Davis-Bacon Compliance: A Cautionary Tale
On May 8, 2024, the Wage and Hour Division (“WHD”) of the U.S. Department of Labor (“DOL”) announced a settlement worked out between DOL and a construction subcontractor to resolve Davis Bacon Related Acts (“DBRA”) violations. The settlement was set forth in Consent Findings that were approved by a DOL Administrative Law Judge (“ALJ”).
The subcontractor was engaged to do concrete installation on a federally funded housing construction project. The subcontractor underpaid its DBRA covered laborers and mechanics because the subcontractor misclassified the work being performed by the workers. In a nutshell, the employer designated the workers as “laborers” (a lower wage classification) when they actually were performing work covered by other more skilled classifications subject to a higher wage rate.
These misclassifications effectively caused other violations beyond the underpayment of wages and fringe benefits. These included the falsification of payroll records and the underpayment of overtime wages. The investigators also found that the subcontractor also violated the Davis-Bacon poster requirement. At the end of the investigation, the WHD ordered the subcontractor to pay over $195,000 in back pay. DOL also issued a Notice of Debarment. This is an extreme remedy that we in the government contracts world often refer to as the death penalty because it means the contractor no longer is eligible for federal work until the period of debarment expires.
The subcontractor requested a hearing before an ALJ to challenge the investigation’s findings. That was a good call given that the subcontractor was at risk of debarment. Thereafter, DOL and the subcontractor negotiated the now-approved Consent Findings pursuant to which the subcontractor agreed to pay a slightly reduced amount of backpay.
The subcontractor also agreed to an 18-month period of “enhanced compliance” in which its practices would be scrutinized by a monitor. The monitor would perform three audits in which he or she would review the subcontractor’s records, interview employees, assess the subcontractor’s compliance, and issue a report to DOL. This period of enhanced compliance presumably was agreed to in lieu of debarment. Given the conduct set forth in the agreed findings, this is not a terrible outcome considering the very real threat of debarment.
Now on to how this is a cautionary tale. First (and obviously), a contractor performing work on a Davis-Bacon or Davis-Bacon Related Acts covered project must be disciplined in how it classifies the work performed by covered workers. For example, there are times when a skilled employee, say an electrician, is scheduled to work but only to do laborer-type tasks. In that circumstance, the electrician can be paid a laborer rate. The contractor should create and retain good records to support that it paid wages and furnished fringe benefits that, together, equal or exceed the amounts required under the applicable Davis-Bacon wage determination. If good records aren’t kept, DOL might negatively presume that the aforementioned electrician should have been paid as an electrician. If a contractor is new to federally funded construction, it should learn the requirements and set up proper records and procedures.
Generally, negligent violations of Davis-Bacon requirements will not be cause for debarment - some level of intent to evade obligations is required. The standard for debarment is whether there was a “disregard of obligations” if the contract is subject to Davis-Bacon (i.e., a federal procurement construction project). If the work is covered by a Davis-Bacon Related Act (for example the housing project that was involved in this case), the standard is the same for projects that began after the October 2023 rewrite of the Davis-Bacon regulations. The period of debarment under current rules for all contractors is three years. For earlier (i.e., before October 2023) projects such as the one in this case, the standard for “related acts” violations is whether the conduct constituted a willful or aggravated violation. In addition, the period of debarment could be less than three years.
While the Consent Findings don’t reveal this, I suspect there was a real dispute as to whether the subcontractor’s violations were, indeed, willful or aggravated. Likewise, I suspect that dispute is what led to the parties’ agreement to the 18-month monitorship. This eliminated the debarment but it will require a considerable expenditure by the subcontractor to fund the monitor who will subject them to a fair amount of scrutiny. Although that’s expensive, it’s not the death penalty. In addition, I have no doubt the subcontractor’s costs just to respond were extraordinary since the investigation began in 2021 and were not fully resolved until almost three years later.
Of course, glitches can occur no matter how carefully a contractor has set up compliance procedures. When glitches do occur, sound policies can catch mistakes and provide an opportunity for corrective actions. This lessens the likelihood of an investigation in the first place. If DOL shows up, pre-investigation corrective actions are all the better in terms of DOL’s assessment of the contractor’s practices.