Inviting Private Sector to Build Roads Raises Wage Questions

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By Chris Opfer and Jasmine Ye Han

The Trump administration wants the private sector to take the wheel on many U.S. road and other upgrades, raising questions about whether construction workers will still get the compensation required under federal contracts.

The Davis-Bacon Act obligates contractors to pay workers on federally funded construction projects a local prevailing wage and certain benefits set by the Labor Department. The law is meant to ensure that the government doesn’t shortchange workers. But some Republican lawmakers, businesses, and conservative advocacy groups say “prevailing wages” exceed market rates and bloat taxpayer-funded construction projects as a handout to labor unions.

Although the law isn’t likely to be scrapped anytime soon, lobbyists have stayed busy pushing to get Davis-Bacon provisions explicitly included in new spending legislation. That activity ticked up following a post-recession infrastructure spending binge and kept the questions coming about which projects require prevailing wages.

“Bad laws sometimes go away piecemeal,” Grover Norquist, founder of limited government group Americans for Tax Reform, told Bloomberg Law. “Anything that can be done to weaken this law would be a good start.

Some policymakers like the idea of the private sector taking a bigger role in rebuilding highways and bridges, upgrading airport terminals, and enhancing water management facilities. They see public-private partnerships as a way out of the nation’s crumbling-infrastructure woes. The deals would shift financing and construction to businesses, which in turn could charge tolls on revamped roadways, collect revenue from operating terminals and highway rest stops, and siphon a piece of utility bills.

Public-like private arrangements may also allow construction companies to skirt Davis-Bacon prevailing wage requirements. A recent case involving a luxury development in the nation’s capital could provide the roadmap.

Court: High-End Complex Not Construction Contract

A federal appeals court ruled in 2016 that CityCenterDC, an upscale development that includes a Hermes shop and condos with seven-figure price tags, isn’t covered by the prevailing wage law.

Although Washington, D.C., government construction contracts are generally subject to Davis-Bacon requirements, the court noted that D.C. leased the land to a developer in a series of 99-year contracts. The developer then separately hired a construction firm to erect privately owned apartments, a hotel, restaurants, stores, and a tiny public park.

Government contracts lawyers say the ruling, and the Labor Department’s decision not to push Davis-Bacon on a SpaceX deal with the Air Force to develop a launch pad on government property, opens the door to using similar agreements to avoid wage requirements.

“I do think it presents a scenario in which you could have a public improvement that’s privately financed where Davis-Bacon wouldn’t apply,” Alfred Robinson, who ran the Labor Department’s Wage and Hour Division during a stretch of the George W. Bush administration, told Bloomberg Law.

The latest infrastructure plan has sputtered out of the gates since a White House announcement earlier this year, in part over questions about how to pay for it. The proposal’s long-shot future appeared to get even iffier recently when Trump infrastructure adviser D.J. Gribbin announced he was leaving the White House.

Pieces of the plan could get a look from Congress or find their way into future highway and other spending legislation. Two Cabinet members—Transportation Secretary Elaine Chao and Labor Secretary Alexander Acosta—recently made a commitment to enforce existing wage protections in any new infrastructure projects.

But the CityCenter decision is one example of ongoing questions about the Davis-Bacon Act’s reach, especially where the federal government has limited involvement. The ruling arguably allows developers to go around the law by leasing property from the government in one agreement and hiring a contractor to do the actual construction and improvement work in another.

Jobs Touted, but not Wages

President Donald Trump’s vision for rebuilding roads, rails, and airports includes a reduced role for the federal government.

The plan calls for about $200 billion in funding from federal coffers, with state and local governments and private businesses chipping in another $1.3 trillion. It also directs the feds to largely get out of the way by streamlining the permitting process, shifting decision making to the states, and giving local officials the power to determine where the money should go. The plan would create financing, tax, and other incentives for the private sector to take some of the reins.

Infrastructure spending plans often get wide support from both sides of the political aisle, despite questions about how to pay for them. Businesses and labor groups like to tout the new, albeit temporary, jobs they expect to come with building projects.

“This renewed investment in transportation would strengthen our economy, enhance our competitiveness in world trade, create jobs and increase wages for our workers, and reduce the costs of goods and services for our families,” the White House said in February when it released the infrastructure plan.

Some observers paid more attention to what the Trump administration didn’t say.

“The fact that they didn’t discuss Davis-Bacon made some people think they were looking for a way to exempt these projects,” Hal Perloff, a construction and development lawyer at Husch Blackwell, told Bloomberg Law.

Law Grew Out of Great Depression

The prevailing wage law, which was passed during the Great Depression as a safeguard against falling wages, applies to “federally-funded or assisted” contracts for the construction of public buildings or works that are worth at least $2,000. It requires contractors to pay workers on those projects a local prevailing wage based on pay rates for similar projects in the same area.

The construction industry has criticized Davis-Bacon as a handout for unions for about as long as the law has been in place.

“Davis-Bacon is like changing money at a lousy exchange rate,” Americans for Tax Reform’s Norquist, told Bloomberg Law. “It’s a law that raises the cost of having the federal government touch anything.”

The law applies only to construction projects funded by the federal or D.C. governments. Although many states have their own prevailing wage requirements in place, those obligations vary widely. Indiana, Kentucky, and West Virginia are among states that have recently repealed prevailing wage laws.

Each new session of Congress tends to bring with it new, Republican-backed bills to scrap Davis-Bacon altogether. But those measures haven’t attracted much support in recent years, and advocates on both sides of the debate don’t expect the prevailing wage requirements to be retired anytime soon.

Still, lobbying activity on the prevailing wage requirements has jumped by about one-third over the past decade, according to Bloomberg Law’s review of federal lobbying filings. Groups talking to lawmakers about Davis-Bacon include Associated Builders and Contractors, the National Association of Home Builders, the AFL-CIO, and the Teamsters.

“We have good employers in construction that pay people very good wages for grueling and dangerous work,” Doug Bloch, the political director for a Teamsters joint council in California, told Bloomberg Law. The union represents workers who pour concrete on a number of government construction projects. “This stops other companies from coming in and undercutting them.”

Lobbying Client Pool Expanding (on Davis Bacon)
analysis of Senate lobbying disclosure

Much of the debate has been over whether prevailing wage requirements should apply to new projects. Davis-Bacon backers argue the law covers new construction efforts, but they often urge lawmakers to make that clear in new spending legislation to avoid any confusion or court battles down the road.

“My mantra has always been that you’ve got to have a Davis-Bacon provision in the enabling legislation, otherwise you’ve got nothing,” retired attorney Terry Yellig told Bloomberg Law. Yellig represented the Metropolitan Regional Council of Carpenters in the CityCenter case.

Lease Loophole?

The White House’s interest in public-private infrastructure partnerships and the CityCenter decision could offer a new Davis-Bacon workaround, through lease deals.

Judge Brett Kavanaugh said in the CityCenter case that the development, which also included a Momofuku restaurant and Salvatore Ferragamo clothing store, simply wasn’t the kind of public work Congress envisioned when it passed and later updated the law.

“The concept of a public work may well be elastic,” Kavanaugh wrote. “But it cannot reasonably be stretched to cover a Louis Vuitton.”

Kavanaugh also said the contracts for the project’s development and construction offered a separate shield from prevailing wage requirements, regardless of the type of project involved. He said the D.C. government avoided entering a “contract for construction” covered by the law by creating “a three-party relationship in which a government agency rents property to a private developer, and the private developer in turn enters into a construction contract with a construction contractor.”

The Labor Department, which argued that CityCenter was subject to prevailing wage requirements, issued a guidance memo shortly after the decision. Then Wage and Hour Administrator David Weil said the decision should be read narrowly and not interpreted to exclude a wide range of public construction projects.

But at the tail end of the Obama administration, the department also dropped a similar case against SpaceX, entrepreneur Elon Musk’s private space exploration firm. The DOL had argued that SpaceX was on the hook for prevailing wages for construction work on a Florida space launch site the company rented from the Air Force.

“They were really barking up the wrong tree,” Thomas Weiers, a solo attorney who represented SpaceX, said of the department’s initial approach. “There was zero federal dollars involved in the construction. SpaceX paid the Air Force for the right to do the construction.”

The Labor Department hasn’t taken a public position on Davis-Bacon’s reach since Trump took over the White House. The Weil memo interpreting the CityCenter case remains posted on the department’s website, but the DOL is still waiting for Congress to confirm Cheryl Stanton, Trump’s pick to run the Wage and Hour Administration.

Even if the CityCenter decision does offer an opening to avoid prevailing wages, the Senate poses a formidable roadblock. Congress would have to pass legislation to fund new infrastructure programs. Senate rules require 60 votes to avoid a filibuster in the chamber. A number of Democrats—and at least a few Republicans—may not be willing to move a bill that doesn’t explicitly include Davis-Bacon requirements.

“The status quo is that Davis-Bacon prevailing wages are required for public-private and other projects, whether it’s through the structure of the law or the financing tool,” Jeffrey Soth, legislative director for the International Union of Operating Engineers, told Bloomberg Law.

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