Military Privatization Contracts in the Post-City Center World—Yes, Davis-Bacon Still Applies; Yes, You Need to Comply
Molly Bloom's closing soliloquy : “I thought well as well him as another and then I asked him with my eyes to ask again yes and then he asked me would I yes to say yes my mountain flower and first I put my arms around him yes and drew him down to me … yes and his heart was going like mad and yes I said yes I will Yes.”
—James Joyce, Ulysses [excerpt edited for sensitive ears]
In June of 2019, the Administrative Review Board (“ARB”) decided a case in which a contractor for the Defense Logistics Agency (“DLA”) asked for clarification for the application of the Davis-Bacon Act (“DBA”) to a military privatization construction and operations contract. The DLA solicitated contractors to privatize Eglin Air Force Base’s utility systems. The privatization contract would include the construction and upgrades for the current utility system as well as a fifty-year services contract to own and operate the infrastructure. Choctawhatchee Electric Cooperative, Inc. ("CHELCO") won the bid in September of 2016.
Before winning the bid, CHELCO requested that the Department of Labor Administrator review the applicability of the DBA following a ruling in a similar case by the D.C. Circuit Court that suggested the DBA does not apply because this was not a contract for construction of a public work. The Administrator found that DBA did apply to the work and the contractor then appealed that decision to the Administrative Review Board (“ARB”).
The DBA and its wage determination generally apply to every contract in excess of $2,000 for construction of a public building, or for a public work. See 29 C.F.R. § 5.2. Here, CHELCO argued that it would own the land after the fifty-year term, so it was not a public building. Furthermore, they claimed that the government will not be funding the work directly with public funds. In District of Columbia v. Dept. of Labor, 819 F.3d 444 (D.C. Cir. 2016) (the so-called City Center case) the District of Columbia Circuit Court held that when the District of Columbia entered into contracts to lease and build out several blocks for commercial use at the old convention center site, the contract was not a contract for construction. The argument was that those facts were analogous because Eglin AFB, the owner of the land here, will not be a party to the actual contract, instead it was the Defense Logistics Agency (“DLA”). In City Center, the government leased the land to the developer, and the developer made lease payments to the D.C. government. Then it was the developer who contracted for the upgrades on the land.
Despite that similarity, the ARB decided that the overwhelming evidence suggested the opposite result of that in City Center. They reached this result applying All Agency Memorandum (“AAM”) no. 222 (January 11, 2017) guidance issued at the end of the Obama Administration attempting to limit the impact of City Center. Unlike many Obama-era precedents, the Trump Administration has not attempted to undo that AAM. Here, there is a fifty-year lease, after which time the government may reacquire ownership. The contract is to upgrade the utility system and the primary user of the utility system will be Eglin AFB, unlike the facts in City Center, where the retail, hotel and office development had primary commercial occupancy. Although the contract would involve the privatization of the utility system, it would also involve substantial upgrades and construction. Finally, the federal government is almost entirely funding the contract with public funds. Therefore, the contract is for the purposes of construction and upgrading, rather than for the sole purpose of privatization like that in City Center.
The use of public funds is important to the second issue resolved in the case; whether the construction is for a “public work”. Since the land is not a building, for the DBA to apply it must be a “public work”. CHELCO argues that a public work is one that has public funding and has government control or ownership of the completed facility. Eglin AFB is paying for the construction through lump sums and various other methods, so the ARB held that there is public funding. The ARB also determined that the interpretation in AAM 222, which states that ownership of the facility or control is not necessary for the DBA to apply, was a reasonable interpretation of the DBA and therefore control/ownership of the facility was not necessary.
As a result, the DBA and its wage determinations did apply to this contract. The ARB decision stands for the proposition that public funding for a construction contract is the most important factor in determining if the contract is for a “public work”. Furthermore, the contract may be between a contractor and a branch of the government who is not directly receiving the benefit of the improvements. However, it seems that the government must be in some way a beneficiary of the work done under the agreement for it to be a contract “for construction”. This is generally the case for most military privatization projects.
The ARB decision can be found under ARB Case No. 2017-0032 or here at https://www.oalj.dol.gov/PUBLIC/ARB/DECISIONS/ARB_DECISIONS/DBA/17_032.DBAP_SLIP_OP.PDF.