United States: Davis-Bacon Act Not Applicable To D.C. Public-Private Partnerships

Thomas Brownell is a Partner in Holland & Knight's Northern Virginia office

HIGHLIGHTS:

  • A panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously ruled that the Davis-Bacon Act does not require payment of prevailing wages on public-private partnerships where the U.S. or D.C. government is not a party to the construction contract and where the government is not the owner of the resulting project.
  • The Davis-Bacon Act requires payment of "prevailing wages" to workers when the federal or D.C. governments enter into contracts for the construction of "public works," often significantly increasing the cost of construction.
  • The case may have implications on other recent efforts by the Department of Labor (DOL) to expand its jurisdiction, but will likely have no application to construction projects for which federal assistance was provided in the form of grants, loans, loan guarantees or insurance.

In a sharp rebuke to the Obama Administration's Department of Labor (DOL), a unanimous panel of the U.S. Court of Appeals for the District of Columbia Circuit has ruled that the Davis-Bacon Act does not require payment of prevailing wages on public-private partnerships where the U.S. or D.C. government is not a party to the construction contract and where the government is not the owner of the resulting project. District of Columbia, et al. v. Department of Labor, Case No. 14-5132 (D.C. Cir., April 5, 2016).

The Davis-Bacon Act is a Depression-era statute that requires payment of "prevailing wages" to workers when the federal or D.C. governments enter into contracts for the construction of "public works." 40 U.S.C. §3142(a). As a practical matter, Davis-Bacon wage determinations usually require the payment of union scale to workers on U.S. and D.C. government projects and thus often significantly increase the cost of construction. Workers who are not members of a bargaining unit must be paid the prevailing wages, health and welfare benefits, and other benefits set forth in DOL prevailing wage determinations for the site where the construction site is located.

District of Columbia, et al. v. Department of Labor

In this case, the D.C. government entered into a public-private partnership with private developers for the development of CityCenterDC, a mixed-use project near the D.C. convention center. The D.C. government entered into 99-year ground leases with private developers, who then entered into contracts for the construction of privately owned housing, stores and hotels.

In June 2011, the Wage and Hour Division of the DOL overruled a local branch office and ruled that the various development agreements qualified as contracts for construction within the meaning of the Davis-Bacon Act. The DOL concluded that the project was a "public work," allegedly because D.C. helped plan the project, and it was designed to produce benefits for the public. D.C. appealed, and on cross motions for summary judgment, the U.S. District Court for the District of Columbia ruled against the DOL. D.C. v. Department of Labor, 34 F.Supp.3d 172 (D.D.C. 2014). The circuit court affirmed that judgment.

The circuit court based its ruling on two independent grounds. First, because D.C. was not a party to the construction contracts for the project, the Davis-Bacon Act does not apply. According to the court, a contract for construction means "a contract in which one party will perform construction in exchange for the other party's payment or other consideration. ... [A] lease, land-sale, or development agreement that contemplates one of the parties entering into a future contract for construction with a third party construction contractor is not itself a contract for construction." The court distinguished a series of cases involving government leases (where Davis-Bacon has been found to apply), concluding that there, the government was the lessee, not the lessor, and the government was in effect paying the construction costs through its lease payments to the landlord, which built, repaired or altered the rental property.

Second, the court rejected the DOL's arguments that the project amounted to a "public work." The definition of "public work" requires either public funding of construction or government ownership of the completed facility, or both. In this case, the court found that all funding was private, and the project was under private ownership, operation and control.

The court concluded its opinion by stating, "The U.S. Department of Labor has advanced a novel reading of the Davis-Bacon Act that would significantly enlarge the number and kinds of construction projects covered by the Act. Expanding the coverage of the Davis-Bacon Act in this way may or may not be a wise policy decision. But that choice belongs to the political branches, which may enact new legislation if they so choose. Our job is to construe the statute as written and long understood. The Department's interpretation of the Davis-Bacon Act contravenes the statute."

Implications on Other DOL Efforts

The case may have implications on other recent efforts by the DOL to expand its jurisdiction by "novel" interpretations of the labor laws, but contractors can take two points from the holding of the court's decision here. The Davis-Bacon Act does not apply: 1) where the U.S. or D.C. governments are not parties to construction contracts or 2) where the resulting project is neither funded nor owned by the government. The ruling will likely have no application, however, to construction projects for which federal assistance was provided in the form of grants, loans, loan guarantees or insurance under any of the so-called Davis-Bacon "Related Acts," which expressly extend the provisions of the Davis-Bacon Act into those programs (e.g., the Federal-Aid Highway Act, the Housing and Community Development Act of 1974 and the Federal Water Pollution Control Act).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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