In April, the U.S. Court of Appeals for the District of Columbia circuit decided a case that could have far-reaching implications. The case, District of Columbia v. Department of Labor, discussed the application of the Davis-Bacon Act to a situation where a construction project took place on land leased from the District of Columbia. While the court did not directly mention P3 projects, the reasoning used by the Court would appear to apply to public-private partnerships. Before we get ahead of ourselves, it may be helpful to discuss exactly what P3 projects and the Davis-Bacon Act are.
Public-private partnerships seem to be growing more popular by the day. At their core, P3 projects are pretty simple: public entities strike agreements with private entities for some combination of funding, construction, operation, or maintenance on a project. Awarding authorities like these projects because partnering with a private company can alleviate taxpayer burden while also bringing in greater expertise to oversee a project. Private entities enjoy the rare benefit of a long-term, stable relationship with a reliable partner. While there are complexities that cloud the air around P3 projects, generally speaking, the benefits of this project type are abundant and are rapidly gaining favor among state governments nationwide.
The Davis-Bacon Act
The Davis-Bacon Act requires that those contractors and subcontractors working on federal projects, as well as those in the District of Columbia, pay their laborers at least the local prevailing wage. The Act applies only to those projects exceeding $2,000. The Davis-Bacon Act is enforced by the Department of Labor which determines the local prevailing wage by conducting surveys and publicizing wage information.
While there is interesting and informative procedural history that led up to this appeal, the ruling of the appellate court is what we will focus on for the sake of brevity.
The District of Columbia entered into a 99-year lease with a developer. The developer went on to enter contracts with contractors in order to construct CityCenterDC, a private development featuring high-end retail and dining including a Louis Vuitton and a DBGB. The developer entered into all of the construction contracts, and the District of Columbia had no interest or control in the funding, construction, operation, maintenance, or ownership of the project. Other than leasing the underlying land, the District had nothing to do with the project. Because the developer did not consider the project a public work, the requirements of the Davis-Bacon Act were not taken into account during the build.
Does the Davis-Bacon Act Apply?
Fast forwarding a bit, the issue was raised that laborers should have been paid the local prevailing wage under the Davis-Bacon Act. The Department of Labor asserted that the CityCenterDC project was a public work and, as such, needed to comply with the Act. The District of Columbia claimed that it took no part in the construction project and that the CityCenterDC was a private project outside the reach of the Davis-Bacon Act. In a very quotable, spirited opinion, the court sided with the District.
While the court took many factors into consideration, the crux of the opinion was determining whether the leasing of land from the District of Columbia transformed an otherwise wholly private project into a public works project. P3 projects were not explicitly addressed, but the agreements founding P3 projects may be subject to similar scrutiny.
The Court was not convinced that the 99-year lease for the underlying property was enough to make the District of Columbia a party to the project. In determining whether the Davis-Bacon act would apply, the court stated that the following must be true: (1) the federal (or DC) awarding entity is a party to a contract for construction, and (2) the construction is a public work. So even if the District were a party to the contracts, unless the project constituted a public work, the Act would not apply.
To determine whether CityCenterDC was a public work, the Court found at least one of the following factors must be met: (1) a project must involve public funds, or (2) the project must be subject to government ownership or operation of the completed facility. Because the District of Columbia’s only involvement in the project was leasing the land to the developer, the court found that CityCenterDC was not a public work (or public building), and thus, was outside the reach of the Davis-Bacon Act. What’s more, the court found that the District of Columbia’s involvement did not even amount to a “contract for construction.” DC was a party to a development contract, but the developer was the one who entered into the construction contracts.
Here are some of the Court’s words on the subject:
“A contract for construction is a contract for construction. And a lease, land-sale, or development agreement that contemplates one of the parties entering into a future contract for construction with a third party construction contractor is not itself a contract for construction.”
If imagery is more your thing, this gem came later in the opinion:
“The concept of a public work may well be elastic. But it cannot reasonably be stretched to cover a Louis Vuitton. CityCenterDC is not a public work.”
So does the Davis-Bacon Act apply to P3 projects in D.C. or federal P3 projects? Unfortunately, the answer is “it depends.” And even that may be temporary. The court went to great lengths to define public works but elected not to address P3 project. It follows, then, that P3 projects will be treated on a case-by-case basis, depending on the nature of the agreement. At least for now, it appears that when a federal (or D.C.) awarding authority has no interest in the execution and ownership of the project, the private entity need not adhere to the requirements of the Davis-Bacon Act.
It should be noted, however, that the Court did a bit of signaling. Throughout the opinion, the court noted that if the legislature intended for a different outcome, that the Act should be amended to say so. The court declined to extend the Act and refused to let the Department of Labor, a member of the executive branch, do so. Don’t be surprised if legislation clarifying this issue pops up before long.