Once there was a country with unemployment hovering around 10%, high consumer debt, malfeasance by banks and investors, corporate stocks trading at dropping prices, and a growing inequality of wealth. In response, its government instituted welfare programs on an extraordinary scale, created new agencies, threw its support behind labor unions, and spent money at a dizzying pace.

Sound familiar? It should - the year was 1931, and the United States was in the grip of the Great Depression. Today's economic situation is eerily familiar, and the government's response is almost identical: Create jobs through federal "economic stimulus" spending.

The Davis-Bacon Act of 1931 was intended to level the playing field between unionized contractors and open, or merit shop, contractors bidding on federal projects. It requires that "contractors or their subcontractors pay workers employed directly upon the site of the work no less than the locally prevailing wages and fringe benefits paid on projects of a similar character," and empowers the Department of Labor to determine these prevailing wage rates. While the original scope of the Davis-Bacon Act was quite narrow, Congress has since amended the law approximately 60 times.

DBA and ARRA

It's a safe bet that DBA prevailing wage provisions and determinations apply to any project funded even partially with federal dollars. Thirty-one states have enacted state prevailing wage legislation. Commonly referred to as "little Davis-Bacon" provisions, they require payment of prevailing wages and fringe benefits on state projects as well as federal projects. Many municipalities have enacted "responsible wage" provisions or "living wage" ordinances that govern municipal construction projects. Shortly after the American Recovery and Reinvestment Act was signed into law in 2009, a memo was issued stating that all public construction projects receiving ARRA funds, regardless of ownership (municipal or state), are subject to DBA legislation.

The DBA fringe benefit amount is determined locally and ranges as high as $25 per hour in certain areas, such as parts of the northeastern U.S., California, Hawaii and Alaska. Contractors working under the DBA have the option of either providing benefits equivalent to the fringe benefit determination for every hour that an employee is paid, or paying employees the cash equivalent.

Benefits that might be included in a bona fide benefit plan offering are retirement, medical, dental, vision and life insurance plans. Paying the fringe amount as additional cash wages creates unnecessary expense that impacts a company's bottom line. Employers that provide the cash equivalent to their employees incur an additional payroll burden in the form of FICA, FUTA, and SUTA, because the cash equivalent tendered in lieu of benefits is considered wages and is subject to payroll taxes. A majority of states recognize payment of the cash equivalent as wages in the computation of workers' compensation premiums (which is based on gross payroll), and some carriers also base general liability costs on total payroll.

ARRA competition is fierce

This additional and unnecessary payroll burden can amount to hundreds of thousands of dollars over the life of a construction project - if the contractor actually wins the award, that is. The Central Contractor Registry, which is where contractors must register to bid on business from the federal government such as the projects created by ARRA, has seen more than 70,000 new registrants in the past year. The increased competition for ARRA business is having a significant impact on prices. Multi-million dollar contracts are being won and lost by three-digit price differentials. All other qualifications being equal, the lowest bidder always wins.

Companies must remove fringes from payroll if they are serious about competing in the public sector. This presents a tremendous opportunity for brokers, advisers and consultants. A trusted insurance adviser can be a life raft for clients and prospects. Advisers must understand "bona fide" benefit criteria and create relationships with vendors and administrators whose products and platforms support increased administrative sophistication and specific reporting requirements. Benefits must be tracked per employee, per hour.

Increased enforcement ahead

ARRA allotted about $29 million for increased federal enforcement. As a result, the DOL is hiring additional auditors and actively looking for contractors that are not in compliance with applicable laws. Debarment of any length is tantamount to a death sentence for a contractor that is performing public work. Many government contractors, especially those new to this market, simply don't know what they don't know.

Is your client overpaying its workers?

Many contractors offer health insurance to their employees, yet fail to take appropriate credit when working on prevailing wage jobs. In effect, they are paying the employee twice: paying a portion of the fringe as wages while also subsidizing the cost of the insurance.

Here's how to calculate the proper fringe benefit credit for health insurance on a prevailing wage project. First, determine the hourly cost for the benefit. Prevailing wage jobs and their wage determinations are calculated on a per-hour basis. Multiply the employee's monthly premium by 12 months to come up with an annual cost, then divide this annual cost by 2,080 hours (or whatever the local or state law requires) to find the hourly equivalent cost for the employee's health insurance premium. For example:

1. Employer-paid monthly health

premium: $200.00

2. Multiply by 12 months: X 12

3. Annual cost of employer-paid

premium: $2,400.00

4. Divide by 2,080 hours

(full-time work): 2,080

5. Hourly equivalent cost of health

insurance: $1.15

In this example, $1.15 is the amount per hour that can be subtracted from the total fringe obligation for health benefits provided to an employee on a prevailing wage job.

Annualization rules apply to health insurance on prevailing wage projects. If an employee is removed from a prevailing wage project, or the project ends within 12 months after the effective date of the insurance contract, the hourly increment must be "annualized," or continued until the end of that 12-month period. Contractors must keep the health benefits in place throughout that period, regardless of whether the employees are performing public work or private work. Employees who start on a public job and are moved to a private job must be paid the allotted hourly health insurance amount for all hours worked, regardless of the type of job they are performing.

Prevailing wage contractors need a benefit plan that can meet their many challenges such as weather delays, seasonality and job interruptions. Hour banking is a unique way of allowing employees to "bank" hours during peak periods. These excess hours can be utilized during slow periods to allow employees to maintain coverage. Employers can account for all hours worked as well as their corresponding fringes, and employees enjoy the opportunity to maintain year-round coverage.

Company owners can put more away for retirement

Prevailing wage laws are full of other nuances, such as the treatment of fringes flowing into a prevailing wage 401(k) plan. Flowing fringe contributions into a retirement plan allows business owners and office staff to boost their ability to contribute from their own paychecks and from company profit. Although these fringes are employer contributions, they can be treated as elective deferrals to increase deferral opportunities for owners and highly compensated employees. Fringes may also satisfy profit-sharing requirements, non-elective contribution commitments or minimum matching obligations in a safe harbor situation. Make sure you partner with an administrator that can receive all fringe dollars and generate a report detailing work hours paid per employee and allocate funds among various benefits and retirement offerings while ensuring that the audit and compliance trail remains intact.

The bulk of ARRA contracts will be issued this year. Advisers should provide their clients and prospects with guidance regarding setting up bona fide benefit plans effectively and in a compliant manner. Advisers unfamiliar with the specific needs of government contractors will likely lose business to those who have taken the time to educate themselves and to align with partners who can assist clients and prospects with this transition. For more information on prevailing wage benefit plans andthe government contractor marketplace, visit www.thecontractorsplan.com.

1. Read the legislation and look for a local chapter of organizations where contractors gather, such as Associated Builders & Contractors, American Subcontractors Association, or Associated General Contractors of America.

2. Partner with a TPA specializing in this business. It will be able to guide you as well as give you prospect and lead data. The TPA should be tracking bidder's lists, awarded jobs, and solicitations for bids. The right TPA will know who the prospect companies are in your area.

3. Look for the companies winning ARRA bids. Two Web sites, www.recovery.org and www.recovery.gov, list winning bidders.

4. Start prospecting! Qualifying questions should include:

* Are you doing or are you intending to do government work?

* Are you a union or open shop? (You want an open shop.)

* If a firm is doing prevailing wage work: How are you discharging your fringe benefit obligations?