GovSpeak: “Davis-Bacon”

In the course of executing large construction transactions we often refer to “Davis-Bacon”.  The Davis-Bacon Act, which was passed by Congress and signed into law by President Herbert Hoover on March 3, 1931, requires private contractors to pay “prevailing wages and benefits” to employees on most federal government construction projects, including those to be leased by the federal government. Those “prevailing wages” typically correspond directly to union wages. The goal of the Act, which was named after its sponsors—Senator James J. Davis (R, Penn.) and Representative Robert L. Bacon (R, N.Y.)—was to outlaw Great Depression-era wage exploitation since public contracts go to the lowest bidder.

The Act has been amended numerous times; the current version, known as the Davis-Bacon and Related Acts (DBRA), can be found here. The DBRA applies to “contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works.” DBRA contractors and subcontractors must pay laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. The Act directs the U.S. Department of Labor to determine such locally prevailing wage rates, and applies to contractors and subcontractors performing work on federal or District of Columbia contracts. Its prevailing wage provisions also apply to the “Related Acts” under which federal agencies assist construction projects through grants, loans, loan guarantees and insurance.

DBRA covers approximately 20% of all U.S. construction projects, affecting more than one-quarter of all construction workers in the nation at any given time. Critics insist the law is outdated and forces governments to pay more than is necessary for public projects. They also cite its “racist intent”—Bacon initially introduced the bill after a contractor employed African-American workers from Alabama to build a Veterans’ Bureau hospital in his Long Island district—in arguments for its repeal. Supporters, on the other hand, have countered that this is a red herring, describing the law as a sincere attempt to preserve federal jobs for local workers and to maintain local wage standards against migratory workers of any race.

The chief criticism against Davis-Bacon, however, is that it essentially prescribes the use of union labor.  It is argued that this increases the cost of federal construction (funded by taxpayers) and it also increases the cost of construction by private-sector landlords who build lease-construct projects for the federal government (and this, of course, increases the government’s rent).  The U.S. Chamber of Commerce summarizes the issue as follows:

Davis-Bacon inflates the cost of federally funded construction projects by as much as 15%, discourages economic growth, and raises federal spending. In fact, Davis-Bacon Act wages cost taxpayers over $1 billion annually, in addition to the $100 million in government administrative costs per year.

Numerous studies conclude that Davis-Bacon inflates the cost of federally funded construction projects by 15% (or more), discourages economic growth, and raises federal spending. Davis-Bacon Act wages are estimated to cost taxpayers over $1 billion annually, in addition to the millions of dollars in annual government and private-sector administrative costs.

Somewhat ironically, although the Act originally was authored and championed by Republicans, it has been suspended numerous times, almost exclusively by Republican presidents. Most recently, on September 7, 2005, President George W. Bush suspended it in the areas of Alabama, Florida, Louisiana and Mississippi ravaged by Hurricane Katrina. A bipartisan outcry led to his reinstating the Act the following month, after many noted that because Gulf Coast wages already were below the national average, the DBRA’s impact on corporate bottom lines would be minimal. The Obama Administration extended DBRA via the American Recovery and Reinvestment Act of 2009, also known as the stimulus bill. According to an All-Agency Memorandum issued by the Department of Labor, DBRA applies to all “projects funded directly by or assisted in whole or in part by and through the Federal Government.”

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