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How Do Wage Requirements Impact HUD Projects?
The nearly century-old Davis-Bacon Act requires that workers on federally funded construction projects are paid prevailing wages. Find out how this affects your development.
The Davis-Bacon Act became law in 1931 as a way of ensuring workers involved in federally funded construction projects were paid competitive wages. Part of the legislation even prohibited contractors from bidding on projects if they were unable to pay their workers the specified prevailing wages.
Beyond the Davis-Bacon Act itself, there are myriad other statutes, laws, and policies across the country at different levels of government that have similar effects. These groups of statutes are known as Davis-Bacon Related Acts, or DBRA. This article reviews the implications DBRA can have on multifamily developments.
Is My Property Subject to Davis-Bacon Wage Requirements?
Are you developing or substantially rehabilitating a multifamily community using HUD-backed financing, like the popular HUD 221(d)(4) construction-to-permanent loan? If so, these prevailing wage requirements will apply to you. Because FHA-insured construction debt counts as a federal program, you must ensure your contractors are paid, at a minimum, the prevailing wage for your area.
Are Wage Requirements in Place for All HUD Loans?
No, the Davis-Bacon wage requirements are not in effect on all HUD loans. The requirements only apply to projects with construction or significant renovation work. If you are refinancing a property with, say, a HUD 223(f) loan, and you plan to do some light renovation work, you would generally not be required to pay Davis-Bacon prevailing wages. Only if the work is substantial would these requirements go into effect — say, for a gut rehab or the addition of extra buildings — but this level of activity is not covered by a HUD 223(f) loan.
What’s the Prevailing Wage in My Area?
While information about the prevailing wage levels is available through the U.S. government, you may need to carry out additional research. After all, there could be local restrictions in place that enact additional requirements on your project.
Note that a HUD prevailing wage requirement doesn’t only include cash compensation. The figure for each job is given as a total of the hourly wage plus any pro rata fringe benefits’ cash values. Typically, these are general wage determinations conducted by the Wage and Hour Division of the Department of Labor.
In some cases, a project wage determination may be used instead. These are issued for specific projects by the Wage and Hour Division and are not updated, instead expiring 180 days after issuance. These types of determinations may be used if a project does not fit with the area’s profile. For example, consider the construction of a 50-unit multifamily community in a rural area. If the project is vastly different from the surrounding area — think both in terms of design and size — there could potentially be a mismatch between the jobs listed in the general wage determination compared to the skillsets required by the project.
Even if using a general wage determination, note that the Department of Labor provides wage determinations not as a broad, minimum wage, but instead for each type and category of contractor that may be on site.
Does the Davis-Bacon Act Apply to All Contractors?
No. There are multiple criteria that determine whether or not a contractor is subject to these requirements. Typically, they only apply to manual labor jobs — think plumbers, elevator mechanics, and ironworkers. Management personnel and architects are exempted from these requirements — though foremen may be covered if they spend more than 20% of each working week on physical labor tasks.
Beyond the type of job, the location where the work is performed can also be a criteria for determining eligibility. Broadly speaking, if the labor is conducted at the development site, the worker is probably covered under the Davis-Bacon Act. On the other hand, off-site workers — say, those assembling building parts at a facility some distance away — may not be covered. This is especially true if the facility they work in assembles or fabricates parts or tools for other developments.
How Have the Davis-Bacon Wage Requirements Changed Over Time?
The Davis-Bacon wage requirements have changed several times in response to changes in the national labor market. In one of the most recent changes in 2009, the law adjusted to increase the number of workers covered by these wage requirements. Furthermore, the latest amendment made it easier for workers to file a complaint if they believe they are not being paid the prevailing wage.
Related Questions
What are the wage requirements for HUD projects?
The Davis-Bacon wage requirements are in effect on HUD projects with construction or significant renovation work. These requirements mandate that contractors are paid, at a minimum, the prevailing wage for the area. If you are refinancing a property with a HUD 223(f) loan and plan to do some light renovation work, you would generally not be required to pay Davis-Bacon prevailing wages. Only if the work is substantial would these requirements go into effect — say, for a gut rehab or the addition of extra buildings — but this level of activity is not covered by a HUD 223(f) loan.
For more information, please see How Do Wage Requirements Impact HUD Projects? and HUD 223(f) Loans.
How do wage requirements affect HUD projects?
The Davis-Bacon wage requirements apply to projects with construction or significant renovation work using HUD-backed financing, like the popular HUD 221(d)(4) construction-to-permanent loan. Contractors must be paid, at a minimum, the prevailing wage for the area. However, these requirements are not in effect on all HUD loans. For example, if you are refinancing a property with a HUD 223(f) loan and you plan to do some light renovation work, you would generally not be required to pay Davis-Bacon prevailing wages. Only if the work is substantial would these requirements go into effect — say, for a gut rehab or the addition of extra buildings — but this level of activity is not covered by a HUD 223(f) loan.
For more information, please visit HUD 221(d)(4) construction-to-permanent loan and HUD 223(f) loan.
What are the benefits of meeting wage requirements for HUD projects?
Meeting wage requirements for HUD projects is beneficial for both the contractor and the project. For the contractor, it ensures they are paid a fair wage for their work. This helps to ensure that the contractor is able to provide quality work and that they are compensated fairly for their labor. For the project, meeting wage requirements helps to ensure that the project is completed on time and on budget. Additionally, meeting wage requirements helps to ensure that the project is compliant with all applicable laws and regulations.
For more information on wage requirements for HUD projects, please visit the U.S. government's website.
What are the consequences of not meeting wage requirements for HUD projects?
If you are developing or substantially rehabilitating a multifamily community using HUD-backed financing, like the popular HUD 221(d)(4) construction-to-permanent loan, you must ensure your contractors are paid, at a minimum, the prevailing wage for your area. If you fail to meet these wage requirements, you may be subject to fines and other penalties. Additionally, HUD may require you to pay back any funds that were used to pay contractors below the prevailing wage.
What are the best practices for meeting wage requirements for HUD projects?
The best practices for meeting wage requirements for HUD projects include researching the prevailing wage in your area, which is available through the U.S. government here. Additionally, you may need to use a project wage determination if the project does not fit with the area’s profile. This is issued for specific projects by the Wage and Hour Division and is not updated, instead expiring 180 days after issuance. Note that a HUD prevailing wage requirement doesn’t only include cash compensation, but also the figure for each job given as a total of the hourly wage plus any pro rata fringe benefits’ cash values.
How can HUD projects ensure compliance with wage requirements?
HUD projects must ensure compliance with wage requirements by paying contractors the prevailing wage for the area. This wage is determined by the U.S. Department of Labor and is adjusted periodically in response to changes in the national labor market. The most recent amendment to the Davis-Bacon wage requirements in 2009 increased the number of workers covered by these wage requirements and made it easier for workers to file a complaint if they believe they are not being paid the prevailing wage. For more information, please visit this page on our website.