Prevailing Wage and Davis-Bacon: What to Know

If you're bidding government construction work, there's a good chance the law sets a floor on what you pay your crew, and it's probably higher than your normal rates. The federal version is the Davis-Bacon Act, which applies to federally funded construction contracts over $2,000. Many states have their own prevailing wage laws on top of that, often called "little Davis-Bacon acts," covering state and local projects. Bid these jobs at your private-sector labor rates and you will lose money. Not might. Will. This is the single most expensive surprise in public construction, so let's walk through how it works.

What is prevailing wage?

Prevailing wage is the minimum hourly rate, including fringe benefits, that you must pay each worker on a covered public project, based on their trade and the location of the work. The government publishes wage determinations listing the required rates: one rate for electricians, another for laborers, another for operators, and so on, and the rates change by county or region.

Notice that phrase "including fringe benefits." Prevailing wage has two parts: a base hourly rate and a fringe rate. You can satisfy the fringe portion with actual benefits (health insurance, retirement contributions) or by paying it as cash on the check, or a mix. If you already provide benefits, you may get credit for them. If you don't, that fringe amount comes out of your pocket as extra wages. Either way, the total hourly cost is what goes in your estimate.

When does Davis-Bacon apply?

Davis-Bacon covers construction, alteration, and repair work on federally funded or assisted projects over $2,000. That threshold is so low that in practice, if federal money touches a construction project, assume Davis-Bacon applies. And "federally assisted" is broader than people think. A city water project funded partly through a federal grant or loan program can carry Davis-Bacon requirements even though your contract is with the city. The solicitation documents will say so, usually with the wage determination attached. Read the attachments.

The applicable wage determination is part of your contract. The rates in it are not suggestions and not negotiable, and you're required to post them at the job site where workers can see them.

What about state prevailing wage laws?

Many states have their own prevailing wage laws for state and local public works, the little Davis-Bacon acts. Some states set thresholds much higher than $2,000, some cover almost everything, and a number of states have no prevailing wage law at all. The rates, the coverage rules, and the enforcement all vary by state, and some state rates run higher than the federal ones.

So a single project can sit in one of three buckets: federal rules, state rules, or both at once (in which case you generally pay whichever rate is higher for each classification). Don't try to memorize the rules for every state. Do this instead: check every solicitation for prevailing wage language and an attached wage determination, and if anything's unclear, ask the agency in writing before the question deadline. They deal with this constantly and would rather answer now than untangle a violation later.

What is certified payroll?

Covered projects come with a paperwork obligation: certified payroll. Every week, you submit a payroll report listing each worker, their classification, hours, rates, and deductions, along with a signed statement of compliance certifying it's accurate. On federal jobs this is the WH-347 form or an equivalent. Many states have their own forms or electronic filing systems.

Two things to understand about certified payroll. First, it's not busywork you can skip when things get hectic. Falsifying a certified payroll is a federal offense, and even sloppy, late, or missing reports can hold up your progress payments, because many agencies won't cut a check without current payrolls on file. Second, worker classification is where honest contractors get in trouble. If a worker spends the morning doing carpentry and the afternoon doing laborer work, they may need to be paid and reported at each rate for those hours. Misclassifying skilled work at a lower rate, even accidentally, means back wages, possible penalties, and in bad cases debarment from public work.

Your subs' payrolls are your problem too. Primes are generally responsible for collecting certified payrolls from subcontractors and for their compliance. Build that into your subcontract terms and your weekly routine.

How do you price prevailing wage work?

Here's the discipline that separates contractors who make money on public work from the ones who bid it once and swear it off forever.

• Pull the wage determination from the solicitation before you estimate anything, and build your labor costs from those rates, base plus fringe, per classification.
• Recalculate your labor burden. Payroll taxes and insurance ride on top of the higher wages, so your burden goes up in dollars even if the percentage stays the same.
• Watch overtime. Prevailing wage overtime is calculated on the required rate, not your normal rate, and it gets expensive fast.
• Price the administration. Weekly certified payroll takes real hours, or a payroll service that handles it, and either one costs money. Put it in the bid.
• Get sub quotes that state prevailing wage compliance explicitly. A sub who quoted you private rates will either eat the difference or become your problem mid-project.

The upside is that everyone bidding is subject to the same rates, so prevailing wage doesn't put you at a disadvantage against other bidders. It only punishes the contractor who didn't read the wage determination. Honestly, that's a filter working in your favor: sloppy competitors either bid too low and disappear mid-job or learn to stay away from public work entirely.

One more habit: check the dates. Wage determinations get updated, and the solicitation or an addendum will specify which one governs. Bidding from last year's rates on a job governed by this year's determination is the same mistake wearing a different hat. If you want the rest of the picture on this kind of work, How to Find Government Construction Bids covers where the jobs are posted, and What Is a Bid Bond? covers the bonding side you'll usually face on the same projects.

When you're ready to put real numbers against real jobs, browse open government construction bids in your state at govbidspro.com/categories/construction, or set up a free GovBids Pro alert and get new prevailing wage projects in your inbox the day they post.