Why I Avoid Government Contracts
When I started my general contracting company, G2S Constructors Inc., in 1978, I made a decision: The company would avoid public works projects as much as possible and concentrate instead on the private industrial market.
That's not because public works jobs aren't profitable. On the contrary, they can provide some firms with a steady and dependable source of income, especially when the economy is in a general downturn. But to accept public projects means a company like ours would also have to comply with the Davis-Bacon Act, and that I'm unwilling to do.
The 1931 legislation requires contractors to pay "prevailing" wages, as determined by the U.S. Department of Labor, on almost all projects that are funded, in whole or in part, with federal money. Only projects costing less than $2,000 are exempt.
Unfortunately, wages set according to DOL standards often bear no resemblance to actual market conditions. The standards are strongly biased toward union rates, which are the highest wage rates in most areas -- not the prevailing or average ones.
For example, the department's notorious "30% rule" holds that if 30% of an area's carpenters receive an identical wage -- down to the penny -- then all carpenters on federally assisted projects in the area must also receive that wage. Obviously, only workers covered by collective bargaining agreements receive identical wages, down to the penny. No matter if 70% of the area's carpenters are nonunion, the law says the union rate is the "prevailing" wage.
In addition, the department usually issues wage determinations for entire counties or even larger regions, which means that high wages, typical of urban areas, are imported into less wealthy or depressed rural areas within the same district.
These are just two illustrations of the headaches this law can cause small construction firms like mine. In effect, we are prohibited from bidding on many jobs that would otherwise be desirable. In addition, the law raises construction costs for government agencies, thereby contributing to inflation, budget deficits, and higher taxes.
Davis-Bacon was born early in the Depression, at a time when high unemployment in the construction industry had encouraged some contractors to use itinerant labor to undercut local wages. This aroused the ire of both workers and contractors, who successfully pushed Congress for the protection this law would afford. Today, conditions are vastly different from what they were in 1931, yet the Davis-Bacon Act remains on the books in essentially the same form as when it was passed.
Let me show you specifically how the law affects our company. Most of our work is for industries such as paper, chemicals, metals, and utilities in the New England states and northern New York. Our revenues are approximately $1.5 million a year; our payroll is about $500,000. Our people are skilled workers in structural concrete and steel, process chemical and steam piping, manufacturing equipment installation, and rigging, as well as instrumentation and control work.
A substantial number of our employees work for us on a year-round basis. They typically have several skills and are assigned different kinds of tasks. We have two hourly pay classifications: labor and skilled. Skilled includes such traditional categories as carpenter, ironworker, welder, millwright, and equipment operator. Labor covers the traditional laborer category, as well as helpers for the various skilled categories.
We post a wage-rate range for each category. For example, $6 to $8 per hour for labor and $8 to $11 per hour for skilled. Individuals are paid within these ranges, based on their experience, ability, and productivity. Training is important in our industry, and this wage structure offers an incentive for individuals to improve their skills.
Several months ago, we were asked by a local contractor to prepare a bid for the pumping-station portion of a sewer line being built in Wilton, N.H. The work required an eight-man crew for eight weeks.Since the project involved federal funds, it came under Davis-Bacon. The Davis-Bacon wage rates set for the project by the Department of Labor were: laborer -- $11.21 per hour; carpenter -- $16.73 per hour; ironworker -- $16.17 per hour; pipefitter -- $15.65 per hour.
These figures are 60% to 76% higher than the average rates we pay for similar work on private industrial projects. If we had accepted that job, the 60% to 76% pay differential between this eight-man crew and our other workers would have been extremely disruptive. There is no rational or equitable way to select eight individuals for this assignment. The specified rates also would have prevented the use of helpers or trainees at appropriate wage levels, since there are no categories for those classifications.
Davis-Bacon, by requiring traditional craft designations, reduces our ability to work with maximum efficiency. Our people cross these craft lines every day, performing whatever tasks are necessary. Should a worker do this on a Davis-Bacon job, a supervisor would have to keep track of each type of work performed and how long it took, and then pay a different wage for each task. That would obviously increase overhead costs through reporting requirements for certified payroll records.
On Davis-Bacon work, our competitive edge is not a productive and effective use of people; rather it becomes the ability to cut profits -- hardly a healthy approach to survival in today's economy.
Just as important to me as its effect on my own firm is the impact of Davis-Bacon on government spending. The Associated Builders and Contractors Inc., using calculations provided by the Office of Management and Budget and the General Accounting Office, estimates that repeal of Davis-Bacon would trim $5.4 billion off the federal budget over the next five years. And that figure doesn't include savings to state and local governments on federally assisted construction, nor does it include savings brought about by increased competition among contractors like me who now refrain from bidding on these projects.
Defenders of Davis-Bacon claim that it protects the government from poor workmanship and unqualified contractors. But many laws and regulations have been adlpted since 1931 that deal with wages, working conditions, and government procurement activity more effectively than Davis-Bacon, and without such disruptive effects. For example, in 1931 we had no minimum wage law, no unemployment compensation, no wage-hour laws, no Occupational Safety and Health Administration, no National Labor Relations Act, and no federal procurement laws. Today we have all of these.
I believe the business climate for small contractors would greatly improve if Davis-Bacon were repealed, or at least if the threshold for projects covered by the act were raised from the present $2,000 to, perhaps, $2 million. The federal government should be trying to improve the environment for small business, rather than perpetuating artificial criteria that limit our ability to do our jobs. Davis-Bacon is a relic of another era. It's time to free construction contractors -- and construction workers -- to compete on their merits. The government itself, and the economy as a whole, would benefit from the change.