What is the Davis-Bacon Act?
Established under the 1931 Davis-Bacon Act, some public works projects must pay workers the local prevailing wages— not simply the minimum wage. Required by many HUD programs, it is overseen by HUD’s Office of Labor Relations Davis-Bacon compliance. Fortunately for borrowers, HUD 223(f) loans
Davis-Bacon Act Rules and the HUD 223(f) Program
Established under the 1931 Davis-Bacon Act, some public works projects must pay workers the local prevailing wages— not simply the minimum wage. Required by many HUD programs, it is overseen by HUD’s Office of Labor Relations Davis-Bacon compliance. Fortunately for borrowers, HUD 223(f) loans typically do not require that workers be paid Davis-Bacon wages for any rennovation or repair work.
What loan programs require Davis-Bacon Wages?
Specifically, HUD multifamily loan programs that require the construction or substantial rehabilitation of multifamily properties, such as HUD 221(d)(4) loans and certain HUD 232 loans, require that workers be paid Davis-Bacon wages. To learn what the Davis-Bacon wages in your area might be, check out this Davis-Bacon wage calculator.
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Related Questions
What is the purpose of the Davis-Bacon Act?
The Davis-Bacon Act of 1931 established a requirement to pay local prevailing wages for public works projects. This requirement is overseen by HUD’s Office of Labor Relations Davis-Bacon compliance and is required by many HUD programs, such as HUD 221(d)(4) loans and HUD 232 construction and substantial rehabilitation loans. Davis-Bacon wages are not typically required for HUD 223(a)(7) refinances, as they do not usually involve any construction or substantial rehabilitation work (only minor repairs).
What types of projects are covered by the Davis-Bacon Act?
The Davis-Bacon Act applies to manual labor jobs such as plumbers, elevator mechanics, and ironworkers. Management personnel and architects are exempted from these requirements, though foremen may be covered if they spend more than 20% of each working week on physical labor tasks. The labor must also be conducted at the development site for the worker to be covered under the Davis-Bacon Act. Off-site workers, such as those assembling building parts at a facility some distance away, may not be covered, especially if the facility they work in assembles or fabricates parts or tools for other developments.
Source: www.commercialrealestate.loans/blog/how-do-wage-requirements-impact-hud-projects
What are the requirements for contractors under the Davis-Bacon Act?
The Davis-Bacon Act requires contractors to pay prevailing wage rates (required by the Department of Labor). Generally, these requirements only apply to manual labor jobs such as plumbers, elevator mechanics, and ironworkers. Management personnel and architects are exempted from these requirements, though foremen may be covered if they spend more than 20% of each working week on physical labor tasks. The location where the work is performed can also be a criteria for determining eligibility. Broadly speaking, if the labor is conducted at the development site, the worker is probably covered under the Davis-Bacon Act.
In addition to submitting the required general contractor information, the general contractor must also provide either:
- a 100% performance and payment bond
- or a 15-20% cash escrow
- or a FHA-accepted letter of credit
The general contractor must also have a liquid net worth of at least 5% of the project’s construction contract and additional uncompleted construction work.
What are the penalties for violating the Davis-Bacon Act?
The penalties for violating the Davis-Bacon Act vary depending on the severity of the violation. Generally, contractors who fail to comply with the Act can be fined up to $10,000 for each violation. Additionally, contractors may be barred from bidding on future government contracts. For more information, please refer to the Department of Labor's Davis-Bacon and Related Acts page.
How does the Davis-Bacon Act affect the cost of construction projects?
The Davis-Bacon Act requires contractors to pay local prevailing wages for public works projects. This means that the cost of construction projects may be higher than if the prevailing wages were not required. This is because the wages paid to workers must meet the local standards, which can be higher than the wages that would be paid without the Davis-Bacon Act.
For more information on the Davis-Bacon Act and its relation to HUD 221(d)(4) loans, please visit hud221d4.loan/glossary/davis-bacon.
To learn more about HUD multifamily construction loans like the HUD 221(d)(4) loan, fill out the form below and a HUD lending expert will get in touch.