Opportunity & Hoops, When The Government Is Your Customer

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Good news! The government’s building a new facility in your area and the general contractor wants you to bid on the HVAC work. Or maybe it’s an RFP to perform HVAC service work. For you, it’s a huge opportunity and comes at an especially good time in this economy. You feel confident you have the right expertise, the years of know-how. You’ll have to add techs, supervisors, even buy equipment, but just think of the upside!

But…you see in the bid packet all this stuff about prevailing wages. Sure looks daunting. Lots of paperwork. Does all this really apply to you?

In return for sharing in the largess of government work, there are significant requirements about pay and benefits for the workers on the project. And a caveat: Although prevailing wages often arises in the federal Davis-Bacon or Service Contract Act context, increasingly more state and local governments are requiring payment of prevailing wages. The issues and challenges for employers will be roughly the same regardless of the jurisdiction but as with all regulatory matters, appropriate legal counsel may be needed for particular situations.

You would think that like any other customer, the government wants the best deal possible—high quality work at the best price that it can get. But the government has other concerns as well, and one is making sure that workers on a government project in a locale are paid no less than the “prevailing wage” for the type of work being performed.

But how are prevailing wages determined? A prevailing wage consists of a basic hourly rate plus fringe benefits as listed in a wage determination. The U.S. Department of Labor compiles voluminous statistics on pay rates for hundreds of different jobs around the country. In many cases an employer is able to go online and match his employee’s job titles and job functions against the Department of Labor database and determine the prevailing wage for that job (see the websites at the end of this article).

However, many employers find that prevailing wages as calculated by the Department of Labor are higher than the wages they actually pay. And there may be ancillary issues. For example, a company may undertake government work as only a part of its work and find that in order to get the work, it has to raise the pay just for those workers on the government job, meaning those workers get paid more for doing the same work as those not doing government work. As can be imagined, this distinction in pay grades can lead to employee relations issues within a company.

So why would Department of Labor prevailing wage rate calculations be higher than the pay rates an employer usually uses, or even higher than the rates he understands other companies in the area are paying? Often, the Department’s wage findings coincide with local union wages. Some contend that prevailing wage laws are actually means by which government encourages use of union workers. In fact, where more than half the workers in a particular job classification in a locale are paid the same rate, and the workers are covered by a union contract, the union rate becomes the prevailing wage in Department of Labor wage determinations.

Enforcement issues often concern how a company classifies its workers in relation to the job classifications utilized by the Department of Labor. In the HVAC industry, this may be less of a problem because the Department of Labor has classifications for, e.g., HVAC mechanics. But a company might have its own classification for an employee, yet the employee’s duties could qualify for a different Davis-Bacon classification, possibly at a higher rate of pay. For example, an employee considered a basic laborer by the employer might in fact utilize skills which under Davis-Bacon entitles him to a higher-paying wage. Occasionally, a worker will have more than one job, more than one function. In those situations the employer should pay the appropriate prevailing wage for each of the different jobs the worker performs.

Great care should be taken in bidding on prevailing wage work because the burden is on the employer to correctly classify employees and apply current prevailing wage data. Errors can lead not only to lost profit due to miscalculations but can also result in enforcement action.

Another issue which often arises concerns whether the company must actually provide fringe benefits such as health insurance, sick leave, and vacation, or whether instead the employer can increase worker pay in a dollar amount equal to fringes. Federal law allows employers to pay a cash equivalent for benefits as opposed to actually providing benefits. (Caution: Compliance with the Affordable Care Act may change this with regard to health insurance benefits.) The fringe benefit rate is determined by the Department of Labor and so the employer does not have to calculate the value of fringes if he chooses paying the cash equivalent. But if he offers benefits, he does need to make sure the actual value of benefits offered satisfies the prevailing wage determination.

Depending on the law regulating a particular job, an employer may be required to submit his weekly payroll for approval to the contracting agency or to the prime contractor. And a poster outlining worker rights under the law regulating the contract is generally required to be displayed.

Sanctions for non-compliance can include termination of the contract, monetary penalties, and even debarment from future work—all in addition to paying employees their correct prevailing wage.

Fortunately, the bid packet for jobs requiring payment of prevailing wages will usually have plenty of information to alert an employer to his legal obligations, perhaps even a copy of the relevant wage determinations. Unfortunately, the information in the packet may be overwhelming to employers new to government work. The U.S. Department of Labor has websites explaining employers’ federal obligations: www.dol.gov/compliance/laws/comp-dbra.htm; www.dol.gov/compliance/laws/comp-sca.htm. And of course a lawyer experienced in government contract labor and employment laws may be helpful.

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Posted In: ACCA Now, Legal