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.