For Decades, American infrastructure has been deteriorating without substantial governmental investment. In fact, the U.S. infrastructure ranking sunk from 9th to 13th from 20181 to 2019.2 However, Congress may soon attempt to address these issues through infrastructure initiatives like the proposed American Jobs Plan.3
With that in mind, contractors eager to take on new federal government, state, and municipal work should be aware of the many often-conflicting statutes, rules, regulations, ordinances, and guidance. Awareness of the requirements and risks involved will help translate into a successful bid and, hopefully, a successful project.
Performing work on public construction projects triggers the application of laws regarding employment compensation that may be unfamiliar to contractors that primarily work in the private project space. Most of these laws impose requirements that are in addition to the general laws applicable to private construction, which can present significant risk to an unaware contractor.
Wage & Benefit Rate Requirements
When it comes to wage and benefit rates that must be paid to a contractor’s employees, those applicable to public construction contracting can differ from private projects — for both field labor and office employees.
Compensation of employees engaged in providing labor in the field on public projects largely depends on whether the project requires payment of prevailing wages. Projects that are procured or financed by the federal government are ruled by the Davis-Bacon and Related Acts (DBRA)4 and, in some cases, state prevailing wage laws similar to the DBRA. These laws generally establish the minimum wages and benefits that must be paid for labor deployed on a public construction project. This means that an employer must pay the wage and benefit rates established by these laws even if they are higher than the wage and benefit rates agreed upon by the contractor and its laborers.
The rates at which employees are paid is also controlled by the laws setting the minimum wage rates. It is important to note that federal contractors have the additional requirement of complying with an executive order issued on April 27, 2021, which set the minimum wage rate for federal contractors at $15.5 This rate applies to employees who provide field labor, as well as office personnel not engaged at the project site. Be aware, however, that if DBRA wage rates apply, those wages and benefits must be paid even if they exceed the applicable minimum wage rates.
Risks Related to Employee Compensation on Public Projects
The myriad of risks relating to the compensation of employees in the public contracting space include possible debarment, termination of a contract, liabilities for underpayment of wages, damages for overtime violations, and erosion or elimination of profit on a contract. Perhaps more important, contractors should be aware that they will be responsible for their subcontractors’ (i.e., all subcontractors, not just first-tier) violations of these requirements, which creates a major compliance obligation. Most of these risks arise from the misclassification of employees and the failure to maintain records substantiating compliance.
This can occur for a variety of reasons, and a common misstep occurs when an applicable wage determination does not include a classification for laborers that will be employed on the project. This often leads to contractors applying wage and benefit rates based on their estimation of what prevailing wages will be. Many contractors in these situations found that they underpaid their laborers when the Department of Labor (DOL) audited the project and concluded that the wages and benefits paid were too low.
Qualifying to Bid on Government Contracts
State and federal agencies have established various procedures for contractors to bid on construction projects. In order to bid on a federal construction project, a company must first register with the System for Award Management (SAM) and sam.gov (previously known as Federal Business Opportunities). Information regarding both sam.gov and the SAM are available on the U.S. General Services Administration (GSA) website.6
In order to register to do business with the federal government and to bid on projects, a contractor must know its North American Industry Classification System (NAICS) code, tax identification number, and have a registered Data Universal Numbering System (DUNS) code from Dun & Bradstreet. Note that the federal government plans to cease use of the DUNS system in April 2022 in favor of a federally created “Unique Entity Identifier” for its SAM.7
Bidding opportunities are posted on government websites, third-party websites, and even in the newspaper — especially municipalities. They are typically posted with submittal dates and the scope of work clearly defined.
It is imperative for a contractor to follow the rules precisely, which are generally well outlined in the government agency’s request for proposal (RFP) or request for quotation (RFQ). Many amazing bid packages have been rejected simply because the contractor missed the pre-bid meeting that required attendance.
It is easy to identify potential construction contracting opportunities via sam.gov. The phase of the procurement process for construction work is typically listed as Sources Sought, Presolicitation, or Solicitation.
A Sources Sought opportunity is essentially market research that allows the government to gauge interest in its projects and to determine how best to package the actual solicitation for the project8 with a focus on garnering interest and input from small businesses, veteran-owned businesses, women-owned small businesses, and similar entities.
Presolicitation is as simple as it sounds; it is notice of a pending solicitation of bids for a given project and is a requirement of the government to provide notice of upcoming opportunities.9 Typically Presolicitation outlines the project, which includes terms of whether it will be design-build or design-bid-build, the name of the government department that is authorizing the work, and if they may or may not provide various plans or specifications. It also may provide information to potential bidders as to how each bid will be evaluated for the purpose of award.
Solicitations typically include plans, specifications, wage determinations, evaluation factors for contract award, as well as all other relevant information necessary for a bidder to prepare a complete proposal.
Awarding Government Construction Contracts
Projects are typically awarded to the lowest responsive bidder, sometimes referred to as the lowest responsible and eligible bidder or the lowest responsive and responsible bidder. A responsive bid means that it has met all the legal requirements and substantially complies with all of the bid specifications. A responsible bidder is one that has the skills, ability, and financial resources to perform the work and complete the project.
Federal construction projects below the prospectus level are procured either through utilizing sealed bidding procedures, low-price technically acceptable competitive proposals, or competitive orders against existing multiple award “indefinite delivery, indefinite quantity” construction contracts. The award will go to the lowest responsive, responsible bidder as defined by the Federal Acquisition Regulations (FAR). Major construction contracts are selected through FAR’s “source selection” method. Although there are many variations of this method, it typically works like this:
- The basic method requests both technical or management proposals and a price proposal.
- Upon receipt, the proposals are evaluated technically and then in terms of prices. The federal agency may make a trade-off in terms of whether a more technically high-grade element is desired vs. saving costs on one aspect of a project.
- With this in mind, the agency selects what it considers to be the “best value” proposal. Federal solicitations must state the relationship between the technical and price proposals; e.g., technical more important than price, technical equal to price, or lowest price technically acceptable. Negotiations can be held between the bidders and the agency to correct or clarify any technical proposals and the pricing.
There is also a two-step advisory process that allows for technical proposals to be evaluated. This is also where bidding contractors are advised of whether they are technically viable to compete in a particular procurement. Then the final evaluations of the contractors’ bids follow the one-step process and with the objective of selecting the best value for the government.10