Congress recently passed legislation investing hundreds of billions of taxpayer dollars in rebuilding America’s infrastructure, clean energy and manufacturing facilities to help keep America’s economy competitive.
While that’s good news for America’s construction industry, this bonanza of government spending could not happen at a worse time for taxpayers and lawmakers seeking to maximize its return on infrastructure investment.
The construction industry faces supply chain disruptions, staggering materials cost inflation that is almost 40 percent more than before the start of the COVID pandemic, declining investment in structures in many market segments and a skilled labor shortage topping half a million people in 2023.
To make matters worse, this month the Biden administration issued controversial regulations that will needlessly increase construction costs and discourage small businesses from bidding on taxpayer-funded projects.
At issue is a final rule announced Aug. 8 by Acting Labor Secretary Julie Su, which purports to “update and modernize” existing Davis-Bacon Act regulations requiring contractors performing construction work on an estimated $217 billion in annual federal and federally assisted projects to pay construction workers a government-determined hourly wage and benefit rate reflecting local “prevailing” rates of compensation.
Since its passage in 1931, special interests like construction trade unions and their federal government allies have fiercely defended the DBA—and expanded its reach to most federally assisted construction projects procured by state and local government via 71 Related Acts. That’s despite complaints by government watchdogs, taxpayers and small business advocates that DBA regulations and prevailing wage requirements stifle job creation, undermine productivity, unfairly steer contracts to unionized firms and discourage competition from small businesses by imposing onerous paperwork burdens and compliance risks on contractors and governments that build projects funded by federal dollars.
In addition, the DBA needlessly raises taxpayer-funded construction costs. The Congressional Budget Office estimates its repeal would save the federal government $24.3 billion in a decade. A May 2022 study found that the DBA costs taxpayers an extra $21 billion a year, increases the price tag of construction projects by at least 7.2 percent and inflates construction workforce wages by 20.2 percent, compared to local market averages, all because the DOL’s rulemaking fails to calculate prevailing wages using modern and scientific methods.
Critics contend the DOL has failed to provide clarity to the regulated community with respect to the various bureaucratic interpretations of DBA red tape. This exposes contractors to compliance uncertainty, possible fines and litigation. It also undermines government policy appealing to small businesses––with the goal of awarding them more government contracts––in the face of a nearly 60 percent decline in the number of construction small businesses awarded a federal contract from 2010 to 2020.
In addition, critics argue lawmakers and regulators collaborating with the construction trade union lobby have rigged the government’s bureaucracy to ensure that, as much as possible, the DOL requires that contractors pay inflated rates to construction workers that are consistent with union rates contained in collective bargaining agreements. A record 88 percent of the U.S. construction industry is union-free, so it is a statistical impossibility for union rates to be adopted as “prevailing” as much as they actually are in today’s marketplace. The DOL estimates its new rule will double the number of union wage rates adopted as the government-determined prevailing wage.
Likewise, for decades, the Government Accountability Office and the DOL Office of Inspector General have called for reforms to the DOL’s unscientific and fundamentally flawed wage determination process, yet the DOL has done little to improve it.
Together, these regulatory deficiencies help unionized contractors win more government contracts and create more jobs for unionized labor. This is a key reason why the DBA is supported by President Joe Biden, who has said, “I intend to be the most pro-union president leading the most pro-union administration in American history.”
Likewise, the new rule is a win for some of Biden’s strongest supporters at North America’s Building Trades Union, whose affiliated federal PACs spent $62 million last election cycle to support lawmakers who can leverage policy to stop a decades-long decline in union membership.
It’s no surprise that the DOL’s rule is more pork for special interests rather than meaningful change benefiting all industry stakeholders and taxpayers. In short, the rule rescinds modest reforms enacted by the Reagan administration in the early 1980s, overturns decades of legal decisions unfavorable to unions, expands the application of the DBA and fails to fix the DOL’s broken and convoluted wage determination process.
Effective Oct. 23, the sweeping changes in the 800-plus page rule will cost regulated businesses hundreds of millions of dollars to implement and does not account for the billions of dollars of additional costs to taxpayers and government caused by the adoption of inflated nonmarket rates and reduced competition from qualified small businesses.
The public’s only chance at reversing this regulatory boondoggle is a successful legal challenge or a new president ushering in meaningful reform that will foster robust competition from all members of the construction industry on federally funded contracts and deliver communities the high-quality infrastructure they deserve while providing the best possible value for taxpayers.
Ben Brubeck is vice president of regulatory, labor and state affairs for Associated Builders and Contractors.