Understanding the Davis-Bacon Act and Its Role Under DOE Loan Programs

The U.S. Department of Energy (DOE) Loan Programs Office (LPO) released a guide earlier this year to explain how LPO financing programs are subject to Davis-Bacon labor standards, the Davis-Bacon requirements that apply, and a summary of those requirements.

The Davis-Bacon Act (DBA), enacted in 1931, sets the standard for contractors and subcontractors working on federally funded construction projects exceeding $2,000. The Davis-Bacon and Related Acts (DBRA) apply these requirements to projects financed by the federal government.

Projects financed by LPO must comply with DBRA. This requirement includes most projects, though some, like those under specific programs such as the Tribal Energy Finance Program, may follow different guidelines unless they opt into tax benefits under the Inflation Reduction Act (IRA), where prevailing wage compliance is required.

The Inflation Reduction Act links tax incentives to prevailing wage standards, drawing a clear connection between these two laws. This connection means contractors must adhere to wage decisions determined by geographic location and construction classification, ensuring wages reflect local economies.

By tying tax incentives under the IRA to Davis-Bacon wage standards, contractors must prioritize fair wages in their planning to qualify for benefits. This balance ensures that projects under the Inflation Reduction Act support the workforce and sustainability initiatives.

The LPO Davis-Bacon guide can be found at: https://www.energy.gov/lpo/articles/ensuring-prevailing-wages-closer-look-davis-bacon-act

SBA Proposes Changes to Size Recertification Rules Could Impact Federal Contractors

The Small Business Administration (SBA) proposed new regulations that could significantly impact federal contractors in small business programs.

The proposed changes aim to standardize size recertification requirements, potentially impacting small businesses involved in mergers, acquisitions, or capital infusions.

Key provisions include:

1. Consolidation of Regulations:

• The SBA plans to create a unified set of size recertification rules under 13 CFR 125.12, replacing the current program-specific requirements for more consistency across all SBA programs.

2. Size Determination Exceptions:

• Triggering Events: Mergers, acquisitions, or novations would require recertification. If a business can no longer be certified as small, it becomes ineligible for future set-aside orders under multiple award contracts (MACs) but can still compete for unrestricted orders.
• GSA Federal Supply Schedule (FSS) Contracts: Size would be determined at the date of the triggering event or recertification request for set-aside orders, eliminating the current exception for FSS contracts.
• 8(a) Sole-Source Awards: Businesses must qualify as small at the initial offer date for each order, regardless of the underlying contract type.

3. Impact on Contractors:

• Eligibility Risks: Contractors may lose eligibility for set-aside contracts if certain events lead to disqualification. This is a change from the current rule where size status is maintained for the contract’s duration unless recertification is requested.
• Early Affiliation Concerns: Preliminary agreements between two firms could trigger early affiliation with the large business, potentially disqualifying a business from small business contracts before an actual transaction.

4. Updates to HUBZone and Other Small Business Programs:

• The proposed changes aim to refine eligibility criteria for the Historically Underutilized Business Zone (HUBZone), Women-Owned Small Business (WOSB), and Veteran Small Business Certification (VetCert) programs and standardize recertification rules to ensure uniform application and reduce confusion for businesses holding multiple certifications.

These changes may discourage small businesses, contractors, and investors from engaging in transactions that could trigger disqualifying recertifications. Federal contractors should review the proposed rule, which could impact their eligibility for future contracts. Comments on the proposed rule are due by October 7, 2024.

SECURE 2.0 mandatory Auto Enrollment and Auto Escalation changes are coming in 2025. Are You Prepared?

The Secure Act 2.0 mandates Auto Enrollment and Auto Escalation starting January 1, 2025. Here’s what Plan Sponsors need to know and how The Contractors Plan will help clients prepare.

What to Expect

Automatic Enrollment:
Beginning in 2025, 401(k) plans that meet certain criteria must include an automatic enrollment feature. This means that all eligible employees who are not currently deferring must be automatically enrolled in the retirement plan at a minimum deferral rate of 3% of their eligible compensation. This feature of SECURE 2.0 encourages higher participation rates in retirement savings programs by reducing the barrier to entry for employees and makes it easier for employees to start saving for retirement without taking initial action. Employees can opt out of deferring at any time. If participants choose to opt-out prior to 90 days from the first auto-deferral contribution, they may request a refund of those deferral contributions.

Automatic Escalation:
In addition to automatic enrollment, these plans must also include an automatic escalation feature. Each year, the deferral rate will automatically increase by 1% until it reaches at least 10% (but not more than 15%). This gradual increase helps employees build their retirement savings over time without needing to make ongoing decisions about their contribution rates. By steadily increasing the contribution rate, employees can enhance their savings potential, helping to secure a more robust retirement fund. Employees can opt out of auto escalation at any time.

Next Steps:

Determine if your Plan is Impacted. The Contractors Plan will consider all 401(k) plans established after December 29, 2022, as subject to the mandatory Automatic Enrollment and Automatic Escalation provision of Secure 2.0 unless the plan sponsor can claim an exemption based on the criteria and conditions below. Based on the client information on file, The Contractors Plan will be directly contacting clients to confirm your plan is impacted or if your plan meets the conditions for an exemption.

*Note that once your plan no longer meets any of the exemption criteria, it is immediately subject to these provisions.

Review and Update Plan Documents:
The Contractors Plan will provide impacted clients with the final amendments to reflect the new automatic enrollment and escalation requirements in 2025. This step is crucial for compliance and for avoiding potential penalties. Until these amendments are available, the plan is permitted to operate without them in good faith.

Communicate Changes:
Clearly communicate these changes to your employees so they are prepared for the new automatic enrollment process. Transparency will help employees understand how these changes will affect their paychecks and retirement savings. The Contractors Plan will provide employers with materials to distribute to employees relating to this requirement.

Implement Administrative Adjustments:
Ensure your payroll vendor is able to make any changes necessary to implement auto enrollment and auto escalation. The Contractors Plan provides an easy-to-use online deferral process that allows your employees to make elective deferral changes, including an opportunity to opt-out of the mandatory auto-deferrals. Consider moving to this process to reduce your administrative burden and streamline the process for your employees.

By proactively addressing these changes, employers can ensure compliance with the new rules and help their employees achieve greater retirement readiness. If you aren’t sure if your plan falls within these new guidelines, please contact us.

The Contractors Plan understands the unique challenges that Davis-Bacon and Service Contract Act contractors face when creating and managing a bona fide employee benefits plan. We specialize in prevailing wage retirement, major medical, specialty benefits, compliance and more. We’ve assembled our knowledge into a flexible, easy-to-use solution that offers great benefit options for your employees.

For over 40 years, The Contractors Plan has designed and administered healthcare, retirement, and specialty benefits programs for government contractors.  Our products and services help employers save money, reduce their workload, and stay compliant with local and federal government mandates and regulations.

When offering employee benefits products through The Contractors Plan, you gain the administrative solutions that make working with prevailing wage contractors possible. Our powerful eligibility management process is designed specifically for government contractors, so you can reduce your workload and keep winning jobs.

Biden-Harris Executive Order Focuses on Labor Standards

The Biden-Harris Administration issued an Executive Order (EO) on Investing in America and American Workers, known as the “Good Jobs EO.” The goal is that federal investments in infrastructure, clean energy, and manufacturing create high-quality, union-supportive jobs that provide pathways to the middle class. The EO directs federal agencies to prioritize and implement labor standards that promote fair wages, worker protections, and the ability to organize unions across federally funded projects.

Labor standards promoted in the Good Jobs EO include:

• Encouraging Project Labor Agreements, Community Benefits Agreements, and other instruments that promote union recognition and neutral approaches to union organizing.
• Implementing wage standards, such as prevailing wages and pay transparency, to ensure compensation.
• Supporting worker benefits, including health insurance, paid leave, retirement plans, and child and dependent care.
• Promoting workforce development through registered apprenticeships, partnerships with community colleges, and other training programs.
• Prioritizing equitable hiring, management practices, and workplace safety.

Furthermore, the EO encourages agencies to integrate labor standards into grant programs and provides mechanisms for data collection and pre-award negotiations to strengthen accountability.

The EO also establishes an “Investing in Good Jobs Task Force” to oversee policy coordination across federal agencies. This task force will enhance job quality and ensure effective project implementation. The Secretary of Labor and the Director of the National Economic Council will co-chair this task force, with Senior Advisors to the President and members of the President’s Cabinet also involved.

This EO builds on efforts to boost the workforce through public and private investments in manufacturing and clean energy, fostering job creation and economic growth across the U.S.

Legal Challenges Put FTC’s Non-Compete Ban on Hold

The Federal Trade Commission’s (FTC) final rule ban on non-compete agreements was set to take effect on September 4, 2024. However, its future is now uncertain following significant legal challenges.

On August 20, 2024, Judge Ada Brown of the U.S. District Court for the Northern District of Texas issued a permanent injunction against the FTC’s rule, halting its enforcement nationwide. The court ruled that the FTC overstepped its authority and criticized the rule as overly broad and unjustified.

This decision, which follows earlier legal actions, including a preliminary injunction in the Middle District of Florida and a conflicting ruling in the Eastern District of Pennsylvania, underscores the complexity of the legal situation and the varying interpretations of the FTC’s authority.

Despite the setback, the FTC is likely to appeal the Texas ruling. However, a resolution is unlikely before the original effective date, even if an appeal is filed. Employers currently face legal uncertainty regarding the use of non-compete agreements. Although they remain permissible, the legal landscape could shift based on the outcomes of ongoing litigation and potential appeals.

NJ Department of Labor Enforces Compliance with Prevailing Wage Laws Ahead of August 15 Deadline

Over the summer, the New Jersey Department of Labor and Workforce Development (NJDOL) focused on the responsibilities of local governments and school boards under the New Jersey Prevailing Wage Act and the Public Works Contractor Registration Act. These laws ensure fair wages for workers on public works projects, protecting against unfair competition and wage theft.

Effective August 15, public works contractors must report certified payroll records through the NJ Wage Hub. This requirement is crucial to NJDOL’s efforts to enhance transparency and compliance with prevailing wage laws. NJDOL strongly encourages public works contractors and contracting public bodies to create accounts on this platform before the deadline. Contractors in the NJ region should be particularly mindful of this requirement to avoid penalties and ensure adherence to the law.

NJDOL has collaborated with various state departments and organizations throughout the summer to promote compliance, offering guidance and support to public bodies and contractors. This outreach aims to raise awareness about the importance of adhering to prevailing wage standards, ensuring workers are fairly compensated, and maintaining the integrity of public projects. For more information, visit myworkrights.nj.gov.

Upcoming WHD Seminar on Federal Prevailing Wage Requirements

In August, the U.S. Department of Labor’s Wage and Hour Division (WHD) will host an online seminar for contracting agencies, contractors, unions, workers, and other stakeholders to learn about federal requirements for paying prevailing wages and benefits on federally funded construction and service contracts.

This day-long seminar aims to increase awareness and compliance with labor standards under the Davis-Bacon Act and the Service Contract Act. The seminar will cover how prevailing wages are set and administered, among other topics, and will be held on August 29 from 11 a.m. to 5:30 p.m. EDT.

WHD’s Administrator Jessica Looman emphasized the importance of prevailing wage laws in ensuring fair wages and benefits for workers on federally funded projects, especially in light of the Biden-Harris administration’s infrastructure investments.

Participation is free, but registration is required.

Michigan Expands Prevailing Wage Law to Include Solar and Wind Energy Projects

Last week, Michigan Governor Gretchen Whitmer signed an expansion of the State’s prevailing wage law to include construction for solar and wind energy projects. Senate Bill 571 extends prevailing wage requirements to clean energy facility construction, which includes solar, wind, and energy storage plants.

The bill mandates contractors bidding on these projects to register with the Department of Labor and Economic Opportunity and submit payroll and benefits information for workers. Supporters believe this will ensure better pay and support Michigan’s transition to clean energy, aligned to achieve 100% carbon emission-free energy by 2040. Opponents argue that it increases project costs and burdens nonunion laborers.

The bill passed along party lines in both legislative houses. Last year, Whitmer signed legislation reinstating Michigan’s prevailing wage law for state-funded construction projects, which had been repealed in 2018.

Texas Judge Suspends Enforcement of New DOL FLSA Overtime Rule

On July 1, 2024, the U.S. Department of Labor (DOL) implemented an increase in the minimum salary threshold for the Fair Labor Standards Act’s (FLSA) white-collar exemption, raising it from $35,568 to $43,888 annually. This threshold is set to increase further to $58,656 on January 1, 2025. Since the new rule became active, it has elicited mixed reactions and has faced legal challenges.

The impact of the increase in the salary threshold is not limited to non-government contracts. FLSA overtime requirements can apply to contracts covered by the Davis-Bacon Act and Service Contract Act and work in conjunction with the Contract Work Hours and Safety Standards Act.

In particular, the state of Texas recently filed for a preliminary injunction against the new rule, arguing that it would significantly raise payroll costs and strain budgets. In response, on June 28, 2024, a federal judge in Texas granted a preliminary injunction, suspending the DOL’s ability to enforce the new rule against Texas as an employer. Despite this injunction, private sector employers and other states must comply with the updated threshold.

While Texas state employers are temporarily exempt from the new salary threshold, employers in other states must comply and adjust their payroll practices. Further legal developments could influence the enforcement of the rule in the future.

Federal Court Halts Key Provisions of DOL’s Davis-Bacon Act Amendments

On June 24, 2024, the U.S. District Court for the Northern District of Texas issued a preliminary injunction against key sections of the U.S. Department of Labor (DOL) amendments to the Davis-Bacon Act (DBA) regulations that apply nationwide. This ruling temporarily halts the enforcement of specific provisions within the DOL final rule, “Updating the Davis-Bacon and Related Acts Regulations,” which became effective on October 23, 2023.

The Court found several final rule provisions violate the DBA’s statutory language, congressional intent, and the Regulatory Flexibility Act (RFA). The blocked provisions include those within 29 CFR 5.2, which codify distinctions between material suppliers and contractors/subcontractors and require contractors to pay prevailing wages to delivery truck drivers for onsite work exceeding a significant minimal amount. Additionally, the provision within 29 CFR 5.5(e), which imposes DBA requirements by operation of law even if omitted from covered contracts, was also blocked.

The Court found that the DOL overstepped its authority by including an operation-of-law provision contradicting the DBA’s express statutory language. This provision would mandate that DBA labor standards and wage determinations apply even if erroneously omitted from contracts, which the Court found inconsistent with the principles of due process and basic contract law. The DBA explicitly requires federal contracts to outline minimum wages for “laborers and mechanics employed directly on the site of the work.” The Court emphasized that the DBA is not self-implementing. Thus, DOL lacks the authority to enforce this provision.

Furthermore, the Court determined that DOL improperly expanded DBA coverage to workers beyond mechanics and laborers and included work not performed directly onsite. The DBA’s language limits its application to construction, alteration, or repair, which does not encompass activities like trucking or material supply.

The Court also highlighted DOL’s failure to comply with the RFA. The DOL did not adequately assess the economic impact on small businesses, including costs associated with compliance, such as producing certified wage reports and bearing interest costs on restitution wages. This oversight led the Court to conclude that the final rule violates the RFA.

This preliminary injunction will remain active indefinitely as the litigation progresses, and the Court will later determine whether to make the injunction permanent. The developments in this case will continue to be monitored closely.