The Davis-Bacon Act changes present a chance for startups to disrupt construction tech

The U.S. construction landscape looks much different this week compared to last Friday following the amendments to the Davis-Bacon Act that went into effect on Monday.

While these amendments primarily concern contractors of federal construction projects, they still present a unique opportunity for construction technology startups to offer innovative solutions to help legacy construction firms navigate the complexities of compliance with this historic piece of legislation.

New grounds, new challenges

The Davis-Bacon Act, originating in 1931, mandates that contractors engaged in federal construction projects pay their workers prevailing local wages and fringe benefits. This applies to all contracts exceeding $2,000 for public building and public works construction, harking back to the act’s roots in the Great Depression.

The core objective of this act has been to safeguard workers on federal construction projects from being underpaid, ensuring they receive fair compensation for their labor.

However, the intricacies of this piece of legislation have always posed challenges. Initially, the Department of Labor applied a 30% rule to determine prevailing worker wages and benefits, but this approach evolved over time. In 1983, the Reagan administration discontinued the 30% rule, opting for a weighted average wage rate based on geographic areas.

August 2023 saw amendments to the act that reintroduced the contentious 30% rule, among other changes, which went into effect on October 23.

The implications of these amendments are broad, particularly because construction payroll involves many components such as certified payroll, minimum wage, prevailing wage and union rates, all of which vary from state to state. For companies, compliance requires adhering to the wage determinations for the specific county or state where the construction occurs, which often leads to varying pay rates for the same worker depending on their location.

Furthermore, the act requires construction firms to classify their workers according to the work they perform. Misclassification can result in substantial penalties and back payments.