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How New Prevailing Wage Calculation Will Impact Construction Labor Costs
Two pivotal changes in federal construction labor dynamics are likely to exacerbate hiring and retention.
April 17, 2024
1 Min Read
Alamy
Looking ahead to 2024 and beyond, two pivotal changes in federal construction labor dynamics are likely to exacerbate the increasing cost structure.
The first is the mandate of Project Labor Agreements (PLAs) for all federally funded projects exceeding $35 million in contract value, as decreed by an Executive Order in February 2022. PLAs are known to potentially inflate project labor costs by 12%-20%. Considering that approximately 40% of the $34 billion federal construction budget may be affected by PLAs, contractors are bracing for a widespread impact on labor costs.
The second significant change involves the Department of Labor's overhaul of the Davis-Bacon Act in 2023. This revision reinstated the "three-step process" for calculating prevailing wages, which had previously been a "two-step process" for over 40 years. Since 1983, prevailing wage has been calculated using only two steps:
The wage rate paid to a majority of workers in the classification, or
If no rate is paid to at least 50% of workers, then the weighted average rate in the classification.
By reinstating the three-step process, the prevailing wage is calculated as follows:
The wage rate paid to a majority of workers in the classification, or
If no majority exists, the rate paid to 30% of workers, or
If no rate paid to at least 30% of that classification’s workers, then the weighted average in the classification.
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