PCCA Journal - Q4 2010

"here are tremendous opportunities for contractors to benefit from the broadband provisions of the American Recovery and Reinvestment Act (ARRA), commonly called the stimulus bill. But while there is plenty of excitement, there is also a fair amount of anxiety in the broadband community about how contractors can benefit from the various competitive broadband grant programs."

Specifically, the ARRA authorized $7.2 billion for broadband programs, including $4.5 billion designated for the National Telecommunications and Information Administration (NTIA) and $2.5 billion for the Rural Utilities Service (RUS). Part of the purpose of this program is to provide broadband service (e.g., faster internet access) to consumers in unserved areas of the country and improved broadband service to consumers in underserved areas. Contractors bidding on these broadband projects created by the ARRA are subject to the provisions of the Davis-Bacon Act, which may be uncharted waters for many who haven’t previously worked on government-funded jobs.

What Is the Davis-Bacon Act, and How Does It Apply to Me?

The Davis-Bacon Act is a federal law that applies to all projects funded by ARRA dollars. Passed in 1931, the law requires that any contract greater than $2,000 “to which the Federal Government or District of Columbia is a party, for construction, alteration or repair, including painting and decorating of public buildings and public works...shall contain a provision stating the minimum wages to be paid to all mechanics and laborers employed directly upon the site of the work.” In 2009, the Obama administration required that all projects funded by the ARRA, regardless of dollar amount, comply with the Davis-Bacon Act.

The Davis-Bacon Act requires payment of locally “prevailing wages,” including the “anticipated cost of prevailing benefits.” Generally this is expressed as a per-hour wage and per-hour cash equivalent value of benefits and is often based on a union scale. Prevailing wages are set by the Department of Labor (DOL) or the local contracting agency and are included in the bid specifications of covered contracts. Thirty-one states have enacted state prevailing wage legislation, which are commonly referred to as “Little Davis-Bacon” provisions. These provisions require payment of prevailing wages and fringe benefits on state projects as well as federal projects.

Although rates for SUTA and workers' compensation vary among states, a conservative estimate is that these expenses add 25 cents to each dollar paid as additional cash wages. Savings realized by using the fringe benefit portion of the prevailing wage can easily create enough savings over the life of a project to make the difference between winning a bid and coming in second place. Visit the interactive savings calculator at www.contractorsplan.com to determine your company's potential savings.

Offering Benefits Can Make Bids More Competitive

When it comes to the prevailing wage provisions of the Davis-Bacon Act, contractors have choices as to how the fringe benefit portion is paid. Many contractors pay the fringe benefit portion of the prevailing wage as additional cash wages, believing it’s the easiest way to comply with the law. But allocating this amount to a bona fide benefit plan or plans can work to a contractor’s advantage on a number of levels. When contractors use the fringe portion of the prevailing wage to provide “bona fide” benefit plans for their workers, these dollars are taken off the payroll and are therefore exempt from payroll taxes such as FITA, FUTA, and SUTA as well as other expenses such as workers compensation and general liability. This represents considerable savings on job costs, which translates into lower bids and better chances of winning jobs. Benefits that might be included in a bona fide benefit plan offering are retirement, medical, dental, vision, and life insurance plans.

Here’s an example of the savings that can be realized by putting the fringe toward benefits instead of in your employees’ paychecks. Although there are variances in the rates for unemployment taxes and workers compensation, conservatively these taxes represent an additional 25 cents on each dollar paid as cash wages.

15 employees X 1,000 hours = 15,000 total hours
15,000 hours X $8.00 = $120,000 in additional payroll expense
$120,000 x 25% = $30,000 Broadband Company savings

When contractors use the fringe portion of the prevailing wage to provide “bona fide” benefit plans for their workers, these dollars are taken off the payroll and are therefore exempt from payroll taxes such as FITA, FUTA, and SUTA as well as other expenses such as workers compensation and general liability. This represents considerable savings on job costs, which translates into lower bids and better chances of winning jobs.

By John Allen