Published date: 08/12/2019

UPDATE: This article was originally published August 2019 but has since been updated in February 2022.

Prevailing wage: quite possibly two of the most unpleasant words for a contractor to hear when working on a construction project. Why? Because prevailing wage compliance is fraught with complexities that at times seem to warrant a small army of law experts to decipher. But knowing the fundamentals goes a long way…

Primes Acting Like Public Agencies

Let’s start with the obvious: awarding bodies like city/county agencies and other state/local authorities have obligations to regulate Davis-Bacon compliance when public funds are applied to projects. After all, it’s their job, right? They are the ones that need to make sure every contractor is compliant.

While this is true, some prime contractors might be surprised to find that they, too, can benefit from closely monitoring every certified payroll report on their projects – just like public agencies do. Why is that? Because the hard truth for many primes is that their concern for prevailing wage compliance extends beyond their direct line of sight. They’re not just responsible for underpayments to their employees; they can be held liable for the underpayments that a subcontractor commits on one of their projects as well. Yes, the onus is clearly on the sub to pay their own employees, but if they fail for whatever reason to follow through, the prime bears the responsibility of restitution and other potential repercussions. This is one of the many reasons that prime contractors must take it upon themselves to monitor compliance in a similar way that a public institution or project owner would.

Your Responsibility as a Prime Contractor

Anybody can create and submit a certified payroll report (CPR). You do not need to be “certified” with a license to submit one. But herein lies a vulnerability that cannot be emphasized enough: certified payroll reports created manually are prone to human error. And mistakes happen a lot more often than you might think, especially in an industry where regulations might not seem intuitive to the average person.

As a prime contractor, it’s hard enough to manage compliance for your own employees… but to ensure that every subcontractor (sub) is doing the same? What about the smaller subs that the larger subs contracted work out to? Or even the subs of those subs? Suddenly, you may have layers upon layers of contractors, with tens (if not hundreds or thousands) of workers, and you – as the entity holding the prime contract with the awarding body – are responsible that all of them are getting paid appropriately.  

Overcoming the “Compliance” Hurdle

If you are experienced with public works projects, you’ve most certainly already come to the realization that you can’t just rely on your payroll provider to generate your CPRs and apply a universal form that satisfies all federal, state, or local requirements. In a majority of cases, this won’t suffice for a prime. For one, many states and local agencies have their own separate requirements. And besides, it isn’t a payroll provider’s goal to ensure you are compliant; they’re main concern is facilitating payments. And even if it was their priority, it still wouldn’t solve the main issue that we keep circling back to: monitoring every other contractor on the project. Unfortunately, this continues to be one of the biggest administrative struggles prime contractors face today.

But there are ways primes can overcome this hurdle…

Have a Basic Understanding of Compliance Laws

If you are brand new to public works projects, start at square one: familiarize yourself with Davis-Bacon and prevailing wage laws to better understand what’s at stake (check out the US Department of Labor website). There are very real consequences for violations, such as payment of back wages, additional fines and penalties, prosecution, and other potential repercussions (up to and including disbarment). These are typically handed out at the discretion of prevailing wage investigators/auditors, depending on the severity and whether they deem criminal intent is at play. Which brings us to a very important point: if you are being audited, work with the auditors – not against them. In most cases you are at their mercy, and if you are cooperative, they may even help you. Key word: help – not do your work for you.

Review Your Subcontractors’ Administrative Practices

Your subcontractors’ success is your success. But if they continue struggling to produce CPRs manually, they will remain vulnerable to errors and the consequences. This in turn exposes the prime to those same liabilities, which is why it is so crucial that every contractor on the job cuts down on these manual processes. In this digital age, contractors should not have to continue to repeat mundane tasks and then double check (and even triple check) their work to ensure accuracy – we can leverage the power of technology for this. Likewise, they should not have to enter the same data multiple times on different CPR formats for separate requesting bodies.

Take Inventory of Your Collection and Review Processes

Another pitfall that primes must overcome is the facilitation of receiving all the compliance documents from contractors. If your subs are still completing their CPRs by hand, then you’ll undoubtedly continue to receive thousands of physical paper documents. This approach is not only a waste of time and space for everyone, but it perpetuates the same outdated and inefficient communication practices that have plagued the industry for years. To catch and rectify potential mistakes effectively, it’s essential for primes and subs to communicate back-and-forth in an easy, time-sensitive manner. An optimal solution would provide a centralized environment where, 1) all contractors can create and submit pre-validated CPRs; 2) project administrators can review and accept/reject them based off potential violations exposed by automatic checks; and 3) all parties can efficiently communicate.

Maintain Records of Compliance Documents

There’s also the additional hassle of keeping a clean, systematized record of compliance documents from every contractor, archived by project. If you are new to public works projects, it’s important to note that this isn’t just a recommendation – it’s a requirement. The Davis-Bacon Act specifies that contractors must keep these records accessible for audits for 3 years after the completion of a project. Prime contractors will be thanking themselves for investing in an integrated, cloud-based system that keeps an organized account of all necessary documentation. Not only will this eliminate paper waste and physical storage, but it will make audits and investigations seem like breeze. Records would be easily accessible to any organizations granted with permissions to the system – all in one centralized place.

The bottom line: prevailing wage projects don’t necessarily have to be the headache that they seem to be for many prime administrators. Knowing the fundamentals, having an efficient process in place, and keeping an accurate archived record of your documents mitigate the plethora of risks inherent with these types of construction projects.

If you’d like to learn more about the many aspects of labor compliance, check out https://lcptracker.com/academy/. You can also learn more about cloud-based software applications that help streamline compliance and resolve each of the issues discussed in this article by visiting www.lcptracker.com.

These materials are being issued with the understanding that LCPtracker is not engaged in rendering legal or other such professional services, and is providing these for informational purposes only. If legal, accounting, or tax expert assistance is required, the services of a competent legal, accounting, or tax professional should be sought.