Many contractors, subcontractors, labor suppliers, material supply companies, and equipment rental companies like the notion of the federal government putting new projects out for bid due to the size of the average projects and the ability of the government to pay to have the job completed. Federal projects are typically more sought after in the construction industry. This post will outline some of the pitfalls that unknowing companies may face when working on Federal projects.
Difference between Private, State and Federal Projects
Here at Smiley Law Firm, we discuss the difference between private, State and Federal projects often. We mostly focus on the difference between private and State jobs because the volume is so much higher for those projects in Louisiana. However, there are a fair number of Federal jobs that go up for bid.
As a refresher, private jobs are those where the landowner and developer are private entities. The land and all improvements (buildings) are owned by a private person(s) or entity. Therefore, if there is a dispute the land can be foreclosed and sold to pay off any debts.
State projects are those owned by the State or any arm of the state, including local parishes and municipalities. This is any project owned by the government but not the Federal Government. Here, a bond must be in place because the land cannot be sold to pay off any debts. State owned land cannot be foreclosed upon.
Finally, Federal projects are those which are commissioned by the Federal Government. This includes any arm of the federal government, and typically the government owns the land as well. Miller Act governs payment disputes regarding Federal construction contracts.
Davis Bacon Act, Prevailing Wages and Certified Payroll
In a recent article, Tsheets did some revealing research discussing the Davis-Bacon Act. The Davis-Bacon Act requires that prevailing wages be paid on Federal projects. These wages are to be submitted weekly via certified payroll. This is a formal process that needs to be strictly obeyed, or the consequences could be monumental to an unsuspecting construction company.
The research found:
- $200,000,000 of back wages recovered from 119,000 investigations.
- Worst-hit states: Nevada, New York, Florida
- Worst-hit businesses: commercial/institutional construction, electrical contractors, HVAC contractors
Each and every subcontractor and laborer on a Federal project must pay its employees a prevailing wage. The prevailing wage rates are determined by the United States Department of Labor. The proper wages are incorporated into the contract prior to the award, however, many subs and laborers do not know these prevailing wage rules.
Further, the reporting requirements of Davis-Bacon for the prevailing wages can be labor intensive. The paper work and reporting requirements are enough to scare off most contractors. Those who are not scared, need to check into the Department of Labor investigations and fines to realize that the Federal Government is not playing around with these rules. Another good article from Tsheets does a deep dive on the requirements for a certified payroll report.
Miller Act Claims
If a construction industry company is not paid for its work then Davis-Bacon is not applicable. Contractors need to look to the Miller Act for guidance on making a claim to secure payment for work performed. Smiley Law Firm discusses the Miller Act in more detail in our lien right and notice series.
The short story here is that Miller Act claims get paid with a higher percentage over a regular lien or bond claim. There is also no filing requirement for the Miller Act. The act requires that notices be sent depending on what tier you company falls into. If funds are misapplied on a Federal project, a contractor could face Federal charges. This is enough to scare off most nefarious contractors from these more upscale projects.
Conclusion of this post is that Federal jobs can catapult a construction company to a new standard. However, companies must proceed with caution due to the heightened requirements for paperwork and scrutiny of the process. Once well versed, the possibilities are endless for a seasoned contractor to land lucrative Federal contracts. Contact the Smiley Law Firm if you need help with Federal construction project compliance.