Prevailing Wage Contracts: What Subcontractors Need to Know Before Taking One On
Federally funded construction projects offer a whole new pipeline of bidding opportunities and may be just what you need to accelerate your business’s growth. Applying for government construction projects requires significant resources and effort, and it’s not for everyone, but being able to take on federally funded projects can be a game changer for your business. Public projects are open to bidding by any construction company, and can provide your business with stable, and potentially long-term work.
When contractors and subcontractors perform work on federally funded or assisted projects in excess of $2,000, they are subject to prevailing wage contracts. We’ll explore what a prevailing wage contract entails, and what subcontractors need to know as they navigate them.
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What Is a Prevailing Wage Contract?
A prevailing wage project requires that construction workers be paid no less than a predetermined wage (typically the union wage), which varies by state. The Davis Bacon and Related Acts established that “contractors and subcontractors working on federally funded contracts in excess of $2,000 must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area.”
Additionally, the Contract Work Hours and Safety Standards Act established that all laborers, guards, and mechanics must be paid at least one and one-half times their regular rate for all hours worked over 40 hours in a workweek, and abide by federal safety standards. This Act applies to general contracts over $100,000.
With this in mind, we’ll explore how you can land your first prevailing wage contract.
1. Register as a Contractor
- Register with the federal government as a contractor. To do this you need to obtain a Dun & Bradstreet Data Universal Numbering System (D-U-N-S) number for your business. A D-U-N-S number is a unique nine digit identifier that you’ll need for each physical location of your business.
- Register your business in the System for Award Management (SAM) database. In order to bid on and find projects you will need your business to be registered in the SAM.
- When registering your business make sure to include your NAICS code, and SIC code that best fits your business. By including accurate industry codes, federal agencies have an easier time finding you when looking for specific types of contractors for projects.
2. Register and Certify Your Business to SBA, MBE, WBE, & DBE Programs If You Qualify
The federal government ensures that all small, minority, and women-owned businesses have equal access to compete for construction contracts. Most federal, state, and local agencies require that a certain percentage of all contracts be awarded to these businesses. To see which certifications your business may qualify for see the details of each certification below:
Certification for Small Business Enterprises (SBA): To be eligible for government contracts reserved for small businesses you must meet certain size requirements set by the SBA. Most companies with fewer than 500 employees or with average annual revenue under $7.5 million will qualify as a small business.
Certification for Minority-owned Businesses (MBE): To be eligible to be certified as a minority owned business you must show proof that your business is at least 51% owned and operated by a socially disadvantaged individual. The government defines this as someone who has been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities. The social disadvantage must stem from circumstances beyond their control.
Certification for Women-owned Businesses (WBE): To be certified as a women-owned business you must be at least 51% owned and controlled by women who are U.S. citizens. You must also have women manage day-to-day operations and make long-term business decisions.
Certification for Minority or Women-owned Businesses (DBE): Another certification that can be given to either a minority or women-owned business.
Any agency that receives federal funds for a project is required to set annual DBE partition goals and contract specific SBA goals. If you are able to qualify as a small or minority business then you should register and apply for the programs that you are qualified for. Falling into an MBE, DBE, or SBA program can help you qualify for and win more project bids.
You can learn more about how to become certified as a small and disadvantaged business at the website for the Small Business Administration.
3. Find the Right Projects To Bid On
General contractors and subcontractors can find government purchasing and contract opportunities through the SAM contract opportunities directory. As a subcontractor, the best place to find government bidding opportunities is through the following directories:
- Subcontracting Network database
- General Services Administration’s Subcontracting Directory for Small Businesses
- Department of Defense Subcontracting Opportunity Directory
- SBA’s Directory of Federal Government Prime Contractors with a Subcontracting Plan
Determine Eligibility to Bid
Some projects require that contractors be prequalified in order to bid on projects. Depending on the government entity, prequalification is required on a project by project basis.
For example: the Texas Department of Transportation (TxDOT) requires that all contractors be prequalified before becoming eligible to bid or receive a bid proposal on a construction or maintenance project, but if you are a subcontractor working under a general contractor prequalification is not required.
Prequalification requirements vary based on the government entity letting the project and should be looked into before bidding on a project.
4. How to Submit Your First Project Bid on a Prevailing Wage Project
Once you sign a government contract, you will be expected to perform all the work specified in the contract for the specified bid price, so making sure you put together an accurate estimate and bid is essential.
Do Your Research
Before looking into the prevailing wage rates specific to your region, you have to know a couple of key details which will be in the bidding documents that the federal or state government post for bidding, such as:
- DBA construction type – The DBA specifies different prevailing wages for different types of construction. The options include building, heavy, highway, and residential. Your contract will specify what DBA construction type that you will have to follow.
- State and County – Make sure to know the state and county the construction will be taking place in. Different regions have different prevailing wages.
Reading the published Fact Sheets on the Davis-Bacon and Related Acts as well as the Prevailing Wage Resource Book published by the federal government will give you all the specific details you need to know about Prevailing Wage rate contracts.
Make sure to attend pre-bid meetings. These aren’t always required, but it is still good practice to attend the meeting to better understand the project requirements.
Pro Tip: Pre-bid meetings are also a great place to network with other contractors and material suppliers, as well as to ask any questions about the bid or site conditions.
Determine the Prevailing Wage Rates For Your Region
To find the prevailing wage rates for any region go to the federal Wage Determinations (WD) website. Prevailing wage rates are updated and published at random intervals and can change without notice. It is important to use the correct prevailing wage rates. The rates will be specified in your contract documents, which should also include a publication date for the wage rates that should be used on your project.
Wage rates include the hourly rate that your field workers should be paid, and fringe rates. A fringe rate, or benefit rate, is the cost of an employee’s benefits divided by the number of hours working on the job. Fringe rates include common benefits such as health insurance, life insurance, and vacation time. When adding labor costs to your estimates make sure to take into account the fringe rates and hourly rates as specified by the Wage Determination (WD) website.
Create Your Estimate
Your estimating process shouldn’t vary much from estimates you do for other projects, but you need to make sure to include any additional costs that will be incurred because the project is federally funded. You should include costs such as project security clearances, bonds, and other financing costs associated with taking on a prevailing wage contract.
Check out this blog post if you want to learn more about creating top notch project estimates.
Submit Your Bid
Submitting your bid on time and in the correct format is crucial for government projects. Make sure you stay aware of the bid letting date, and carefully read the submission instructions and requirements. Almost all government projects require that bids be submitted to conform to certain standards (e.g. lump sum format).
Most importantly you should re-check your final bid numbers to make sure they match with your estimate, material quotes, and takeoffs. Mistakes while submitting a bid are all too common, and should be avoided at all costs.
Taking on prevailing wage contracts can give you a whole new pipeline of projects and be a game changer for your business. There’s a reason some contractors choose to bid solely on government projects. In 2018, the government spent $310.17 billion on public projects. By 2020 that number went up to $355.54 billion. As infrastructure in the United States continues to fail, more and more money will be allocated to federally funded construction projects. There is no bad time to take on your first prevailing wage contract.
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