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PCCA Journal|4

th

Quarter 2010

17

T

here are tremendous opportunities for contrac-

tors to benefit from the broadband provisions

of the American Recovery and Reinvestment

Act (ARRA), commonly called the stimulus

bill. But while there is plenty of excitement,

there is also a fair amount of anxiety in the

broadband community about how contractors can

benefit from the various competitive broadband grant

programs.

Specifically, the ARRA authorized $7.2 billion for

broadband programs, including $4.5 billion designated

for the National Telecommunications and Information

Administration (NTIA) and $2.5 billion for the Ru-

ral Utilities Service (RUS). Part of the purpose of this

program is to provide broadband service (e.g., faster

internet access) to consumers in unserved areas of the

country and improved broadband service to consum-

ers in underserved areas. Contractors bidding on these

broadband projects created by the ARRA are subject

to the provisions of the Davis-Bacon Act, which may

be uncharted waters for many who haven’t previously

worked on government-funded jobs.

What Is the Davis-Bacon Act,

and How Does It Apply to Me?

The Davis-Bacon Act is a federal law that applies to all

projects funded by ARRA dollars. Passed in 1931, the

law requires that any contract greater than $2,000 “to

which the Federal Government or District of Columbia

is a party, for construction, alteration or repair, includ-

ing painting and decorating of public buildings and

public works...shall contain a provision stating the

minimum wages to be paid to all mechanics and labor-

ers employed directly upon the site of the work.” In

2009, the Obama administration required that all proj-

ects funded by the ARRA, regardless of dollar amount,

comply with the Davis-Bacon Act.

The Davis-Bacon Act requires payment of locally

“prevailing wages,” including the “anticipated cost of

prevailing benefits.” Generally this is expressed as a

per-hour wage and per-hour cash equivalent value of

benefits and is often based on a union scale. Prevailing

wages are set by the Department of Labor (DOL) or the

local contracting agency and are included in the bid

specifications of covered contracts. Thirty-one states

have enacted state prevailing wage legislation, which

are commonly referred to as “Little Davis-Bacon” pro-

visions. These provisions require payment of prevailing

wages and fringe benefits on state projects as well as

federal projects.

Offering Benefits Can

Make Bids More Competitive

When it comes to the prevailing wage provisions of the

Davis-Bacon Act, contractors have choices as to how

the fringe benefit portion is paid. Many contractors

pay the fringe benefit portion of the prevailing wage as

additional cash wages, believing it’s the easiest way to

comply with the law. But allocating this amount to a

bona fide benefit plan or plans can work to a contrac-

tor’s advantage on a number of levels. When contrac-

tors use the fringe portion of the prevailing wage to

provide “bona fide” benefit plans for their workers,

these dollars are taken off the payroll and are therefore

exempt from payroll taxes such as FITA, FUTA, and

SUTA as well as other expenses such as workers com-

pensation and general liability. This represents consid-

erable savings on job costs, which translates into lower

bids and better chances of winning jobs. Benefits that

might be included in a bona fide benefit plan offering

are retirement, medical, dental, vision, and life insur-

ance plans.

Here’s an example of the savings that can be real-

ized by putting the fringe toward benefits instead of in

your employees’ paychecks. Although there are vari-

ances in the rates for unemployment taxes and workers

compensation, conservatively these taxes represent an

additional 25 cents on each dollar paid as cash wages.

ARRA Offers Opportunity and

Anxiety for Broadband Contractors

By John Allen

Continued on page 18

When contractors use the fringe portion of the

prevailing wage to provide “bona fide”benefit

plans for their workers, these dollars are taken off

the payroll and are therefore exempt from payroll

taxes such as FITA, FUTA, and SUTA as well as other

expenses such as workers compensation and general

liability. This represents considerable savings on job

costs, which translates into lower bids and better

chances of winning jobs.