Are Private Development Projects Covered by Prevailing Wage Laws?
When a governmental entity contracts with a general contractor to build a community center on government-owned land, the question of whether prevailing wages are required for workers on that project is easily answered. If federal funds are used to pay for that project, the Davis Bacon Act applies. If the source of funding is from the state or local government coffers, then state prevailing wage laws would apply.1
But what about private development, where there is some tangential governmental involvement? Modern mixed-use projects often employ three-party relationships where a governmental agency, a developer and a construction contractor are involved. Do prevailing wage laws apply to these types of projects?
In the CityCenterDC case, the back wage exposure if the District of Columbia was wrong in its assessment of a "private" versus "public" project was well in excess of $20 million. Because of the potential risk involved, contractors and developers alike should take great care to ensure, at the outset, that governmental involvement does not transform what is intended to be a private development into "public works" with all of its attendant obligations.
In District of Columbia and DDCD Office LLC v. Department of Labor, Case No. 14-5132, (April 5, 2016), the United States Court of Appeals for the District of Columbia ruled that the Davis Bacon Act did not apply. This case involved CityCenterDC, a large mixed-used project containing retail, office and residential construction on land owned by the District of Columbia but leased to the developers. The District and developers entered into development agreements in which the District maintained the right to approve the developers' selection of contractors and agreements with contractors. The Department of Labor initially determined that the Davis Bacon Act applied.
The District contested the Department's finding. On appeal, the Court ruled that the Davis Bacon Act did not apply for two reasons: i) the Act only applies to contracts where the Federal Government or the District Columbia is a party; and, ii) the project was not a "public work."
The Court noted the construction contracts were between the developers and contractors and the District was not a party. The Court specifically found that "a lease, land-sale, or development agreement that contemplates one of the parties entering into a future contract for construction with a third party construction contractor is not itself a contract for construction" and therefore not subject to the Act.
The Court also held that the Davis Bacon Act did not apply because the CityCenterDC project was not a "public work" as defined in the Act. In order to be a "public work," the Court said the project must possess at least one, or perhaps both, of the following two characteristics: (1) public funding of the construction and (2) government ownership or operation of the completed facility. Neither of these factors were present, because CityCenterDC was privately funded, owned and operated. Governmental assistance in project planning did not make the project a public work. District of Columbia, Case No. 14-5132, *20.
Whether a development project is "private" or "public" has implications beyond prevailing wage statutes. For example:
The legality of indemnification provisions in project agreements may hinge on whether the project is private or public, with risk-transfer restrictions applying to public projects in some states.
Procurement restrictions, whether from the Buy American Act or state laws requiring competitive bidding, apply to public but not private projects.
Bonding requirements differ based upon the status of a project.
Work force requirements for disadvantaged business enterprises, including WBE and MBE contractors, are implicated in public but not private projects.