The Best Defense is a Good Offense with Prevailing Wage Projects

Many projects assisted with public funds or programs are subject to a myriad of federal, state and local laws and regulations among them, prevailing wage (PW) and reporting requirements. General contractors, prime or a higher-tier subcontractors working on a PW project are at risk. When undertaking a PW project, you assume PW obligations, responsibilities and liabilities. This article focuses on federal Davis-Bacon (DB) and related provisions, but state and local frameworks often mirror DB principles. So, what did you sign on for?

All employers are obligated to pay all laborers and mechanics no less than the full amount of wages contained in the applicable wage decision for the kind of work they performed, for all hours worked, including premium pay (time-and-a-half) for overtime hours. Wages must be paid no less often that once per week. All employers are responsible for maintaining accurate records of hours worked and wages paid; reporting all labor performed and wages paid; certifying/submitting payroll reports and other documents timely; and preserving payrolls and related records for no less than 3 years.

Liabilities concern your compliance and the compliance of every contractor working under you. Every penny of prevailing wages earned and any liquidated damages must be assessed. This means you not only need to watch what you are doing, you need to watch what everyone else is doing, too.

The United States Department of Labor (DOL) expects prime contractors and higher-tier subcontractors to subcontract responsibly and diligently manage subordinate contractors’ PW compliance. The DOL has secured sanctions against primes who had minor or no wage violations of their own, but neglected to monitor the performance of their subs/lower-tiers. Primes must pay the full amount of back wages due plus any liquidated damages. They may also be required to enter into an agreement with the DOL to avoid debarment or other sanctions, as exhibited in the following example.

Lettire was the prime contractor on two housing projects that received ARRA (American Recovery and Reinvestment Act) assistance, requiring compliance with DB labor standards. The DOL uncovered violations resulting in approximately $1.4 million in back wages due approximately 290 workers employed by 16 subcontractors and approximately $3,000 due to four Lettire employees. Although Lettire’s violations were minor, Lettire faced 3 years of debarment from federal contracts for failure to monitor its subcontractors. Lettire avoided debarment by accepting the terms of an agreement with the DOL:

1. Guarantee payment of approximately $960,000 in current back wages due for subcontractor violations, plus its own, and guarantee payment of any future back wages.

2. Take affirmative steps to ensure compliance:

• Hire a DOL-approved monitor to conduct compliance reviews of Lettire and its subs for 3 years, provide training to Lettire and its subs and establish a complaint hotline.
• Review bids to ensure sufficiency to meet all contract requirements, including prevailing wages.
• Assess prospective subcontractors’ ability to comply with PW requirements.

3. Establish internal controls:

• Utilize an electronic timekeeping/payroll submission system acceptable to DOL.
• Assign supervisors to oversee compliance on PW projects.
• Provide notice to each employee indicating their assigned work classification and PW.
• Advise each employee of their right to file a complaint with DOL without retaliation.

Vigorous, proactive compliance monitoring can reduce this type of potential risk. The good news? You are in control. Make sure that agencies and bidders know you are serious about PW compliance.

• Get the terms of your contract right, especially the wage rates.
• Don’t use or reuse subcontractors who don’t perform. Prevailing wages and reporting are just as important as the work. You’re paying for both, and you need to use subs that deliver both.
• Train all staff, in the office and on-site, on PW requirements.
• Perform self-audits for PW compliance and pay attention to details. The clearer you can make the details, the better.
• Audit every subcontractor’s performance, including lower tiers.

Now that your business is covered, focus on bids and subcontracts.

• Make certain that bid documents and resulting subcontracts contain the correct wage decision and the labor clauses. Ensure that each subcontract contains the same wage decision and labor clauses so you can hold your subcontractors responsible for their actions and any lower-tiers’ actions.
• Challenge bids that look too low. If you have priced out work at $250,000 and you get a bid for $175,000, that’s a $75,000 difference. Maybe it’s a great deal, but who or what is going to bridge that gap? Maybe they made a mistake compiling the bid? Whatever the reason, it could cost you much more than an appropriate bid.

On the jobsite, remember: it’s yours, control it.

• Control and document access, and include the workforce. Establish procedures to know who is on the jobsite, why, who they work for, when they arrived and when they left. Use electronic access cards or GPS tracking or set up a sign-in/sign-out system.
• You are required to post the wage decision and DB poster at the jobsite. Make the posting conspicuous, and make information clear and accessible, so workers know what wages they are supposed to receive. Require subs to notify employees in writing of their work classification and the corresponding DB wage rate.
• Agency inspectors might visit the jobsite monthly to interview workers, observe what they are doing, ask how many hours they work and how much they are paid. Inspectors use their eyes and ears to assess labor compliance and detect noncompliance. Use your people to monitor labor performance on a daily basis.
• On-site staff need to be alert and pay attention to conversations. Inform workers that they can file a complaint with your staff anytime, with no reprisal.

The jobsite allows you to control what’s going on. The office allows you to control what happens or what doesn’t happen in response to what you receive or don’t receive.

• Require subcontractors to provide the name, SSN and mailing address of every employee. This is not for submission to the agency, but for your own records.
• Remember, the agency can require that information any time. You should have it on hand.
• Don’t pay any subcontractor unless the invoice (draw) includes the subcontractors’ (and lower-tier subs) payrolls.
• You get subcontractor payrolls first. Take advantage of that. Spot-check payrolls for common errors and omissions. Require prompt correction of errors and timely submission of correcting documentation as a condition of any payout.
• Institute regular communication/coordination between your jobsite and office staff.
• Electronic payroll systems offer recordkeeping, streamlined payroll entry and submission and PW compliance review and corrections. The DOL encourages and sometimes requires contractors to use electronic payroll systems.

Be aggressive and be proactive. Don’t wait for a PW calamity to convince you that you need to protect yourself. You might think that being proactive will cost more, and you may be right. But consider this: how much more could a massive back wage assessment cost?