for union rates being identified as the
prevailing rate does not necessarily mean that project costs will
increase. The comment cited several peer-reviewed studies that found no
statistically significant cost difference between projects built with
prevailing rates based on union rates and projects that were not.\84\
---------------------------------------------------------------------------
\83\ Administration of the Davis Bacon Act: Hearings before the
Spec. Subcomm. of Lab. of the H. Comm. on Educ. & Lab., 87th Cong.
819-20 (1962) (statement and submission of Charles Donahue,
Solicitor of Labor).
\84\ See Lamek Onsarigo et al., ``The Effect of Prevailing Wages
on Building Costs, Bid Competition, and Bidder Behaviour: Evidence
from Ohio School Construction,'' 38 Constr. Mgmt. & Econ. 917
(2020); Kevin Duncan & Jeffrey Waddoups, ``Unintended Consequences
of Nevada's Ninety-Percent Prevailing Wage Rule,'' 45 Lab. Stud. J.
166 (2020); Jaewhan Kim et al., ``The Effect of Prevailing Wage
Regulations on Contractor Bid Participation and Behavior: A
Comparison of Palo Alto, California with Four Nearby Prevailing Wage
Municipalities,'' 51 Indus. Rels. 874 (2012).
---------------------------------------------------------------------------
The Department is no longer persuaded that the 30-percent threshold
gives undue weight to collectively bargained rates or that whatever
weight it gives to collectively bargained rates is a convincing basis
to maintain the status quo. The underlying concern in 1982 was, as ABC
explained, that identification of a modal prevailing wage could give
more weight to union rates that more often tend to be the same across
companies. If this occurs, however, it is a function of the statutory
term ``prevailing,'' which, as both the Department and OLC have
concluded, refers to a predominant modal wage rate. If a modal
methodology with a modal threshold is used, then the modal threshold--
regardless of the number used--may on balance be more likely to be
satisfied by collectively bargained rates than by non-collectively
bargained rates. Said differently, the same weight is given to
collectively bargained rates whether the Department chooses a 50-
percent or 30-percent threshold; thus any ``undue weight'' to
collectively bargained rates should not be a basis for distinguishing
between these two thresholds. The Department, accordingly, now
understands the concerns about undue weight to collectively bargained
rates to be concerns about the potential outcome (of more wage
determinations based on collectively bargained rates) instead of
concerns about any actual weight given to collectively bargained rates
by the choice of the modal threshold. To choose a threshold because the
outcome would be more beneficial to non-union contractors--as the
Department seems to have suggested it was doing in 1982--does not have
any basis in the statute. Donovan, 543 F. Supp. at 1291 n.16 (noting
that the Secretary's concern about weight to collectively bargained
rates ``bear[s] no relationship to the purposes of the statute'').
The Department also notes that there appears to be confusion among
some
[[Page 57546]]
commenters about what it means when the prevailing wage in a wage
determination is set based on a collectively bargained wage rate. A
comment on the Department's proposal from the group of U.S. Senators
characterized the 1982 rule as having changed the definition of
prevailing wage ``to allow open-shop contractors to bid on DBRA covered
contracts on an equal footing with their unionized counterparts.'' This
description seems to conflate the basis of a wage determination with
its effect on competition. Whether wage determinations are based on
collectively bargained rates or on non-collectively bargained rates,
both non-union and union contractors are on similar footing in that
they have similar notice of the Department's wage determinations and
are required to pay at least the same specified minimum rates. See 74
Cong. Rec. 6510 (1931) (Statement of Rep. Bacon) (``If an outside
contractor gets the contract . . . it means that he will have to pay
the prevailing wages, just like the local contractor.'').\85\ To the
extent that a non-union contractor has to pay higher rates on a
contract than it would have paid without the prevailing wage
requirement, it is not unfairly harmed because all other bidders are
required to pay at least the same prevailing rate.\86\
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\85\ As the AGC noted in a comment, the same is not necessarily
true when the prevailing wage rate is set below a collectively
bargained wage rate, as contractors bound by CBAs may not be able to
pay their workers less than the collectively bargained rate on a
covered project, while a non-union contractor could. For this
reason, another commenter that is a member of a larger contractor
association asserted the belief that its association was taking a
position against the proposal because non-union contractors ``do not
appear to want to compete on a level playing field by paying rates
consistent with the determination. Rather, their position indicates
they prefer to be able to undercut the wage/benefit determination by
paying rates below these to gain an advantage over competitors.''
Thus, to the extent that eliminating the 30-percent rule in 1982 led
to a decrease in the use of collectively bargained rates to set the
prevailing wage, the effect was not to place non-union contractors
on ``equal footing'' as union contractors, but to give non-union
contractors an advantage.
\86\ As the Department explains in section V.F.1., significant
benefits flow from ensuring that as many contractors as possible can
bid on a contract. One study on the impact of bid competition on
final outcomes of State department of transportation construction
projects, demonstrated that each additional bidder reduces final
project cost overruns by 2.2 percent and increases the likelihood of
achieving a high-quality bid by 4.9 times. See Delaney, J. (2018).
``The Effect of Competition on Bid Quality and Final Results on
State DOT Projects.'' <a href="https://www.proquest.com/openview/33655a0e4c7b8a6d25d30775d350b8ad/1?pq-origsite=gscholar&cbl=18750">https://www.proquest.com/openview/33655a0e4c7b8a6d25d30775d350b8ad/1?pq-origsite=gscholar&cbl=18750</a>.
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Regardless, the Department's regulatory impact analysis does not
suggest that a return to the 30-percent rule would give undue weight to
collectively bargained rates. Among a sample of rates considered in an
illustrative analysis, one-third of all rates (or about half of rates
currently established based on weighted averages) would shift to a
different method. Among these rates that would be set based on a new
method, the majority would be based on non-collectively bargained
rates. In the illustrative example, the Department estimates that the
use of single (modal-based) prevailing wage rates that are not the
product of CBAs would increase from 12 percent to 36 percent of all
wage rates--an overall increase of 24 percentage points. See Table 6,
section V.D.1.ii. The use of modal wage rates that are based on CBAs
would increase from 25 percent to 34 percent--an overall increase of 9
percentage points. Id.\87\
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\87\ As discussed in the regulatory impact analysis, the
Department found that fringe benefits currently do not prevail in
slightly over half of the classification-county observations it
reviewed--resulting in no required fringe benefit rate for that
classification. See Table 6, section V.D.1.ii. This would be largely
unchanged under the proposed reversion to the three-step process,
with nearly half of classification rates still not requiring the
payment of fringe benefits. Only about 13 percent of fringe rates
would shift from no fringes or an average rate to a modal prevailing
fringe rate. Overall, under the estimate, the percentage of fringe
benefit rates based on CBAs would increase from 25 percent to 34
percent. The percentage of fringe benefit rates not based on
collective bargaining rates would increase from 3 percent to 7
percent.
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Having considered the comments both for and against the
Department's proposed reversion to the three-step process for
determining the prevailing wage, the final rule adopts the amended
definition of prevailing wage in Sec. 1.2 of the regulations as
proposed.
(3) Former Sec. 1.2(a)(2)
In a non-substantive change, the Department proposed to move the
language currently at Sec. 1.2(a)(2) that explains the interaction
between the definition of prevailing wage and the sources of
information in Sec. 1.3. The Department proposed to move that language
(altered to update the cross-reference to the definition of prevailing
wage) to the introductory section of Sec. 1.3. The Department received
no comments on this proposal. The final rule therefore adopts this
change as proposed.
(4) Variable Rates That Are Functionally Equivalent
The Department also proposed to amend the regulations on compiling
wage rate information at Sec. 1.3 to allow for variable rates that are
functionally equivalent to be counted together for the purpose of
determining whether a wage rate prevails under the proposed definition
of ``prevailing wage'' in Sec. 1.2. The Department generally followed
this proposed approach until after the 2006 decision of the ARB in
Mistick Constr., ARB No. 04-051, 2006 WL 861357.
Historically, when reviewing wage survey data, the Department has
considered wage rates that may not be exactly the same to be
functionally equivalent--and therefore counted as the same--as long as
there was an underlying logic that explained the difference between
them. For example, some workers may perform work under the same labor
classification for the same contractor or under the same CBA on
projects in the same geographical area being surveyed and get paid
different wages based on the time of day that they performed work--
e.g., a ``night premium.'' In that circumstance, the Department would
count the normal and night-premium wage rates as the ``same wage'' rate
for purposes of calculating whether that wage rate prevailed under the
majority rule that is discussed in Sec. 1.2. Similarly, where workers
in the same labor classification were paid different ``zone rates'' for
work on projects in different zones covered by the same CBA, the
Department considered the difference between those rates to be
compensating workers for the burden of traveling or staying away from
home instead of reflecting fundamentally different underlying wage
rates for the work actually completed. Variable zone rates would
therefore be considered the ``same wage'' for the purpose of
determining the prevailing wage rate.
In another example, the Department took into consideration
``escalator clauses'' in CBAs that may have increased wage rates across
the board at some point during the survey period. Manual of Operations
(1986), at 58-59. Wages for workers working under the same CBA could be
reported differently on a survey solely because of the week their
employer used in responding to the wage survey rather than an actual
difference in prevailing wages. The Department has historically treated
such variable rates the same for the purposes of determining the
prevailing wages paid to laborers or mechanics in the survey area. Id.
The Department has also considered wage rates to be the same where
workers made the same combination of basic hourly rates and fringe
rates, even if the basic hourly rates (and also the fringe rates)
differed slightly.
In these circumstances, where the Department has treated certain
variable rates as the same, it has generally chosen one of those rates
to use as the
[[Page 57547]]
prevailing rate. In the case of rates that are variable because of an
escalator-clause issue, it uses the most current rate under the CBA.
Similarly, where the Department identified combinations of hourly and
fringe rates as the ``same,'' the Department previously identified one
specific hourly rate and one specific fringe rate that prevailed,
following the guidelines in 29 CFR 5.24, 5.25, and 5.30.
In 2006, the ARB strictly interpreted the regulatory language of
Sec. 1.2(a) in a way that limited some of these practices. See Mistick
Constr., ARB No. 04-051, 2006 WL 861357, at *5-7. The decision affirmed
the Administrator's continued use of the escalator-clause practice; but
the ARB also found that the combination of basic hourly and fringe
rates did not amount to a single ``wage,'' and thus the payment of the
same combination of hourly and fringe rates could not justify a finding
that the ``same wage,'' as used in Sec. 1.2(a), had been paid. Id. The
ARB also viewed the flexibility shown to CBAs as inconsistent with the
``purpose'' of the 1982 final rule, which the Administrator had
explained was in part to avoid giving ``undue weight'' to collectively
bargained rates. Id. The ARB held that, with the exception of escalator
clauses, the Administrator could not consider variable rates under a
CBA to be the ``same wage'' under Sec. 1.2(a) as the regulation was
written. Id. If no ``same wage'' prevailed under the majority rule for
a given classification, the Administrator would have to use the
fallback weighted average to determine the prevailing wage. Id. at * 7.
The ARB's conclusion in Mistick--particularly its determination
that even wage data reflecting the same aggregate compensation but
slight variations in the basic hourly rate and fringe benefit rates did
not reflect the ``same wage'' as that term was used under the current
regulations--could be construed as a determination that wage rates need
to be identical ``to the penny'' in order to be regarded as the ``same
wage,'' and that nearly any variation in wage rates, no matter how
small and regardless of the reason for the variation, might need to be
regarded as reflecting different, unique wage rates.
The ARB's decision in Mistick limited the Administrator's
methodology for determining a prevailing rate, thus contributing to the
increased use of weighted average rates. As noted in the discussion of
the definition of ``prevailing wage'' in Sec. 1.2, however, both the
Department and OLC have agreed that averages should generally only be
used as a last resort for determining prevailing wages. See section
III.B.1.ii.A. As the OLC opinion noted, the use of an average is
difficult to justify, ``particularly in cases where it coincides with
none of the actual wage rates being paid.'' 5 Op. O.L.C. at 177.\88\ In
discussing those cases, OLC quoted from the 1963 House Subcommittee
Report summarizing extensive congressional oversight hearings of the
Act. Id. The report had concluded that ``[u]se of an average rate would
be artificial in that it would not reflect the actual wages being paid
in a local community,'' and ``such a method would be disruptive of
local wage standards if it were utilized with any great frequency.''
Id.\89\ To the extent that an inflexible approach to determining if
wage data reflects the ``same wage'' promotes the use of average rates
even when wage rate variations are based on CBAs or other written
policies reflecting that the rates, while not identical, are
functionally equivalent, such an approach would be inconsistent with
these authorities and the statutory purpose they reflect.
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\88\ See note 1, supra.
\89\ See 1963 House Subcommittee Report, supra, at 7-8.
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As reflected in Mistick, the existing regulation does not clearly
authorize the use of functionally equivalent wages to determine the
local prevailing wage. See ARB No. 04-051, 2006 WL 861357, at *5-7.
Accordingly, the Department proposed in the NPRM to amend Sec. 1.3 to
include a new paragraph at Sec. 1.3(e) that would permit the
Administrator to count wage rates together--for the purpose of
determining the prevailing wage--if the rates are functionally
equivalent and the variation can be explained by a CBA or the written
policy of a contractor.
The Department received a number of comments from unions and
contractor associations that supported the proposed new language in
Sec. 1.3(e). These commenters noted that there are various ways that
CBAs and management decisions can create slight compensation variations
that may reflect special circumstances and not simply different wages
paid for the same underlying work. NABTU explained that the same
principle explains why the Department does not count an overtime
premium as a separate wage rate from the worker's base hourly rate for
the purpose of calculating the prevailing wage.
The commenters in favor of the Department's proposal asserted that
the reversion to the pre-Mistick practice of counting functionally
equivalent rates as the same is consistent with the DBA's legislative
history and the Department's longstanding preference for prevailing
wages that reflect actual wages paid to workers instead of artificial
averages. According to these commenters, the Mistick decision led to an
increase in the unnecessary use of average rates for wage
determinations, and it failed to adequately capture and reflect local
area practice. See Fry Bros. Corp., WAB No. 76-06, 1977 WL 24823, at *
6.\90\ One commenter, MCAA, also asserted that the decision in the
Mistick case was based on a ``non-statutory aim, if not animus, of
limiting the impact of CBA rates in the process.''
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\90\ In Fry Brothers, the Wage Appeals Board (WAB) described the
importance of using CBAs to help determine classifications based on
job content where collectively bargained rates prevail. 1977 WL
24823, at *6. The WAB was the Department's administrative appellate
entity from 1964 until 1996, when it was eliminated and the ARB was
created and provided jurisdiction over appeals from decisions of the
Administrator and the Department's ALJs under a number of statutes,
including the Davis-Bacon and Related Acts. 61 FR 19978 (May 3,
1996). WAB decisions from 1964 to 1996 are available on the
Department's website at <a href="https://www.dol.gov/agencies/oalj/public/dba_sca/references/caselists/wablist">https://www.dol.gov/agencies/oalj/public/dba_sca/references/caselists/wablist</a>.
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Conversely, ABC and several of its members stated that the
Department's proposal conflicts with the Department's intended
definition of ``prevailing wage'' and contradicts the ARB's Mistick
decision. Numerous other contractors and individual commenters, as part
of an organized initiative, stated that the ``functionally equivalent''
proposal, in combination with the return to the three-step process and
the elimination of the bar on cross-consideration of metropolitan and
rural wage data, was likely to ``further distort the accuracy'' of WHD
wage determinations, a process that the commenters stated was ``already
deeply flawed.'' These commenters urged the Department to abandon these
proposed changes to the rule, including the proposed language in Sec.
1.3(e).
The Independent Electrical Contractors (IEC) and AFP-I4AW stated
their opposition to the proposal because it would authorize the finding
that rates are functionally equivalent on the basis of CBAs. AFP-I4AW
stated that the modal analysis in the definition of prevailing wage in
Sec. 1.2 already favors the more uniform rates characteristic of CBAs,
and that the functional equivalence proposal's direction to the agency
to look to these agreements for the analysis ``will only increase the
likelihood of finding union rates to be the prevailing rates, leading
to the unjustified inflation of labor costs.'' IEC stated that, while
they appreciate the Department's intention of obtaining additional data
points for the purpose of determining a predominant wage rate, it
[[Page 57548]]
is not sufficiently clear what principle will guide the Department's
finding that varied rates are nonetheless functionally equivalent.
The Department has reviewed the many comments received regarding
the proposed language at Sec. 1.3(e) and agrees with the commenters
that advocated in favor of the proposal. The Department's intent in the
proposal is to ensure that prevailing wage rates reflect wage rates
paid for the same underlying work, and do not instead give undue weight
to artificial differences that can be explained because workers are
being compensated for something other than the underlying work. This is
consistent with the text and purpose of the Davis-Bacon Act and has the
salutary effect of reducing the unnecessary reliance on average wage
rates that are less protective of local construction wages.
The Department disagrees with the comments, sent in response to an
organized initiative, that the proposal conflicts with the Department's
intended definition of ``prevailing wage.'' The three-step process and
the functional-equivalence rule are consistent because they both seek
to reduce the reliance on averages and increase the use of wage rates
that are actually paid to workers in the area. In doing so, they both
seek to protect local prevailing wage rates and the craft
classifications of local area practice, which is the core purpose of
the DBRA. Moreover, the Department disagrees that there is any conflict
between the two regulatory sections. The proposed language at Sec.
1.3(e) explicitly cross-references the definition in Sec. 1.2 and
explains how it should apply to the real-world circumstances that WHD
encounters when analyzing survey data. The new language in Sec. 1.3(e)
is an amendment to, and becomes an element of, the definition itself.
The Department also does not agree that the new language contradicts
the Mistick decision; rather, the new language changes the rule that
would be interpreted by the ARB in the future. The Mistick decision was
an interpretation of the text of the Department's 1983 regulations that
required a determination of whether wage rates were the ``same wage''
and its fundamental holding was that the Department had not abided by
the regulatory language as it was then written. There would be no basis
for the ARB to come to the same conclusion under the proposed new
language at Sec. 1.3(e), which expressly authorizes the Administrator
to count variable wage rates together as the ``same wage'' in
appropriate circumstances.
While no commenter made the argument explicitly, the Department
also considered whether the comments regarding the proposed departure
from the post-Mistick status quo should be understood as assertions
that contractors have reliance interests in the Department's recent
practice. To the extent that any assertion of reliance interest was
made, however, the Department concludes that it is not sufficient to
override the value of the functionally equivalent analysis. The
functionally equivalent analysis, like the return to the 30-percent
threshold, is a change that will likely lead to increased use of modal
prevailing wages and decreased use of averages on wage determinations.
As with the 30-percent threshold, this change should reasonably be
expected to lead in some circumstances to increases in prevailing wage
rates and in other circumstances to decreases. Similar to the 30-
percent rule and to other amendments to the wage determination process
in part 1 of the regulations, the effects of this rule change will
apply only to future wage determinations and the future contracts that
incorporate them, with limited exception of certain ongoing contracts
covered in Sec. 1.6(d) of the final rule. Accordingly, contractors
will generally be able to adjust their bids or price negotiations on
future contracts to account for any effects of the regulatory change on
prevailing wages in a particular area.
Many of the comments in opposition to the proposal, for example
from IEC and AFP-I4AW, explained their opposition to be in part because
of a perception that the use of CBAs to identify functionally
equivalent rates would lead to more prevailing wage rates based on
CBAs. At least some of these commenters appeared to misunderstand the
proposal as only allowing for the use of CBAs to make an underlying
determination. IEC, for example, stated that if the intent is to
broaden the set of wage rates that can be used to determine that a
certain wage rate is prevailing, then there is no reason the Department
could not also find non-CBA wages ``functionally equivalent'' so long
as they have the same acceptable variation proposed for CBA wages
deemed functionally equivalent. The Department agrees. In the NPRM, the
Department intended the functional equivalence analysis to be
applicable to both collectively bargained and non-collectively
bargained rates as appropriate. That is why the proposed text of Sec.
1.3(e) expressly allowed for the determination of equivalence to be
made based on a ``written policy'' maintained by a contractor or
contractors--in addition to a CBA.
The Department also disagrees with the other criticisms related to
the use of collectively bargained rates. The Department disagrees with
the write-in campaign comments stating that any potential for this
proposal to increase the use of collectively bargained rates would mean
that wage determinations would be less accurate. The commenters'
conception of ``accuracy'' is not well explained in the context of the
``functionally equivalent'' analysis, but the Department assumes it is
similar to the way the term was used in the criticisms of the 30-
percent rule--in other words, how closely the ``prevailing wage'' hews
to the average rate, what the market rate would be in the absence of
the law, or whether the percentage of prevailing wage rates based on
CBAs matches the union density in an area. As the Department has
explained, these comparisons may demonstrate the differences between
possible conceptions of the term ``prevailing wage,'' but the
Department disagrees that potential differences between these numbers
necessarily represent differences in accuracy.\91\
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\91\ ABC made a related argument that the proposed functional
equivalence analysis would not improve accuracy because it is just a
``tweak'' of the data that the Department received from its wage
survey, which ABC believes should be replaced by use of BLS data or
augmented through representative sampling. As explained above with
regard to the definition of prevailing wage, the Department
disagrees with ABC that its suggested alternatives to the wage
survey program are either preferable or required. Regardless, the
functional equivalence analysis can be beneficial to the
determination of prevailing wages because the Department can avoid
mistakenly assigning value in a wage determination to apparent
differences in wage rates that a further examination would reveal to
be superficial and not reflecting different pay received for the
same work.
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[…truncated; see source link]Indexed from Federal Register on August 23, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.