Compliance with the Davis-Bacon Act - Not Just Prime Contractor’s Responsibility
You may think paperwork about payrolls is the general or prime contractor’s problem and that subcontractors just need to perform the work. If the Davis-Bacon Act (“DBA”) applies to the project, the work, regardless of who is performing it, is not done until the paperwork is complete.
The DBA, 40 U.S.C. § 3142, was enacted in 1931 to provide local laborers and contractors a fair opportunity to participate in federally-funded construction projects and to protect local wage standards by preventing contractors from basing their bids on wages lower than those prevailing in the particular geographic area of the project. Simply put, the DBA, sometimes called the prevailing wage law, requires that contractors engaged in work on federal, state or other governmental projects in excess of $2,000 pay all mechanics and laborers not less than the locally prevailing wages and fringe benefits. Contractors subject to the DBA must prepare certified payroll reports. In addition, Texas has similar requirements that apply to public projects.
Section 2258 Subchapter B of the Texas Government Code also requires a contractor (general or prime) or subcontractor that is awarded a contract to perform work on a public project to pay the workers not less than the prevailing wage rate for the work performed in the same locality. The prevailing wage is determined by using a survey of wages paid to classes of workers employed on projects of similar character to the contract work where the project is located (Section 2258.022 Texas Government Code).
Penalty for Non-Compliance
Section 2258.023 of the Texas Government Code also imposes a hefty penalty for non-compliance. The government entity that issued the prime contract may penalize the contractor or subcontractor $60 for each worker employed for each calendar day or part of the day that the worker is paid less than the required prevailing wage rate.
In addition, the Department of Labor (“DOL”) may also conduct its own investigation to ensure compliance with the DBA, which includes inspections of employment records and confidential employee interviews. If the DOL determines there is a violation of the DBA, it may take action against the contractor, including assessment of penalties and payment of backwages. In addition, the contracting agency may suspend payments to the contractor until the violations are corrected or withhold funds to compensate employees for unpaid wages as well as assess liquidated damages. The contractor may also face criminal liability if it is determined the DBA violations were willful (29 C.F.R. 5.10). In addition, where the DOL finds a contractor violated its obligation to employees or willfully violated the DBA, a contractor may face contract termination or debarment from future contracts covered by the DBA for up to three years (29 C.F.R. 5.12).
It is important to recognize that prime contractors may suffer these punishments based on the sins of their subcontractors. Therefore, ensuring a subcontractor’s compliance with the DBA is just as important as ensuring compliance of your subcontractor’s electrical or plumbing work with the building codes.
Record Keeping Requirement
All contractors, regardless of tier, must comply with specific DBA record keeping requirements. During the course of the contract, contractors must maintain records on each worker, which includes the following: name, address, social security number, worker classification, hourly rates of wages paid and fringe benefits paid, daily and weekly number of hours worked, deductions made, actual wages paid, information regarding other various fringe benefit programs and if applicable, detailed information about apprenticeship programs. Texas also requires contractors and subcontractors to maintain such records (Section 2258.024 of the Texas Government Code). In addition, the Fair Labor Standards Act requires an employer to keep exact records of all time worked, all wages paid and all wage deductions.
Prime contractors and subcontractors on public projects are both obligated to pay their workers the required prevailing wages and fringe benefits for the proper class of work performed and maintain proper payroll records for each worker. Failure to comply subjects both prime and subcontractors to significant consequences.