Economic Stimulus Projects: Are Prevailing Wage Rates Required?

For many employers, the prospect of gaining new revenue from contracts funded by the 2009 American Reinvestment and Recovery Act ("ARRA") is the answer to economic prayers in these difficult times. However, bids for these projects must take into consideration the likelihood that "prevailing wage and benefit rates," which are substantially higher than market (eg., non-union) rates for comparable work, may have to be paid to employees working on the project.

Careful wage and benefit cost planning is required before submitting a bid funded by the ARRA. Considerations include:

1. State vs. Federal Prevailing Rate Obligations: Several states have legislation establishing prevailing wage and benefit requirements that differ from federal rate obligations. State prevailing rate laws can differ from federal requirements by providing greater (or lesser) wages and benefits compared to federal law, or by including (or precluding) certain projects from prevailing rate requirements (for example, state law may not require prevailing rates for affordable housing projects). Which standards apply?

2. Projects "Assisted" by the Federal Government: Under the ARRA projects "assisted" by federal stimulus dollars trigger federal prevailing rate requirements. Has the project under consideration for bid been assisted, or will it be assisted even indirectly, by federal stimulus funds?

3. Projects Assisted "In Whole or in Part": What if a construction project is being developed, and it does not need ARRA dollars to make it viable? However, the project proponent wants to accept ARRA weatherization funds to make the construction more energy efficient. Does the acceptance of ARRA weatherization dollars trigger federal obligations solely for the weatherization aspects of the project, or for the entire project? Likewise, assume a highway project is being built in phases, the first phase is funded with non-federal dollars. Now, a community wants to access ARRA stimulus monies to extend the highway. Does the acceptance of ARRA monies for the extension federalize the entire highway, so as to trigger prevailing wage and benefit requirements for the workers constructing the non-federal phase of the project?

4. Specific Prevailing Rate Requirements for Energy Efficiency Projects: Employers should take note that the ARRA has a separate prevailing rate provision that specifically governs renewable energy and electric power transmission projects.

5. ARRA Dollars Passing Through State Budgetary Processes: When a state accepts federal ARRA dollars and processes such dollars through the state's own budgetary, grant, or loan procedures, are those funds still considered federally assisted for purposes of prevailing rate requirements?

Many employers who never considered themselves federal contractors may become subject to the prevailing rate requirements of the ARRA. State and local officials and prime contractors may not properly notify prospective bidders that prevailing rates must be paid. However, the failure of the contracting agency or prime contractor to give proper notice may not relieve an employer on the job of the independent legal obligations of the ARRA. Employers that under bid without realizing their prevailing rate obligations may find themselves unexpectedly losing money rather than gaining new sources of profitable revenue.