With very little fanfare, the Department of Commerce put on their web page two documents that change the policy interpretations of the prevailing wage requirements. The "policy interpretation" is controversial.  As reported in the Cleveland Plain Dealer, the Republican controlled House and Senate will likely be discussing ways to block the change.

What are Prevailing Wage laws? To offset the low bid public contract requirement,  the ""prevailing wage" law requires wages commonly paid to construction workers in a particular region will determine the minimum wage paid to the same type of workers employed on publicly funded construction projects. (For additional background view the extended entry below)

The Strickland Administration is claiming that the release of the Commerce Department’s new guidance document on prevailing wage is a "simple clarification" of existing law.   The spokesman for the Governor said the law was simply "misapplied" to two situations, one of which is brownfield redevelopment projects.  However, many view it as a broad expansion of the applicability of prevailing wage that could drive up construction costs. 

Strickland Administration Frames the Debate: "In recent years there has been no clear approach used by the Department when determining whether publicly-funded construction activity is so intertwined with private construction activity that the activity constitutes a single "project" (triggering prevailing wage) and when they are sufficiently "separate and unrelated" that they constitute separate projects, one publicly supported (which triggers prevailing wage) and one privately financed (which does not trigger prevailing wage).

THE ISSUE: When a Clean Ohio grant pays for remediation work and demolition but the rest of the project development is privately financed, then what portion is covered by prevailing wage?

FROM ADMINISTRATION’S NEW POLICY STATEMENT:  Whenever a public entity contributes funding or other direct support (e.g.-public land) to a project, even an otherwise privately-financed project, prevailing wage must be paid to the workers on the project.

RAMIFICATION ON BROWNFIELD REDEVELOPMENT PROJECTS:  Under the Administration’s new policy, prevailing wage will apply to all construction work at a site receiving Clean Ohio funds whenever an end-user is identified.  Therefore, if the Clean Ohio grant application includes a commitment to use the site by a new tenant or developer, prevailing wage applies to all construction at the site work.  If no end-user is identified in the application, prevailing wage only applies to remediation work at the site.

DISCUSSION:  It simply is a false distinction to apply prevailing wage on the basis of whether an end user has been identified.  Under Clean Ohio guidelines, grant funds can only pay for :

  • environmental remediation (including asbestos abatement)
  • demolition
  • a portion of the purchase cost of the property (optional under end user track). 

The Clean Ohio guidelines forbid expenditure on building improvements or infrastructure improvements.   If it is illegal to use to program funds for this work, how can prevailing wage be deemed to apply?

Developers will have to run the numbers.  By choosing the "development ready track" (no end-user), applicants can only seek $2 million in state funds versus $3 million for end-user projects.  Developers will be calculating whether overall project costs exceed the extra $1 million available if prevailing wage applies.  Some may say that’s acceptable, but if makes less brownfield projects viable that is not a good result for Ohio’s cities.

It seems questionable that the Administration can make such a broad change in application of the prevailing wage through a simple "policy interpretation."  Legal challenges or legislative action seems inevitable.

For those unfamiliar with prevailing wage laws, Ohio’s Legislative Service Commission put together a good basic briefing on prevaling wage for legislators.  Here are highlights from their briefing:

[States] and the federal government adopted prevailing wage laws
during the Great Depression of the 1930s amidst concern that acceptance of the
low bid, a common requirement of government contracting for public projects, when
government had become the major purchaser of construction, would operate to
reduce the wages paid to workers on those projects to a level that would disrupt
the local economy

Prevailing wage laws require that workers on certain public construction
projects be paid a specified minimum wage (typically termed in those laws the
“prevailing wage”). Depending on the state, the wage rates used may be taken
from local collective bargaining agreements or may be the result of calculations to
determine what wage rates are “prevailing” in a given community.

Opponents of Prevailing Wage laws are primarily concerned that the requirement raises the cost of construction on public projects. In additoin, they raise the following concerns:

(1) It is a Depression-era measure that has long since outlived its usefulness,

(2) interferes with the workings of a free competitive market,

(3) is inflationary because it results in federal and federally assisted construction contracts costing more than other construction contracts,

(4) gives an unfair advantage to union employers over nonunion employers in bidding for government construction contracts, and

(5) impedes entry of minority groups into the construction industry because they are
disproportionately represented among the low-skilled labor force