Government Pays Contractors Three Times Market Rate

May 8, 2014

Federal contractor construction workers are paid up to three times the market rate, according to a report from the Washington Examiner.

The Davis-Bacon Act of 1931 requires the government to pay federal contractors the "prevailing wage" in the area, and it grants the Department of Labor the authority to determine that prevailing wage. But in practice, the Labor Department is setting federal contractor wages at levels much higher than the market rate:

  • Pipefitters in Laredo, Texas, make $11.47 per hour. But pipefitters in Laredo working on a federal contract? They make a minimum of $36.49, plus benefits.
  • In New York City, the median hourly salary for window installers is $18.87. But for government contractors, even the most inexperienced installers make $42 hourly.
  • In Philadelphia, lathers make $19.26 per hour, yet federal contractors are required to be paid a minimum of $39.90 each hour, plus an additional $25 per hour in fringe benefits!

Why is this happening? Rather than ask the Bureau of Labor Statistics (BLS) for information on local wages -- as the BLS has the most accurate data and is the agency from which the Washington Examiner received its information on hourly wages -- the Department of Labor sets the prevailing wage by surveying employers and unions.

  • Response rates to these surveys are incredibly low, and 75 percent of wage determinations are based on less than 25 responses, according to a report from the Heritage Foundation. 20 percent of wage determinations are based on just five or fewer responses.
  • Those who do respond to the surveys are disproportionately represented by labor unions. While only 14 percent of construction workers have union representation, nearly two-thirds of wage determinations use the union rate.
  • Audits from the Government Accountability Office and the Inspector General of the Department of Labor have discovered error rates in the wage determinations of up to 100 percent.

According to the Congressional Budget Office, repealing Davis-Bacon could save the federal government $40 billion over a decade.

Source:  Luke Rosiak and Logan Porter, "Math mistakes lead government to pay contractors up to 3 times market rate under Davis-Bacon," Washington Examiner, April 23, 2014.  

 

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