Don’t Be a Bag Holder: Be Proactive On Subcontractor Prevailing Wage Compliance
A lie took two parties - the weaver of the tale and the sucker who so badly wanted to believe it.
Perhaps the weakest link in the prevailing wage compliance world rests with subcontractors. This is true whether we are discussing the Davis-Bacon Act, the Service Contract Act, or the Contract Work Hours and Safety Standards Act (“CWHSSA”). Prime contractors tend to be larger and more sophisticated. But subcontractors can be smaller businesses with less experience and less financial resources. They are prone to cutting corners or just getting fouled up in the complexity of the wage and hour requirements. Accordingly, it is not surprising that many wage and hour investigations end up focused on subcontractor compliance rather than just prime contractor compliance.
Of course, the Government has direct privity of contract with the prime contractor. The Government doesn’t deal directly with the subcontractor ordinarily. The Government thus holds the prime contractor responsible for selecting the subcontractors, flowing down the appropriate wage and hour requirements to their subcontractors, and supervising the performance of the work in compliance with the prevailing wage laws. If the subcontractor errs, and refuses to correct those mistakes, the Government will look to the prime contractor to make good on the wage or benefit shortfall. At the minimum, the prime contractor is financially responsible for the underpayments made by the subcontractor.
Recently, we assisted a first-tier subcontractor with a DOL investigation focused on the client’s second-tier subcontractor conduct and compliance with the Davis-Bacon Act. The first-tier subcontractor had largely kept his own house in order. But the second-tier subcontractors were another story. And the flow down of the requisite clauses and wage determination had not been properly done. The end result was the first-tier subcontractor was made the bag holder in the sense it had to pony up and pay for back wages and benefits due the subcontractor’s workers.
The interesting part of the whole story is what can a contractor do to avoid problems. One possibility which has been circulating around is that the contractor can implement some enhanced compliance activities above and beyond those minimally required by the prevailing wage laws. For example, the contractor can use an acknowlegement form to educate subcontractors and promote compliance. The form, of course, will break little or no new ground, but it summarizes in one place the flow down duties required by the prevailing wage laws,The idea is to head off at the pass the subcontractor’s failure to comply. Presumably, if they sign such an acknowledgment form, they are on better notice of the requirements of the prevailing wage laws (like the Davis-Bacon Act or the Service Contract Act, and CWHSSA) and less likely to inadvertently fall out of compliance.
And now the point of this blog. Here is a proposed form I was furnished from others, with some minor edits and adjustments made by us:
PREVAILING WAGE AND LABOR STANDARDS ACKNOWLEDGEMENT
By the signature below, it is hereby expressly agreed and acknowledged that our firm, , has entered into an agreement to perform work on a Davis-Bacon Act project covered by prevailing wage requirements.
It is expressly agreed and acknowledged that our firm has received the following documents, and our price for the performance of work on the above referenced project has been developed with full understanding of the requirements established therein:
· Our firm has received as part of our Subcontract and reviewed in full text, and not just by reference, the Davis Bacon labor standards clauses set forth in 29 C.F.R. §§ 5.5(a)( l) through 5.5(a)(10).
· Our firm has received as part of our Subcontract and reviewed in full text, and not just by reference, the Contract Work Hours and Safety Standards Act ("CWHSSA") labor standards clauses set forth in 29 C.F.R. §§ 5.5(b)(l) through 5.5(b)(4).
· Our firm has received as part of our Subcontract and reviewed in full text, and not just by reference, the labor standards clauses and the applicable wage determination(s). It is expressly acknowledged that the Wage Determination applicable to the project referenced above is the following:
General Decision #: __________; Dated: _________; State:___________; County:_________.
· Our firm will use reasonable commercial efforts to understand the prevailing area practice for our work, and the applicable wage rates are included in our contract price.
· Further, our firm agrees that we will:
a) Comply with all applicable laws including the provisions of the Davis-Bacon Act and comply with the Wage Determination applicable to the project.
b) Submit certified payroll pursuant to the Copeland Act as required.
c) Flow down to all of our lower-tier subcontractors all Davis-Bacon Act provisions, Wage Determinations, and Federal Acquisition Regulations, which are contained or referenced in our Subcontract.
d) Provide copies of all lower-tier subcontracts to Prime Contractor upon request.
e) Supervise lower tier subcontractor compliance, and review certified payrolls for noncompliance
Finally, it is hereby expressly agreed and acknowledged that our firm is responsible for ensuring that all of our lower-tier subcontractors comply with all of the above requirements, and we agree to provide the above listed information to all lower-tier subcontractors working for our firm, who may be contracted to perform portions of the work on this project. Our firm will be responsible for obtaining acknowledgement from all lower tiers, in this same form, and providing a copy of this acknowledgement to the prime contractor.
_______________________________ ________________________________
Signature Date
_______________________________ _______________________________
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