Federal law does not require contractors to pay union wages on many federally funded construction projects unless the government money is actually used to pay workers, according to a legal opinion issued last week by the Justice Department.
Under the opinion, use of federal money for such things as land purchases does not trigger requirements of the Davis-Bacon Act, which compels contractors on government-sponsored projects to pay construction workers "prevailing" wage rates. Over the years, these have come to be synonymous with union rates.
The interpretation will cut the costs on some development projects funded by the Department of Housing and Urban Development by as much as 25 percent, a HUD spokesman said yesterday. The department had sought the opinion to clarify recent rulings by the Labor Department. It was not immediately clear to what extent it would apply beyond HUD, however, and the AFL-CIO said it may challenge the opinion in court.
Until now, the 55-year-old Davis-Bacon law had been widely interpreted as covering construction workers paid by private funds if other phases of a project were funded by government grants.
The Labor Department establishes the prevailing wage for all areas of the country based on its own surveys, or the union wage rate if more than half the workers in the area are paid the union rate. The union rates are the standard in most metropolitan areas of the country.
The Justice Department opinion, signed by Assistant Attorney General Charles J. Cooper, is likely to cut costs sharply on projects financed by Community Development Block Grants and Urban Development Action Grants by as much as 25 percent, according to Justin L. Logsdon, HUD assistant secretary for labor relations. The fiscal 1988 HUD budget contains $3 billion for the CDBG program and $225 million for UDAG.
Funds awarded to state and local governments under the two programs often are used as "seed money" for buying land, equipment and materials, or for paying for architectural and engineering services, as a way to attract private development companies into public housing and development projects.
A section of the 1974 Housing and Community Development Act requires that Davis-Bacon standards be applied to HUD-funded projects. The Labor Department, which administers and enforces Davis-Bacon requirements, told HUD in 1985 that when UDAG and CDBG funds are used for "activities which are integrally and proximately related" to construction, the construction workers must receive Davis-Bacon wages. HUD Secretary Samuel R. Pierce Jr., saying this interpretation of the 1974 law was too broad, appealed to the Justice Department, seeking a reversal of the decision.
Logsdon said "many developers and local" governments that have HUD grants "were waiting for this opinion" and predicted "a surge of new construction and rehabilitation" work.
The Justice official's decision could have "a broad impact" if the labor-standards provisions in the laws covering other federal agencies are similar to HUD's, Logsdon said. Some agencies, such as the Defense and Transportation departments, award billions of dollars annually for construction projects. One source said, however, that Cooper's opinion applies only to HUD contracts.
Union leaders will fight the opinion, said Terry R. Yellig, an attorney representing the AFL-CIO's building and construction trades division. "We will be looking for a dispute" touched off by the opinion on which to base a lawsuit, he said. The Justice official's decision "raises a substantive issue" over whether Davis-Bacon provisions apply to all construction workers on a federally funded projects and "a jurisdictional question of whether the attorney general has the right to take requests for an opinion after the Labor Department has issued an opinion," Yellig says.
Cooper's opinion "is an outrage" that represents "an attack on Davis-Bacon that would return us to the age of fly-by-night contractors," said Rex Hardesty, an AFL-CIO spokesman.