The U.S. Department of labor (“DOL”)  recently issued final Davis-Bacon Related Act (“DBRA”)  regulations overhauling the application of that law.  See https://public-inspection.federalregister.gov/2023-17221.pdf (August 23, 2023), discussed at https://www.awrcounsel.com/blog/2023/8/9/dol-issues-new-and-old-davis-bacon-and-related-acts-regulations.  While the new regulations address a number of different topics, one issue they take square aim at is the administrative (“admin.”) fees being charged to health and welfare (“H&W”)  plans by various third party providers. We have written about this issue before (https://www.awrcounsel.com/blog/2018/8/29/the-service-contract-act-and-davis-bacon-act-plan-expense-conundrum?rq=fee%20) and now is a good time to revisit that analysis since DOL has refined its position in the new final regulations, which are set to go into effect 60 days after publication in the Federal Register, so implementation is set for mid-October 2023, unless otherwise enjoined by some court order.  

First things first, the DBRA initiative isn’t a Service Contract Act (“SCA”) regulation, but DBRA is a cousin to the SCA, and the regulatory effort is likely to impact certain SCA disputes too. Thus, it is probable that DOL will rely on the DBRA regulations not only for construction contracts, but it will also push to apply the same rules when it comes to service contracts. Accordingly, in this blog , we will analyze its impact on  third-party administrator (“TPA”) fees on both service and contraction contracts.

Here is what DOL says in the Q&A about the new regulations on DBRA plan administrative fees: 

24. Does the final rule permit a contractor or subcontractor to take Davis-Bacon credit for administrative expenses incurred in connection with the administration of a fringe benefit plan? 

Consistent with the Department’s longstanding position regarding administrative expenses, under the final rule, a contractor or subcontractor may not take DBRA credit for expenses incurred in connection with the administration of a fringe benefit plans if such expenses are primarily for the benefit or convenience of the contractor or subcontractor. However, credit for costs 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 to the contractor’s laborers and mechanics may be eligible for a Davis-Bacon credit. Should questions arise as to whether an expense is creditable towards a fringe benefit plan, the final rule directs the Contractor or subcontractor to consult with WHD prior to claiming a credit.

In the preamble of the DBRA regulations, DOL elaborates on what is permissible and does provide some illustrative examples of TPA fees and employer costs which they find to be unallowable. By that, DOL means that such expenses cannot be credited towards the DBRA fringe benefit compliance, and presumable  cannot be credited against the SCA health and welfare (“H&W”) plan compliance. We have gathered below all the examples we could cull from the preamble of the new DOL DBRA regulations.

The following are unallowable expenses (for which a contractor may not take a credit) according to the DOL:

·        The employer’s general overhead expenses of doing business. 

·        Administrative costs for bank fees, payments to clerical workers for preparing paperwork and dealing with insurance companies. 

·        Fees charged by third parties for performing such administrative tasks as tracking the amount of the contractor’s fringe benefit contributions; making sure those contributions cover the fringe benefit credit claimed by the contractor; tracking and paying invoices from third-party plan administrators; and sending lists of new hires to the plan administrators. 

·        Recordkeeping costs associated with ensuring the contractor’s compliance with the Davis- Bacon fringe benefit requirements, such as the cost associated with tracking the amount of its fringe benefit contributions or making sure contributions cover the fringe benefit credit claimed, are considered a contractor’s own administrative expenses and therefore are not creditable whether the contractor performs those tasks itself or whether it pays a third party a fee to perform those tasks. 

·        Costs that are primarily for the benefit or convenience of the contractor. An expense is primarily for the benefit of the employer if, among other reasons, it is imposed on the employer by law.

·        Its own administrative expenses which it incurs directly, like the cost of an office employee who fills out medical insurance claim forms for submission to an insurance carrier. 

·        Credit for its own administrative expenses even when the contractor pays a third party to perform its administrative tasks rather than incurring the expenses internally, including the following illustrative examples:

(a)    the cost of filling out medical insurance claim forms for submission to an insurance carrier,

(b)   paying and tracking invoices from insurance carriers or plan administrators,

(c)     updating the contractor’s personnel records when laborers or mechanics are hired or separate from employment,

(d)   sending lists of new hires to insurance carriers or plan administrators, or

(e)    sending out tax documents to the contractor’s laborers or mechanics. 

·        Recordkeeping costs associated with ensuring the contractor’s compliance with the Davis-Bacon fringe benefit requirements, such as:

(a)    the cost associated with tracking the amount of its fringe benefit contributions, or

(b)   making sure contributions cover the fringe benefit credit claimed. 

·        Tracking the hours worked by its laborers and mechanics on DBRA-covered projects costs.

·        Tracking the contractor’s fringe benefit contributions on behalf of these workers. 

·        Reconciling workers’ hours worked with the contractor’s contributions. 

·        Cost of an office employee or third party administrator who submits claim forms to an insurance carrier. 

·        Expenses are properly viewed as business expenses of the contractor. 

·        Costs of office employees or third party administrators who perform tasks such as filling out medical insurance claim forms for submission to an insurance carrier, paying and tracking invoices from insurance carriers or plan administrators, updating the contractor’s personnel records when workers are hired or separate from employment, 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. 

·        Recordkeeping costs associated with ensuring the contractor’s compliance with the Davis-Bacon fringe benefit requirements, such as the cost of tracking the amount of a contractor’s fringe benefit contributions or making sure contributions cover the fringe benefit amount claimed, are considered a contractor’s own administrative expenses and are not considered directly related to the administration and delivery of bona fide fringe benefits.

Stating the obvious — employers who have plans with these kinds of admin fees, and the TPAs who work for them, would be wise to review their plans and contractual agreements in light of the new regulations. The formal DOL position presumably is a prelude to future wage and hour enforcement activities. If the new regulations are deemed enforceable, then read the contracts between the TPA and the employer to see who is going to be on the hook for the retroactive fringe benefit disallowance claims which DOL intends to bring, and to decide what to do going forward to avoid or mitigate those claims.