Contractors looking to work on American Recovery and Reinvestment (ARRA) funded projects in 2010 can be certain of two things: opportunity and competition. While the ARRA was signed into law over a year ago, the vast majority of infrastructure projects funded with ARRA dollars will begin construction in 2010. A recent report issued by Onvia, a government contracting and business intelligence resource, estimates that only about 27 percent of projects created by the ARRA-approximately 9,500-had actually been awarded to contractors by the end of 2009. This means there are still over 25,000 projects that are fully or partially funded by stimulus funds, which will begin in 2010.
Given the fragile economy, the unprecedented opportunities offered by ARRA have not gone unnoticed. More than 50,000 new companies registered with the Central Contractors Registry (CCR) in 2009. This increase in competition makes it crucial for companies to submit the leanest bids possible and can make contractors feel like they're caught between a rock and a hard place. The government sector represents a growing market in an otherwise bleak construction outlook, but more competition means profit margins have narrowed significantly.
The Davis-Bacon Act
All construction projects funded wholly or in part with ARRA dollars are subject to provisions of the Davis-Bacon Act (DBA), which requires all contractors and subcontractors performing work on federally-funded construction contracts to pay their laborers and mechanics no less than the prevailing wage rates and fringe benefits for corresponding classes of laborers and mechanics employed on similar projects in the area. Prevailing wage rates and fringe benefits are determined by the U.S. Secretary of Labor and are specified in the terms of the request for bid. Depending on the state, some ARRA jobs are subject to state level prevailing wage considerations (sometimes referred to as "mini-DBA states"), while others fall under federal law guidance. In those cases where both a federal and state prevailing wage requirement may apply, one does not preempt the other, rather, the laws must work together. Typically, either the higher wage or the stricter standard applies.
The base wage rate must be paid to the worker in wages, but the fringe portion may be used to pay fringe benefits or allocated as additional cash wages. When contractors use the fringe portion of the prevailing wage to provide "bona fide" benefit plans for their workers, these dollars are taken off the payroll and are therefore exempt from payroll taxes such as FICA, FUTA and SUTA, as well as workers' compensation and general liability insurance. Examples of benefits that might be included in a bona fide benefit plan are retirement plans and medical, dental, vision, disability and life insurance.
Reducing payroll burden is a win-win for contractors who bid on Davis-Bacon projects. Payroll costs are reduced, which translates into more competitive bids and increased chances of winning jobs. These savings can also widen profit margins, giving contractors some breathing room when it comes to their bottom line.
Provide the Same Benefits While Saving Money
Contractors often pay the fringe as additional cash wages and then pay part or all of the employees' portion of health insurance premiums. By paying the premium using fringe dollars, contractors can offer the same benefits but realize dramatic savings just by taking proper credit. This eliminates payroll burden on those dollars, in effect "paying the contractor back" for the cost of paying the employee's portion of the health insurance premium.
Contractors of any size can save thousands of dollars by taking proper credit for the fringe benefits they currently provide. For example, a contractor with eight hourly employees averaging $8 per hour for the fringe benefit portion of the prevailing wage, which pays 50 percent of the employee's portion of the health insurance premiums and does 75 percent prevailing wage work, can typically save almost $25,000* per year. A company with 120 hourly employees at the same average fringe benefit rate can
