The Construction Industry Reacts to the New Davis-Bacon Act Regulations
November 14, 2023
On October 31, 2023, our Surety Today Blog post addressed the new Davis Bacon Act (“DBA”) regulations that recently became effective and their impact on sureties. Of course, the new regulations did not only impact sureties; the construction industry as a whole is impacted. In this Surety Today Blog post we will take a look at the construction industry’s response to these new regulations.
I. OVERVIEW OF THE NEW REGULATIONS
On March 18, 2022, the Department of Labor (“DOL”) published a Notice of Proposed Rulemaking to update the Davis-Bacon and Related Acts Regulations (87 Fed. Reg. 15698 (Mar. 18, 2022)). The proposed regulations offered more than fifty significant changes to existing DBA regulations regarding how the DOL determines, mandates, and enforces prevailing wages on all covered contracts. The DOL stated that the new regulations were intended to “update and modernize” the DBA, but in reality the regulations go much further than that. The DOL noted that the last comprehensive revision of the regulations was in 1981. There were nearly 41,000 comments in response to the new proposed regulations.
The new final regulations were published on August 23, 2023 (88 Fed. Reg. 57526-57747). In all, the new regulations encompass some 800 pages. With limited exception, the new regulations apply only to new contracts that are entered into after the final rule’s effective date, which was October 23, 2023. In general, the new regulations change the definition of “prevailing wage” from the long-standing 50% standard, to any single wage that is paid to at least 30 percent of the covered workers. The regulations also change the DOL’s approach to calculating prevailing wages in urban and rural counties when survey data is too limited to calculate the prevailing wage in a single county. The regulations further allow incorporation of state prevailing wage determinations into the DBA wage determination.
The new regulations expand coverage of the DBA to additional workers and activities that were previously exempt from the DBA. For example, the regulations now alter the statutory definition of the term “construction” by including certain forms of “transportation” between related worksites. They also apply the DBA to new classes of workers, including certain surveyors, truckers, and workers engaged in prefabrication activities and/or material suppliers away from the construction worksite, as well as to certain “green energy” construction projects, such as weatherization and the installation of solar panels and broad band.
The new regulations also purport to impose DBA coverage on contracts in which the DBA is not identified as being applicable. Thus, under the new regulations, a contract no longer has to state that it includes a prevailing wage or any other DBA requirement, notwithstanding the plain language of the Act requiring such contractual stipulations. Instead, those requirements will now be imposed as a matter of law, by operation of law, without notice to contractors and/or subcontractors.
The new regulations greatly expand the withholding capabilities of the DOL. First, the regulations provide for an extremely broad definition of a “prime contractor” which now includes “any person or entity that enters into a contract with an agency” . . . and includes “the controlling shareholders or members of any entity holding a prime contract, the joint venturers or partners in any joint venture or partnership holding a prime contract, and any contractor (e.g., a general contractor) that has been delegated the responsibility for overseeing all or substantially all of the construction anticipated by the prime contract.” Second, the regulations now allow the DOL to withhold funds for DBA violations on any contract, across any agency in which a prime contractor is involved.
II. CONSTRUCTION INDUSTRY RESPONSE
On November 7, 2023, the Associated Builders and Contractors association and others filed suit in the United States District Court for the Eastern District of Texas, Case No. 1:23-cv-00396 seeking an injunction against enforcement of the new regulations. In addition, on the same date, the Associated General Contractors of America association and others also filed suit seeking an injunction against certain of the new regulations in the United States District Court for the Northern District of Texas, Case No. 5:23-cv-00272-C. Summonses have been issued in both cases, but nothing of substance has happened so far.
In both suits, the associations seek injunctions because they contend that the new regulations are unconstitutional because they exceed the authority of the DOL in its rule making capacity and impermissibly expand and exceed the terms of the DBA. The ABC suit also contends that the current acting head of the DOL lacks the authority to issue any new rules. According to the ABC, the head of the DOL stepped down seven or eight months ago and the President proposed the current acting head as the replacement. However, the position requires the confirmation of the Senate. The Senate has refused to confirm and has signaled that it will not confirm this candidate. The ABC argues that the acting head of the DOL cannot remain in the position for this length of time without confirmation and that a new acting head is required. If an injunction is issued on this basis, it would affect all of the new regulations.
The ABC and the AGC suits otherwise target certain new regulations which do not directly involve the new regulations relating specifically to sureties, except for the cross-withholding provisions. However, the ABC argues in its Complaint that all of the new regulations must be rejected because they are all intertwined and non-severable. The ABC contends that where invalid parts of a rule are woven into a comprehensive regulatory plan or scheme, such that the remaining parts are incapable of “independent life,” a court can set aside the entire rule. The ABC argues that because the final regulations’ provisions are part of a comprehensive scheme, they cannot be logically severed and must be set aside in total.
The framework of the arguments asserted by the ABC and AGC provide a roadmap for the surety industry to challenge the new DBA regulations. As we noted in our October 31 post, the new regulations in many ways directly contradict established surety law and improperly seek to expand the scope of the Miller Act. This kind of over-reaching is beyond the authority of the DOL and is the same kind of tactics that the ABC and AGC are contesting. I believe that the SFAA is reviewing the matter and considering its options, so stayed tuned.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321 or mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.