With the passage of the $1.2 trillion infrastructure bill, federal construction projects just received a massive infusion of taxpayer money. And, because of the high cost of building infrastructure in America, even small additions or repair jobs on roads and bridges can cost taxpayers dearly. These costs have skyrocketed over the past few decades. A team of Brown University and New York Federal Reserve Bank researchers found that the cost of constructing a, “lane mile of infrastructure increased five-fold” between 1990 and 2008, and costs have increased even more in the 13 years since the end of that period. And now, actions by the Biden administration could increase already-bloated contract costs and run up infrastructure costs even more by “updating” Davis-Bacon compensation requirements for federal contractors. America needs to rebuild its crumbling roads and bridges, not drive itself further into a ditch.
It's impossible to make sense of the current, complicated Davis-Bacon rules without understanding the ugly racist history behind federal contractor compensation standards. As noted columnist George Will pointed out in 2017, “Davis-Bacon was enacted in 1931 to require construction contractors to pay ‘prevailing wages’ on federal projects. Generally, this means paying union wage scales. It was enacted as domestic protectionism, largely to protect organized labor from competition by African Americans who often were excluded from union membership but who were successfully competing for jobs by being willing to work for lower wages.”
Currently, the White House is contemplating a major revision to these outdated, problematic compensation rules governing federal infrastructure projects. According to Bloomberg Law reporter Ben Penn, a proposed rule “would update the Davis-Bacon Act…[and]…could redefine how employers determine what constitutes the ‘prevailing wage’ they must pay workers when the federal government finances a building project.” One analysis by the Beacon Hill Institute found that, even in its current form, the Davis-Bacon system feeds into the rampant infrastructure inflation borne by taxpayers.
Comparing Davis-Bacon wages to average construction wages across nine occupational categories, the researchers found that these infrastructure wage regulations create an astounding 22 percent premium on federally contracted labor.
This should not be the case, because, in theory, Davis-Bacon only requires wages from federally contracted projects to match the wages of non-federal construction projects in that same locality.
But, a compensation scheme is only as good as the comparison surveys used to determine the “right” wage. The Government Accountability Office has found that Davis-Bacon surveys rely on small non-representative samples that provide a wholly unrealistic benchmark for contractors. When more than a quarter of all “prevailing wage” estimates are based on sample sizes of less than seven workers, inaccurate wage calculations will almost certainly result. Allowing 100 percent error rates in surveys is a recipe for fiscal disaster.
And, the economic toll imposed by Davis-Bacon doesn’t end with runaway compensation costs and flawed survey estimates. The simple act of complying with all the law’s requirements can quickly prove unbearable for the federal agencies and major contractors trying to see infrastructure projects through to completion.
Considering all the different pay levels associated with different job classifications and coming up with an up-to-date wage survey can be a costly and time-consuming process, resulting in the contractors with the deepest pockets inevitably being awarded the most lucrative federal contracts. This dynamic played out on a massive scale during the awards process for the 2009 Recovery Act when federal dollars tended to accrue to companies and organizations that already had a large work volume prior to the recession. Firms where “things had been slow” before the awards process were likely less able to have the capacity to comply with Davis-Bacon and seemed to have been largely left out of the “recovery” effort.
While we don’t know what exactly the Biden administration’s reforms will look like, the President has emphasized strict enforcement of the statute and high mandated wages for federal contractors. Pushing Davis-Bacon wages even higher, though, will only subvert the administration’s goals to “Build Back Better” and stretch infrastructure spending as far as it will go. Instead of focusing on prevailing wage requirements, Biden should look at ways to lower infrastructure costs through the further streamlining of permitting requirements. Extensive permitting requirements can add years to a project and billions of dollars’ worth of added expenses without doing much to further design, safety, and environmental goals.
Ensuring an expedited process will be a boon to American infrastructure and prove a far better reform alternative to digging deeper into the ditch of Davis-Bacon. To truly Build Back Better should mean to get rid of the expensive and racist Davis-Bacon Act.