We have previously written about the Department of Labor’s effort to expand the scope of its regulatory and enforcement jurisdiction over government contractors against the wishes of Congress and even fellow federal agencies. The United States Court of Appeals for the District of Columbia struck down an attempt by the DOL to significantly expand the Davis-Bacon Act to apply to the construction of a Public-Private Partnership project. The Davis-Bacon Act requires that contractors on federal and DC government construction projects pay prevailing wages and fringe benefits to the workers on such projects. DOL sought to apply the Act to CityCenterDC, which is a mixed-use development on the site of the DC Convention Center. This project includes 60 retail stores, various private offices, approximately 700 residential units, and a 370-room luxury hotel.
After a competitive process, the DC government entered into a 99-year ground lease providing the winning private developer the right to use the property. The DC government and the developer also entered into a development agreement that obligated the developer to, among other things, build the CityCenterDC project. The developer entered into separate contracts with general contractors for the project’s construction. While the DC government had the right to approve the general contractors and the contracts between the private developer and the general contractor, it was not a party to these contracts. DC provided no public funding for the construction of the project and does not own or operate any businesses or facilities on the project.
After the DC government refused a request by a local carpenters union to find that the Davis-Bacon Act applied to CityCenterDC, the union made this request to the DOL. Although the DOL’s branch chief also denied the request, the Administrator of DOL’s Wage and Hour Division reversed and found that the Act applied. This determination was later affirmed by the DOL’s Administrative Review Board. The DC government then filed suit in federal court seeking declaratory judgment and injunctive relief against the DOL.
In a blunt opinion, the DC Circuit characterized DOL’s position as a “a massive, atextual, and ahistorical expansion of the Davis-Bacon Act.” The Davis-Bacon Act mandates that every contract in excess of $2,000 “for the construction, alternation, or repair . . . of public buildings and public works of the Government or the District of Columbia . . .” include a requirement that the mechanics and laborers be paid prevailing minimum wages. 40 USC § 3142. The Court held that the Act did not apply to CityCenterDC for two independent reasons. First, the DC government was not a party to the construction contracts for the CityCenterDC project and, second, CityCenterDC is not a public work.
Regarding the construction contract requirement, DOL argued that the CityCenterDC ground lease and development agreement, the contracts relating to the project to which DC was a party, were construction contracts because the project developer would separately enter into construction contracts with construction contractors. The Court rejected this argument based upon a plain reading of the term “contract for construction” which it held means “a contract in which one party will perform construction in exchange for the other party’s payment or other consideration.” The CityCenterDC ground lease and development agreement did not fall into this definition because they called for the private developer to enter into construction contracts with third-party general contractors that the developer, and not DC, would pay. The Court found DOL’s interpretation of the term “contract for construction” would significantly enlarge the Davis-Bacon Act to embrace any lease, land-sale, or development contract between the federal or DC government which required the other party undertake more than an incidental amount of construction. The Court rejected DOL’s position holding that the terms of the Act are not so malleable.
Additionally, the Court rejected DOL’s attempt to apply the Davis-Bacon Act to CityCenterDC because the project is not a public work. Relying on dictionary definitions of public works—structures (such as roads or dams) built by the government for public use and paid for with public funds—and DOL’s previous positions on the term’s meaning, the Court found a public work must involve either (1) public funding of construction; or (2) government ownership or operation of the completed facility. The Court held that CityCenterDC squarely was not a public work because it was built with private funds and the DC government neither owned nor operated the project.
The Court rejected DOL’s argument that CityCenterDC was a public work because it produces benefits for the public like creating jobs and tax revenues. The Court noted that this is frequently true of many types of private development that the DC government is deeply involved in through its zoning urban planning functions. This involvement, does not however, “transform the Davis-Bacon Act into an all-encompassing prevailing wage law for private development projects in D.C.” To drive its point home, the recognized that while the concept of a “public work” may be elastic, “it cannot reasonably be stretched to cover a Louis Vuitton.”
This decision provides additional certainty to stakeholders on public-private partnership projects which often involve many complicated legal and contractual issues. It is worth noting that the parties to these projects are free to include prevailing wage requirements in their contractual arrangements if they so wish. In fact, we are aware of various projects where this is the case. However, the decision to do so rests with them and not DOL.