The flawed method used by the federal government to calculate “prevailing wages” under the 91-year-old Davis-Bacon Act adds at least 7.2% to the cost of federal and federally assisted construction projects and inflates wages by 20.2% compared to local market averages, according to a new report from the Beacon Hill Institute (BHI).
Associated Builders and Contractors (ABC) has called on the U.S. Department of Labor to modernise its wage determination process for decades, but says a proposed rule the agency released on March 18 actually makes this "archaic and unscientific process even more inaccurate, inflationary and biased".
In the report, The Federal Davis-Bacon Act: Mismeasuring the Prevailing Wage, BHI examined the DOL Wage and Hour Division’s methodology that determines how much contractors are required to pay to construction workers on taxpayer-funded projects subject to DBA regulations. The report found that the DOL’s methodology produces government wage determinations that do not reflect local area standards and are not statistically accurate. These findings are consistent with reports critical of the DOL’s methodology by the DOL Office of Inspector General, the Government Accountability Office and think tanks published over the last 50 years.
“There is a general unawareness of the arcane statistical calculations undertaken by the U.S. DOL WHD that inflate costs. Since the law is intended to reduce wage competition, the government authorities responsible for calculating the prevailing wage are under pressure to use archaic methods for calculating a wage that is biased toward requiring union-scale wages instead of an average or even true prevailing wage. In addition, the DOL occupational classifications and rate of pay are not based on qualifications, experience, safety record or skills but rely only on the type of work performed on a project,” BHI wrote.
“The DBA turns federal construction spending into a costly welfare system for union workers in some markets,” according to the report. “The DBA gets periodic attention from Congress and various critics as an archaic policy resulting in waste, favouritism and reduced competition for government contracts.
“The Biden administration’s sweeping proposal makes 50 significant changes to Davis-Bacon Act regulations, yet it does nothing to fix the systematic errors within the DOL’s wage determination process,” said Ben Brubeck, ABC vice president of regulatory, labour and state affairs. “Besides exacerbating these well-documented flaws, the proposal expands DBA regulatory burdens and increased costs to more taxpayer-funded construction projects and industries—including small businesses in the trucking, manufacturing and surveying industries—while failing to provide regulatory clarity to impacted contractors and stakeholders.”
“This anti-competitive and costly proposal couldn’t come at a worse time for taxpayers following the passage of the Infrastructure Investment and Jobs Act, which over the next ten years invests $550 billion of new federal money into infrastructure above baseline spending,” said Brubeck. “The construction industry is facing unprecedented inflationary headwinds driven by supply chain disruptions, materials price escalation and a skilled labour shortage of nearly 650,000 in 2022. This rulemaking will result in more inflation and the construction of fewer roads, bridges, schools, transportation systems and utilities funded by taxpayers.
“The public has until May 17 to urge the administration to reconsider its path forward on this ill-advised and economically damaging rulemaking. Meaningful Davis-Bacon Act regulatory reform will foster robust competition from all members of the construction industry on federally funded contracts and deliver communities the high-quality infrastructure they deserve while providing the best possible value for taxpayers.”
The 1931 Davis-Bacon Act and related regulations require contractors and subcontractors that perform work on federal and federally funded construction projects to pay a government-determined prevailing wage and benefit rate on an hourly basis to on-site construction workers. According to the DOL proposal, the Davis-Bacon Act and 71 Related Acts collectively apply to an estimated $217 billion in federal, and federally assisted construction spending per year—which is about two-thirds of all U.S. public works construction spending in 2021—and results in government-determined wage rates for an estimated 1.2 million U.S. construction workers.
For decades, small businesses in the construction industry have complained about the regulatory burdens and lack of clarity caused by dysfunctional DBA regulations and have called for its outright repeal without meaningful DBA reforms. Repeal of the DBA is likely to save taxpayers at least $217 billion over the next ten years, according to BHI.
