The United States Department of Labor: Subcontractors Violate Federal Law & Contractors Pay

There is no single body of law or set of laws applicable to all construction projects across the board. Determining what legal requirements apply to a given project requires an understanding of several factors, including, for example: the type of project in question, the project value, the project delivery method, the scope of work, and project funding sources, to name a few.

To illustrate, when it comes to privately funded Massachusetts projects in excess of $3 Million, contractors should consider the potential applicability of the Massachusetts Prompt Payment Act as well as the Retainage Law. Similarly, home renovation projects (as opposed to new residential construction projects) are subject to the Massachusetts Home Improvement Contractor law and its requirements. Although the Massachusetts Mechanic’s Lien Statute provides contractors with a statutory avenue to attempt to secure payment on private projects, lien rights are not generally available on Massachusetts public projects (which may be subject to certain bond requirements, again, depending on the circumstances).

As you are well aware, large, state-funded Massachusetts construction projects will trigger competitive bidding requirements, which can vary depending on – among other things – the project value, the type of project (i.e., vertical construction versus horizontal), and the project delivery method (i.e., design-bid-build, design-build, construction manager at risk). Massachusetts public construction projects are also subject to a host of other statutes and statutory requirements that do not apply in the private context, including for example, prevailing wage requirements. Public funding sources can also give rise to additional areas of exposure, such as under one or more False Claims or False Statements statutes.

Where federal funding is involved, contractors should expect to be subject to a host of federal laws and requirements, as well as potential exposure under federal laws, regulations, executive orders, and other agency requirements. In many instances, contractors may be subject to contract provisions that do not actually appear anywhere in the contract, but are imposed by the Federal Acquisition Regulation and are incorporated into the contract by reference.

These are just a few examples to illustrate the fact that “the law” as it relates to construction is a highly complex and non-static web of rights, presumptions, rules, requirements, regulations, and the like. Implementation of sound company policies, training of employees, and attention to matters of compliance are all critical to contractor success in this day and age.  Particularly when it comes to enforcement of wage and hour laws, contractors must be sure to know applicable requirements, and comply with them.

In this regard, this year, the United States Department of Labor (“DOL”) announced recoveries against two Massachusetts contractors in connection with alleged violations of federal wage and hour requirements under Davis-Bacon and Related Acts. Both cases involved situations in which the contractors’ subcontractors allegedly violated federal law. And in both cases, the DOL confirmed that it was the general contractors that ultimately paid the alleged back wages.

The first case arose out of a federally funded project in Massachusetts on which a Massachusetts-based company served as the general contractor. The DOL reportedly found that a New Hampshire-based drywall subcontractor “did not pay prevailing wage and fringe benefits to construction workers” on the project. The DOL’s “Wage and Hour Division” concluded that the subcontractor “violated the Davis-Bacon Act by failing to pay employees the required wage rate and benefits.” The DOL also found that the subcontractor: “falsified payroll records”; “had not created and maintained accurate payroll and basic records”; “failed to pay proper overtime as the Contract Work Hours and Safety Standards Act requires”; and “did not allow employees to accrue one hour of paid sick leave for every 30 hours worked on or in connection with a federally covered contract, as Executive Order 13706 requires.”

The DOL debarred the subcontractor “from working on any federal contract for three years,” commenting that “[s]trong enforcement of prevailing wage requirements ensures that federal investments result in the creation of good jobs.” The DOL recovered more than $518,000 for 54 workers, but noted that the general contractor for the project “paid the back wages specified in this case’s administrative settlement.”

The second case arose out of a federally funded housing project involving a Massachusetts general contractor, a Massachusetts subcontractor, and its Massachusetts framing sub-subcontractor. According to the DOL, the framing sub-subcontractor “did not pay the required prevailing wage rate and fringe benefits to its workers and failed to create and maintain accurate payroll records.” The DOL also “determined” that the subcontractor “falsified payroll records” for the sub-subcontractor “to avoid paying the prevailing wage and fringe benefits.”

The DOL noted its “zero tolerance” approach to “federal contractors that falsify payroll records and ignore their responsibilities” and debarred both the subcontractor and its sub-subcontractor from working on federally funded construction projects for a three year period. The DOL also recovered more than $77,000 in back wages for 5 workers from the general contractor, stating that the general contractor “was responsible for ensuring its subcontractors complied with the [Davis-Bacon and Related Acts] contract clauses.”

Although the DOL did not release more detailed information about these two cases, they nevertheless illustrate the need for contractors to take appropriate steps to equip themselves to perform their jobs in accordance with applicable legal requirements. Contractors are strongly urged to examine their policies and procedures – in conjunction with their past experience and future goals – and take proactive steps to mitigate against the risk of exposure in an industry that remains subject to hot enforcement of applicable legal requirements.

UCANE Construction Outlook, October 2024  |  Legal Corner