On August 10, 2021 the United States Senate voted to approve a $1 trillion infrastructure bill to rebuild the nation’s roads, bridges, public transit systems, airports, power and water systems, and other projects. Assuming passage by the House is forthcoming, the bill will create unprecedented opportunities for all construction trades in every part of the country.

Much, if not all, of this work will be subject to the prevailing wage rules of the federal Davis-Bacon Act as well as other state and municipal prevailing wage requirements and other contract labor requirements. Contractors who have worked on public works projects in the past will want to become knowledgeable about compliance with the various rules.

Unlike non-public works projects, prevailing wage rules and other contract labor requirements can greatly increase the cost of a project, therefore, it is important for contractors to take these added costs into consideration when formulating their bids.

I have identified four areas that commonly drive increased costs and complications on public works projects but that could also be competitive advantages for those contractors who manage them strategically. Although this is far from an exhaustive list, it will serve as a jumping off point, especially for contractors new to the public works arena.

Prevailing Wage Mandated Pay Rates and Administration

The Davis-Bacon Act prevailing wage rate is made up of two components — a basic hourly rate and fringe benefits rate, discussed below. The total of both of these rates listed in a wage determination of the contract comprise the Davis-Bacon Act prevailing wage requirement for a given worker classification. In addition to the Davis-Bacon Act prevailing wage, many states have their own prevailing wage regulations.  

The disbursement of federal funds under the infrastructure bill will likely, in part, be allocated to individual states who will then identify and define their projects as permitted under the law and administer the contracting process. 

It is important to understand that even if a state does not have prevailing wage laws, projects funded with federal money, such as the infrastructure bill, through individual states are subject to the Davis-Bacon Act, and therefore prevailing wages and fringe benefits must be paid.

Payroll reporting requirements related to public works projects are extensive and burdensome. Each payroll must be documented and certified in a special format that may vary depending on the contracting agency. For example, Form WH-347 is the certified payroll report required under federal projects. Additionally, states typically have their own version of certified payroll reports. Other payroll reporting requirements often include defined paystub detail, detailed benefit plan documentation, proof of training contributions, as well as proof of apprenticeship training hours and payments and others.  

Prevailing Wage Mandated Fringe Benefits and Administration
The fringe benefit portion of prevailing wage regulations are particularly complicated and therefore often misunderstood and misapplied by contractors. 

A contractor can choose between providing the prevailing fringe benefit rate as additional cash wages or as bona fide benefits. Although this may seem to be the easiest solution, the cost of paying the fringe rate as cash wages can be expensive since wages are subject to payroll taxes and payroll-based insurance premiums. In most circumstances this includes FICA, unemployment taxes, workers’ compensation premiums and liability insurance premiums. These costs are typically referred to as “labor burden” and can range between 15 – 40% of payroll, depending on rates paid for workers’ compensation and liability insurance.

Labor burden costs, however, do not apply when utilizing the prevailing wage fringe benefit rate to provide bona fide benefits which may include:

  • Health and welfare benefits (medical, dental, life, disability coverage)
  • Pension / retirement plan
  • Vacation / holiday / paid-time off benefits
  • Supplemental unemployment benefits
  • Apprenticeship training benefits

Contractors who are providing bona fide benefits to their employees need to understand the annualization requirements of the prevailing wage law. Annualization is a computational method used to determine the hourly rate of benefit plan contributions that are creditable towards a contractor’s prevailing wage fringe benefit obligation on covered projects.

To compute the contractor’s allowable hourly credit towards meeting the prevailing wage obligation for covered workers on a prevailing wage project, the total annual cost of the fringe benefits must be divided by the total number of hours individual employees work in a year, including work on both covered (public) and non-covered (private) work. The annualization computation must be done for each individual worker.

The Davis-Bacon Act and some states exempt annualization for contributions made to fund a defined contribution retirement plan that provides for immediate participation and immediate vesting. 

Although more complicated than paying fringe benefits as additional cash wages, the correct application of fringe benefit programs can provide a competitive advantage to contractors. To learn more about the fringe benefit requirements of the prevailing wage law and related strategies read Working the Fringe and Harnessing the Power or visit directadvisors.com

Apprenticeship Program Requirements

There is no mandatory requirement to have an apprenticeship program or use apprentices on federal Davis-Bacon Act projects, however, many states such as New York, New Jersey and California require contractors to have programs in order to bid on public works projects.    

In order to qualify, the contractor must have a certified apprentice program or be a member of an approved program sponsored by a third party such as a construction trade association. Participation in these programs will add costs and administrative burden.  

Minority Hiring Requirements

Transportation Secretary Pete Buttigieg recently reinstated an Obama-era pilot program that permits state and local agencies receiving federal transit or highway money to impose local hiring preferences, such as those favoring veterans and minorities.

Contractors should pay close attention to such requirements as they can be difficult to fulfill. Strategies to meet these requirements can include partnerships with workforce intermediaries such as local workforce boards, nonprofit organizations, and community-based outreach programs to name just a few.

How We Can Help
Direct Advisors, LLC, established in 2001 and located in Albany, New York, provides 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.