Price Fixing in Construction Contracts

April 21, 2014

A 1931 price-fixing law is driving up labor costs and should be repealed, says George Leef of the John W. Pope Center for Higher Education.

  • The Davis-Bacon Act is a 1931 law concocted to protect white, union labor.
  • Construction contractors at the time were routinely hiring low-wage, non-union, black workers instead of higher-wage, unionized white employees for projects.
  • Congressman Robert Bacon and Senator James Davis wrote a bill requiring all laborers to be paid "the prevailing wage," and President Hoover signed the law in March 1931.

What is the prevailing wage? It's generally the union wage in the closest locality with union contracts. The law is nothing more than price fixing, and many states have their own versions of Davis-Bacon.

  • The law increases the cost of federal construction projects.
  • By mandating higher wages (and because of the inefficiency of union work rules), Leef estimates that the law probably increases construction costs by 15 percent to 20 percent.
  • On top of these costs, taxpayers are paying Department of Labor employees to calculate what "prevailing wages" are.
  • Davis-Bacon is typical special interest legislation, spreading the costs among many and providing benefits to a select few.

The law was at the basis of a recent dispute in Washington, D.C.'s CityCenterDC -- a mixed-use development project that is privately funded, its only government connection being that it sits on land leased from the District of Columbia for 99 years. But that led local unions to insist that the project fell under the purview of Davis-Bacon, and the Department of Labor agreed. After a challenge by the developer and the District, a district judge struck down the Department of Labor's ruling, reasoning that, if the CityCenterDC project had "public benefits," then any project whatsoever could be considered to fall under Davis-Bacon, providing no limit to the law.

While the ruling is a victory, the decision could be appealed and overturned by the D.C. Circuit Court. Ultimately, lawmakers simply need to do away with Davis-Bacon, one of the many laws on our books that needlessly drive up federal spending.

Source: George Leef, "Davis-Bacon: The Price-Fixing Conspiracy That The Feds Mandate," Forbes, April 10, 2014.

 

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