Prevailing wage rules required by the federal stimulus program may drive up costs and cause some projects to miss their goals, according to a new study by the U.S. Government Accountability Office.

The study, ordered by Senate Minority Leader Mitch McConnell (R-Ky) and released on March 25, contends that 40 federal programs with construction funding authorized under the 2009 American Recovery and Reinvestment Act are now subject to the wage rules under the federal Davis-Bacon Act. Seven programs are brand-new, and 33 were not previously covered by the law. They account for $102 billion of the $309 billion appropriated for construction-related work, says GAO. In addition to setting prevailing wages, Davis-Bacon requires contractors to pay workers weekly and to submit certified payroll records.

Newly covered federal construction programs range from large ones, such as the U.S. Environmental Protection Agency’s $4-billion clean-water state revolving fund, to small ones, such as the U. S. Interior Dept.’s $10-million Colorado River salinity-control program. In most cases, agency officials claim the law would have “little or no impact” on program costs, schedules and goals because they include minimal actual construction or because managers expected and planned for the new rules.

But for some, the impact could be more significant. Officials of DOE’s weatherization assistance program, which funds energy-efficiency upgrades in residential buildings taller than four stories and received a $5-billion stimulus boost, predict a “moderate” project cost increase because wages may rise to commercial-scale rates, says the GAO study.

While officials in the Energy Dept.’s program to boost wind and hydropower technologies say labor costs could rise 20% due to Davis-Bacon rules, the hike “could attract a highly trained laborer and possibly result in savings in rework or in adherence to safety guildelines,” says the study.

GAO says the higher required wages could be problematic in keeping costs consistent for programs in low-income areas—such as construction of correctional facilities on tribal lands, a U.S. Justice Dept. program that got $2 million under the stimulus—and in DOE’s weatherization program, which has numerous grantees across the U.S. Officials of the U.S. Housing and Urban Development’s lead hazard-reduction program, which has a $100-million stimulus boost, say new payroll reporting rules under Davis-Bacon could burden small firms, with five or fewer employees, that have no compliance experience. The department is now increasing the cap for what recipients can spend on administrative costs from 10% to 15% of the contact award, says GAO.

State and local officials interviewed in the study had mixed views on how program costs could be affected. Officials in Georgia and Washington, D.C., associated with EPA clean- water stimulus funding anticipated no extra administrative costs, but those in Mississippi and New Jersey said they would rise. Most said the increases stem from having to add compliance staff.

While officials in 15 of the 40 ARRA-funded programs note no impact in achieving program “goals,” several say they could fall short in being able to complete workloads or create new jobs. Officials in the DOE weatherization program say the added cost could reduce the number of homes getting weatherized. GAO says, to avoid having to pay back wages, some officials for programs newly subject to Davis-Bacon are delaying work until the U. S. Labor Dept. sets applicable prevailing wage rates for the disciplines used.

Expected ImpactS of Davis-Bacon Requirements as Reported by Federal Officials and others Responsible for 40 Programs Newly Subject to them
Expected impact of: Little to no impact Moderate impact Large impact Other* TOTAL
Prevailing wage requirement on program costs 23 4 4 9 40
Administrative rules on program costs 18 6 7 9 40
Davis-Bacon Act requirements on program goals 27 5 1 7 40
Davis-Bacon requirements on ARRA goal of preserving/creating new jobs 26 3 4 7 40
*This category includes those that responded do not know, unclear, too soon to tell, or mixed impact.
Source: U. S. Government Accountability office