Application of the Davis-Bacon Act By “Operation of Law” Is Here

"If I Had A World Of My Own, Everything Would Be Nonsense. Nothing Would Be What It Is Because Everything Would Be What It Isn't. And Contrary-Wise; What It Is It Wouldn't Be, And What It Wouldn't Be, It Would. You See?" 

-- Lewis Caroll, Alice in Wonderland,

This brings us to the major new Davis-Bacon Act (“DBA”) development. Earlier this year the Department of Labor (“DOL”) issued a notice of proposed rulemaking (“NPRM”) under the Davis-Bacon Act covering, among many other things, the issue of omitted DBA clauses and wage determinations. See 87 Fed. Reg. 15698, at 15749-51, https://www.govinfo.gov/content/pkg/FR-2022-03-18/pdf/2022-05346.pdf. That NPRM clearly stated that the enforcement policy that the DOL is seeking to apply to contractors would be a new one.

Here is what DOL said about this now-adopted Davis-Bacon Act policy:

The proposed rule seeks to address the challenges caused by the omission of contract clauses. In a manner similar to its rule under Executive Order 11246 (Equal Employment Opportunity), the Department proposes to designate the DBRA contract clauses in § 5.5(a) and (b), and applicable wage determinations, as effective by ‘‘operation of law’’ notwithstanding their mistaken omission from a contract. …

Simply put in the regulatory preamble, “The Department proposes to include language in a new paragraph at § 5.5(e) to provide that the labor standards contract clauses and appropriate wage determinations are effective ‘by operation of law’’ in circumstances where they have been wrongly omitted from a covered contract.” Id. at 15749. The scope of the proposed regulatory change is significant. DOL says it will provide that:

Under the proposed language in § 5.5(e), erroneously omitted contract clauses and appropriate wage determinations would be effective by operation of law and therefore enforceable retroactive to the beginning of the contract or construction. The proposed language provides that all of the contract clauses set forth in § 5.5— the contract clauses at § 5.5(a) and the CWHSSA contract clauses at § 5.5(b)— are considered to be a part of every covered contract, whether or not they are physically incorporated into the contract. This includes the contract clauses requiring the payment of prevailing wages and overtime at § 5.5(a)(1) and (b)(1), respectively; the withholding clauses at § 5.5(a)(2) and (b)(3); and the labor-standards disputes clause at § 5.5(a)(9).

Id. According to DOL, the self-implementing nature of this rule would not even require an administrative order. The Davis-Bacon Act would apply somehow automatically. Accordingly, we presume this regulatory change will work to make the DBA self-implementing in all construction contracts where it was omitted. Period.  

As drastic as this may seem, it is ameliorated by one supposed characteristic of the new proposed regulation. The regulation explicitly imposes the extra cost of the imposition of the omitted DBA clauses and wage determinations by operation of law upon the contracting agency rather than the contractor. Here is what preamble, albeit only briefly, says:

This responsibility, however, would be offset by proposed language in § 5.5(e) adding a compensation provision that would require that the prime contractor be compensated for any increases in wages resulting from a post-award incorporation of a contract clause or wage determination by operation of law under § 5.5(e). This proposed language is modeled after similar language that has been included in § 1.6(f) since 1983…. 

Id. at 15749. Elsewhere in the regulatory preamble, DOL also observes:

The Department’s proposal, however, differs from the Christian doctrine in two critical respects. First, as noted above, the proposed language at § 5.5(e) would be paired with a contractor compensation provision similar to the existing provision in § 1.6(f). The Christian doctrine does not incorporate such protection for contractors, and as a result, can have the effect of shifting cost burdens from the government to the contractor. In K-Con, for example, the doctrine supported the government’s defense against a claim for equitable adjustment

Id. at  15750.

After the receipt of public comments, DOL recently issued final Davis-Bacon Related Act (“DBRA”)  regulations overhauling the application of that proposed rule.  See https://public-inspection.federalregister.gov/2023-17221.pdf (August 23, 2023), discussed at https://www.awrcounsel.com/blog/2023/8/9/dol-issues-new-and-old-davis-bacon-and-related-acts-regulations.  Also see some of our other discussions of the new regulations at: https://www.awrcounsel.com/blog/2023/10/23/davis-bacon-applies-where-new-regs-revise-definition-of-secondary-construction-sites; and https://www.awrcounsel.com/blog/2023/11/15/davis-bacon-update-recordkeeping-requirements. The new final regulation went into effect after 60 days, and thus became enforceable in the last week of October 2023. The new rules will remain enforceable rules unless and until enjoined by some court.  

The final rules make no changes in the proposed rules with respect to the by operation of law principles. Thus, DOL plans now to read DBA clauses and wage determinations into contracts by operation of law. However, they do soften that blow by providing contractors can get an adjustment for the changes made to their contract. DOL taketh away, but also giveth back.  

This gives rise to my fundamental point -- it remains, the case that a contractor faced with an omitted DBA clause or wage determination should proceed carefully. If there is going to be a cost impact from the error, bring the error first to the contracting agency’s attention and ask the Government to formally modify the contract and correct the error. It could be a contractor foot fault to give away its right to a price adjustment by bilateral modification of the contract without any consideration of the increased costs that the DBA coverage will bring to future work. Just because the DBA clauses and wage determination apply by operation of law doesn’t mean that the contractor should go ahead and pay the omitted wages and benefits without any government direction.  

In my view, the fixed price construction contractor is better served by waiting for DOL to order the inclusion of the omitted DBA clauses and wage determination, and then pay the sums due thereunder retroactively, while seeking the price adjustment promised by the DOL regulations. Implementing  DBA wage determination unilaterally, without order of the contracting agency or DOL risks not getting the promised price adjustment, on the theory the Government may still dispute whether DBA applies, whether the right wages and benefits are being paid, and/or whether the contractor just voluntarily assumed the cost responsibility for the omitted  provisions. However, if those costs are factored into a formal contract  modification, and the contractor is getting something of value for bearing its share of the extra costs, that a horse of a different color. If the contractor is getting saddled with those increased future performance costs (or even a share of those costs split with the Government) for no additional compensation, then it should say no to the proposed bilateral modification, and better to wait patiently for a unilateral modification done voluntarily by the contracting agency or ordered by DOL.

Of course, if the contractor is getting threatened with debarment or has some prior record of noncompliance which exposes them to risk, it may make sense to be more proactive. And if DOL tells the contractor in writing to comply, then the gig is up, and the contractor needs to fall in line and pay the wages and benefits. The contractor can dispute the cost with the contracting agency, but it can’t refuse to comply with the DOL directive, since now DOL has regulatory authority to enforce the DBA by operation of law even if the requiement isn’t found in the four corners of the contact. That is the whole purpose of this new regulation.