As detailed in our cover story, the strings attached to stimulus monies are a wee bit more tangled than those traditionally wrapped around federal funding — particularly for water and wastewater managers. But the law lets you apply up to .05% of your grant or loan to administrative costs, so what's a little more paperwork?
In addition to the time associated with justifying technology available only from non-U.S. suppliers (rare, but it's happened), the law's stipulation that recipients pay the “prevailing wage” is causing its share of unintended consequences.
For those who may not know, the Davis-Bacon Act of 1931 was designed to ensure that folks working on the roads, dams, parks, and other projects the federal government was building to pull us out of the Depression were paid the same wages — the prevailing rate — as laborers working for businesses in the project area. It's been amended a couple times since then, primarily to ensure contractors don't pay employees less in an attempt to win a lowest-bid government job and still make a profit; later to include the value of benefits in the formula for determining the prevailing wage.
You can see why some companies won't bother to pursue government work.
But I digress. I'd heard during the WEFTEC water and waste-water conference that Davis-Bacon is increasing stimulus job costs 22%. That figure didn't seem possible, so I asked recipients of our e-newsletter what they were experiencing. Boy, did that touch a nerve. (If you'd like to subscribe, go to www.pwmag.com, scroll down the left-hand side of the home page, and click on “Free E-Newsletter Sign-Up.”)
In general, bids are coming in much lower than estimated, but how much those savings offset stimulus-induced increases depends on location, location, location.
In Michigan, which has the highest unemployment rate in the nation, costs are coming in 30% lower on a $2 billion water main replacement. Meanwhile, a first-time federal-funding recipient in Idaho estimates the requirement will add 10% to project bills. (“Or in other words, we'll be able to do 10% less improvement because of Davis-Bacon.”)
The requirement's also having unintended consequences for your contracting partners. The already slim profit margins of smaller local contractors who've managed to hang on this long erode even further. And for the first time, general contractors must verify that all subcontractors pay the prevailing wage. It will be very interesting to see what this effort at transparency reveals.
Through it all, the fundamental conundrum of the prevailing wage concept remains. Which is probably why a retired reader said, “The primary goal of every taxpayer is the maximum delivery of service for every dollar spent. Oh, what a dream!”
Editor in Chief