Published date: 07/28/2022

Raise your hand if you enjoy being audited.

Someone?… Anyone?… Bueller?…

While they might seem intrusive, audits are a necessary evil when it comes to prevailing wage compliance – and they aren’t going anywhere. Although there’s often nothing egregious to uncover, there will inevitably come a time when an auditor discovers something that requires a deeper dive. Which could prompt something arguably even more unpleasant…

What triggers an investigation?

Investigations can be daunting for any contractor – big or small – so it’s best to be prepared. But before we get into the specifics, we should understand what triggers them. The audit scenario mentioned above, for one, is a real possibility if an auditor finds an issue that they suspect is pervasive beyond just the casual error. Multiple inconsistencies across different forms of documentation, for instance, could raise some red flags.

Another trigger, and probably the most common, would be a claim/report of noncompliance. This typically appears in the form of anonymous complaints (which workers can file directly with the awarding body or US Department of Labor). Maybe an employee discovered other workers on a project were earning more while doing the same work. Or maybe they noticed their employer had classified them as one trade while they keep performing work in another. Or maybe it wasn’t a worker that made a complaint at all…

What if the discrepancy was discovered while the project owner or contracting agency conducted a Labor Standards Interview (a.k.a. employee interview or field wage interview)? As part of Davis-Bacon project requirements, agency representatives will commonly visit jobsites to ask workers questions about their job and compensation and then compare results with certified payroll reports to find possible violations that otherwise may not be found on paper.

Whatever the case may be, contractors under the microscope may or may not be notified as to what prompted the investigation, as an agency is not required to disclose such information. Note: this has no bearing on the severity of the case.

How does an agency conduct an investigation?

The awarding agency (or project owner) has the option to either conduct its own investigation or have the United States Department of Labor (USDOL) conduct it for them. They typically decide to move forward with an investigation when a compliance check indicates there has been a substantial or willful violation – or past violations have not been corrected.

This is when the SF 1446 form comes into play. The SF 1446 is the form used by agencies when conducting an investigation. It summarizes:

• A list of violations
• The amount of restitution paid
• The number of workers who received restitution
• The number of liquidated damages assessed under the Contract Work Hours and Safety Standards Act (CWHSSA)
• The corrective measures taken
• The information necessary to review recommendations for the appropriate adjustment in liquidated damages

How will you know if you are being investigated?

Notifications can come in the form of a letter or email. There is no set protocol or standard that guides how the agency will inform the body (or bodies) being investigated. We use “body” here because sometimes the investigation is coming from somewhere higher up than the awarding agency. In this process, the investigator has the discretion to choose how to notify the pertinent parties and who to contact. This means that anyone related to the project – including an awarding body, prime contractor, or any of the subcontractors – can be eligible to receive the investigation notice.

What should you do after being notified of an investigation?

After you receive a notification, you should carefully review it and make notes of any questions that you might have. You should then determine a point of contact who can act as a go-between for the investigation process. Best practices dictate that you should confirm the receipt of the notification with that investigator and take that moment to ask for any clarifications, if needed. Additionally, it is also a good idea to confer with your legal counsel for clarity on any pressing matters.

Once contact has been established, most investigations will begin with an opening conference. It’s here that you will have a chance to ask questions and understand what is required of both parties. You should always make sure you understand the due dates for items and confirm what the process is for communication. It’s also beneficial to be cognizant of whether the investigating body will be visiting your project.

Documentation

Now it’s time to gather your documents. Here’s a list of some of the information the agency might require of you:

• Company information (possibly even including a breakdown of the company officers and ownership, prior years’ sales, etc.)
• Information regarding the awarding body
• Name of the contracting officer
• Copy of contract with project info like award date, start date, and suspected completion date
• Copy of all payments received by the awarding body
• List of all subcontractors
• List of all payments made to all subcontractors
• Copy of all certified payroll reports (CPRs)

Additionally, you might be asked for supporting documentation, which may include:

• Permissible deduction backups, like court orders or signed authorization slips
• Apprentice certifications and program descriptions
• Conformance requests and approvals
• A list of all subcontractors who have already performed work on the project and have left
• A list of all employees who worked on the project for all contractors
• Union agreements or CBAs, if applicable

Independent Assessment:

A good rule of thumb: always try to be your own advocate. Before the investigator arrives, you can perform your own independent assessment to gain a clearer perspective on where you stand. Note: in an ideal world, these assessments should be done before you even hear about an investigation.

You can complete an assessment by first pulling a list of all your vendors and reviewing the list with someone who’s well acquainted with every company working on the project. Ultimately, this process might shed light on smaller subcontractors who might have slipped through cracks when it comes to submitting CPRs. By interviewing your project personnel and documenting your assessment you will be more confident in your ability to respond to USDOL investigation requests.

And, if you really want to mitigate risk, you can do what some of the top primes are doing: conduct your very own labor standards interviews on the jobsite. That way, you can get ahead of investigations by discovering mistakes your subcontractors make and require them to correct issues before the agency finds any violations.

If you’d like to learn about solutions that can help you remain compliant and be better prepared for audits and investigations, check out www.lcptracker/solutions.

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These materials are being issued with the understanding that LCPtracker is not engaged in rendering legal or other 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.