Wages paid construction workers at a $110 million privately financed project in upstate New York to be leased by the government for military family housing will not be covered by federal prevailing-wage laws, the Labor Department announced yesterday.

The prevailing-wage law, known as the Davis Bacon Act, requires workers on federally financed projects be paid at least the prevailing wage rates in the area, does not apply in this case because the housing units will be located on private land off the Ft. Drum military base, the department said.

A spokesman for the AFL-CIO said the association's Building and Construction Trades Department will ask Labor Secretary William E. Brock to reconsider the decision. If the ruling stands, the spokesman said, contractors could get into a "wage competition."

The remainder of a huge $1 billion worth of construction scheduled for the base would be covered by Davis-Bacon, the department said.

The housing in question will be built under a two-year experimental program, Section 801 of the Military Construction Authorization Act of 1984, that allows the military services to agree to lease for 20 years such privately financed family housing units on or near military bases.

The department said its ruling was issued after the Building and Construction Trades Department asked whether Davis-Bacon would apply.

In the past, the Labor Department usually used union wage scales in determining so-called prevailing wage rates in an area. However, recently the department has sought to reduce the level of the wages included in each area's finding by introducing other factors.

The Davis-Bacon Act was passed during the Great Depression to prevent contractors from being able to submit low, winning bids on federally financed projects by driving down wages in areas of extraordinarily high unemployment. It applies to federal construction, as well as projects financed by the federal government but actually built by another level of government, such as state highways and the Washington region's Metro subway.

Critics of the law argue that it adds unnecessarily to construction costs by requiring payment of wages matching the highest levels in an area, or sometimes even those in higher-cost metropolitan areas some distance away.