The Davis-Bacon Act (DBA) has long been a cornerstone of labor law in the United States, ensuring workers on federally funded construction projects receive fair wages and benefits. On August 8, 2023, the U.S. Department of Labor (DOL) published a final rule, Updating the Davis-Bacon Act and Related Acts Regulations, that sets forth rules for the administration of the law, which become effective on October 23, 2023.

DBA prevailing wage requirements are applicable in numerous other statutes, referred to as “Related Acts”, including the National Housing Act, Federal-Aid Highway Act and the bipartisan Infrastructure Investment and Jobs Act, among others. The new rules include clarification about the conditions under which a contractor or subcontractor may take credit for administrative expenses incurred in connection with fringe benefit plans.

What are Creditable Administrative Costs?
Creditable costs are those incurred by a contractor’s insurance carrier, third-party trust fund, or other third-party administrator that are directly related to the administration and delivery of bona fide fringe benefits. For example, a contractor may take credit for the premiums it pays to an insurance carrier or the contributions it makes to a third-party trust fund that both administers and delivers bona fide fringe benefits under a plan, including evaluating benefit claims, deciding whether they should be paid, necessary recordkeeping and reporting, and other reasonable costs of administering the plan. Similarly, a contractor may also take credit for monies paid to a third-party administrator to perform tasks directly related to the administration and delivery of bona fide fringe benefits, including under an unfunded plan.

What are Non-Creditable Administrative Costs?
Non-creditable costs are a contractor’s own administrative expenses incurred in connection with the provision of fringe benefits. They are considered business expenses of the firm and, therefore, are not creditable. This includes situations when the contractor pays a third party to perform such tasks in whole or in part. For example, a contractor may not take credit for the costs of office employees who perform tasks such as filling out medical insurance claim forms, paying and tracking invoices from insurance carriers or plan administrators, updating personnel records, sending lists of new hires and separations to insurance carriers or plan administrators, or sending out tax documents to the contractor’s workers, nor can the contractor take credit for the cost of paying a third-party entity to perform these tasks.

Potential Complexities and Solutions
Contractors that utilize third-party trust funds and/or third-party administrators for the provision of fringe benefits need to be careful that the services that are being provided are directly related to the administration and delivery of fringe benefits in-order-for the cost to be creditable. For example, expenses related to the management of a healthcare plan or 401(k) plan are allowable / creditable.

The new rule merely precludes contractors from taking credit for their own administrative costs associated with providing fringe benefit plans and which are properly considered business expenses of the contractor.

Maintaining detailed service agreements from service providers is advisable to answer questions related to the creditability of expenses. Finally, if questions arise, the new rules allow contractors to receive input from the Department of Labor as to the creditability of any questionable expenses.

How We Can Help
Direct Advisors, a division of HUB Retirement and Wealth Management, was established in 2001 and is located in the Albany, New York area. We provide bona fide benefit plan consulting and third-party administrative services to merit shop (non-union) construction companies that are subject to the Davis-Bacon Act and state prevailing wage regulations. Our clients are located throughout the United States.