Daily Development for
Tuesday, January 21, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

CONSTRUCTION LAW; PREVAILING WAGES: A developer performing residential rehabilitiation under contract with a city must pay workers the "prevailing wage" as defined in the Davis-Bacon Act, even if compliance with the Act is not required by law, where the developer has contractually agreed with the City "to comply with the provisions of the Davis-Bacon Act."

Vulcan Arbor Hill Corp. v. Reich, 81 F.3d 1110 (D.C. Cir. 1996).

The developer planned to renovate dilapidated residential rowhouses, a project partially financed by a grant from HUD to the City. In connection with the City's application for the grant, the developer wrote to HUD stating that it planned to pay Davis-Bacon wages if required by the area HUD office. After the City obtained the grant, the developer entered into a Legally Binding Commitment ("LBC") with the City that specified the project details, including a clause agreeing to require its construction manager and prime and sub-contractors to comply with the provisions of the Davis-Bacon Act. The Act's requirements established wages scales substantially in excess of the local market (according to the developer.)

The local HUD office determined that the project was exempt from the requirement that the "prevailing wage" be paid. This determination, however, was subsequently overturned by HUD's Associate General Counsel. In its appeal, the developer argued that (i) the LBC should be read in light of the previous letter to HUD that stated it would pay the "prevailing wage" if required by HUD, and (ii) that the work did not require Davis-Bacon wages. The court ruled (2-1) that the LBC between the developer and the city was unambiguous, thus it did not consider extrinsic evidence of the parties' intent. In making its decision that the developer contractually committed itself pay Davis-Bacon wages, the court did not reach a conclusion as to whether the developer was statutorily required to pay the prevailing wage under the Davis-Bacon Act.

A dissenter concluded that the overall contractual arrangement included other documents, including the UDAG Grant documents, which made it clear that the developer agreed to pay the Davis-Bacon wages only if the Act applied, and that the developer vigorously contended that the Act did not apply.

The dissent over the application of the Act had to do with the fact that the Act applies to residential property housing eight or more families, and the project in question involved individual townhouses that, arguably, should have been viewed as separate projects. In fact, HUD, at least in some of its manifestations, supported the developer's position through this litigation, and the court never really resolves the interpretive argument.

Comment: "Compliance" with the Davis-Bacon Act would not, to the editor consist of meeting the standards imposed by the Act in situations to which the Act does not apply. To read the contractual language otherwise would lead to absurd results, imposing compliance requirements on activities of the various builders totally unrelated to the project at hand.

The editor, however, finds no agreement on the D.C. Circuit. All the judges agree that the specific language requiring "compliance" with the Act is "unambiguous" as written. The problem raised by the dissenting judge is that other documentation make clear that the developer was not agreeing to pay at the wage scales required by the Act if the Act did not apply.

Practice Tip: It does not appear in this case that agreement to comply with the Act was essential to getting the UDAG grant, since it was granted on the basis of an application that made only a "conditional" Davis-Bacon Act pledge. Obviously, a lawyer conversant with the issue might have noted and modified the language in the LBA. Parties familiar with contracting practices in federally funded projects such as this, however, know that getting the government to accept any change in its form documents will be resisted or even prohibited. The contractor's only other recourse would have been to pursue an administrative appeal at that point, which, of course, would have caused such delay that it likely would have killed the project. In the end, then, the tip may be, as usual, be prepared to pay the political piper and don't expect the government to act sensibly.

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