The Davis-Bacon Act as Applied to GSA Leasing
The intersection of the Davis-Bacon Act (DBA) and General Services Administration (GSA) leasing has undergone significant changes over the past year, raising important issues for lessors, legal practitioners and government agencies alike. The application of the DBA to a government lease will have a significant impact on the costs incurred by the lessor and, given that GSA leases function as fixed-price contracts, lessors need to understand their obligations to pay DBA wages for construction labor before they agree to pricing.
This post captures the current state of the law, examines its historical roots, implementation in GSA leases and the implications of recent legal developments.
Historical Context and Requirements of the Davis-Bacon Act
The DBA, enacted in 1931 (40 U.S.C. §§ 3141-3148), was designed to ensure that workers on federal construction projects receive prevailing wage rates. For years, the government applied the DBA inconsistently, at times requiring developers operating under leases to incorporate DBA wages and at times limiting the applicability of the DBA to traditional construction contracts.
A notable turning point came with a 1994 U.S. Department of Justice Office of Legal Counsel (OLC) Memorandum,1 which concluded that the DBA applies to leases where the federal government is considered the "contractor" and the lease involves construction. In that memorandum, OLC rejected an earlier opinion that the DBA applied only to traditional construction contracts and concluded that "we do not think the term "construction contract," any more than the term "contract … for construction," unambiguously excludes a contract for the long-term lease of a building to be constructed to comply with the contract, especially when the contracting agency contemplates the construction of a new building and includes substantial provisions concerning construction in the contract." Id.
In 2017, a subsequent OLC memorandum reaffirmed this interpretation, providing additional clarity as to the DBA's application to GSA leasing.2 In that opinion, OLC concluded that "the DBA applies when a federal agency or the District of Columbia leases a building or work and the lease agreement contemplates construction of the structure to be rented" Id. (emphasis added). This conclusion establishes the basis for understanding how the DBA is applied today and the requirements for paying DBA wages to laborers under GSA leases.
Implementation in GSA Leases
In accordance with the 1994 and 2017 OLC memoranda, the DBA and its related acts are implemented in GSA leases primarily through the Federal Acquisition Regulation (FAR) and provisions that establish wage determinations for covered contracts.3 Specifically, Section 3.01 of the GSA Form L1004 – GSA's standard leasing document – provides how the DBA and related labor standards are incorporated into GSA leases:
If the Lessor proposes to satisfy the requirements of this Lease through the construction of a new Building or the complete rehabilitation or reconstruction of an existing Building, and the Government will be the sole or predominant tenant such that any other use of the Building will be functionally or quantitatively incidental to the Government's use and occupancy, the following FAR clauses shall apply to all work (including shell and TIs) performed prior to the Government's acceptance of space as substantially complete.
The list of FAR clauses referenced by this provision includes 48 C.F.R. 52.222-6, Construction Wage Rate Requirements, which incorporates the DBA into the lease and provides that "[a]ll laborers and mechanics employed or working upon the site of the work will be paid unconditionally … at rates not less than those contained in the wage determination of the Secretary of Labor which is attached hereto and made a part hereof."
The bright line rule for determining whether such rates apply has been – and continues to be – whether the lease calls for "construction of a new Building or the complete rehabilitation or reconstruction of an existing Building" in which the "Government will be the sole or predominant tenant."
The Final Rule
The new rule, published on March 18, 2022, and coming into effect on Oct. 23, 20235 (87 Fed. Reg. 15698, 15748, Mar. 18, 2022), contains significant updates to the DBA's application in federal contracting, including relevant guidelines for GSA leasing. Notably, the rule provided that the Christian doctrine6 would allow the government to read DBA obligations into leases even when those clauses were not incorporated into the lease:
The contract clauses set forth in this section (or their equivalent under the Federal Acquisition Regulation), along with the correct wage determinations, will be considered to be a part of every prime contract required by the applicable statutes referenced by 29 CFR 5.1 to include such clauses, and will be effective by operation of law, whether or not they are included or incorporated by reference into such contract, unless the Administrator grants a variance, tolerance, or exemption from the application of this paragraph.7
Notably, the Final Rule also provided that lessors should be reimbursed for any post-award implementation of DBA requirements:
Where the clauses and applicable wage determinations are effective by operation of law under this paragraph, the prime contractor must be compensated for any resulting increase in wages in accordance with applicable law.8
Id.
The Final Rule Is Enjoined
A federal district court in Texas has suspended the implementation of the Final Rule in the AGC of America, et al., v. U.S. Department of Labor9 (DOL) case (AGC). The U.S. district court issued a nationwide injunction that clarified the limits of the government's reliance on the Christian doctrine to avoid equitable adjustments for changes in contract obligations. Specifically, the court held as follows:
DOL lacks authority under the DBA statute to impose section 5.5(e), as the statute explicitly requires the contracting agency to include the DBA requirements. Given this statutory language, DOL as a regulatory agency does not have the power to make any determination that the DBA requirements are applicable by operation of law, and that contractors are liable for violations, where not included by the contracting agency as requirements.
This decision – which has been implemented nationwide and is unlikely to be disturbed in the immediate future, given the procedural posture of the case and the court's position in the U.S. Court of Appeals for the Fifth Circuit – has two important implications for lessors. First, since this provision has been enjoined, the old rules governing post-award application of the DBA are back in effect, and those rules provide that if a contract (or lease) does not include the relevant DBA provisions, but it should have it, DOL can direct the agency to correct the contract to incorporate those provisions, but "[t]he contractor must be compensated for any increases in wages resulting from incorporation of a missing wage determination." 29 C.F.R. § 1.6(f)(3)(iv).
Second, and more important, the government will no longer be able to avoid its obligation to reimburse the lessor for the increased costs associated with post-award implementation of the DBA requirements. Historically, government agencies have relied upon the Christian doctrine to avoid reimbursing contractors for post-award imposition of DBA requirements, claiming that the relevant DBA provisions should have been read into contracts. See, e.g., BUI Constr. Co. & Building Supply, 84-1 BCA ¶ 17183 (Feb. 15, 1984). The court in AGC has expressly rejected that approach, holding as follows:
Defendants' reliance on application of the Christian doctrine to support the operation-of-law provision [] is unavailing. Most significantly, the United States Supreme Court rejected application of the Christian doctrine to the DBA as "misplaced," noting that the DBA is "not self-implementing." [] The Armed Services Board of Contract Appeals has reached the same conclusion ("The Davis-Bacon Act is not self-implementing") in rejecting arguments that the DBA can be read into a contract under Christian. ("This is not a case where the Act was clearly applicable at time of award, and where the omission of the required clauses and wage determinations was a mere administrative oversight").
AGC at 27 (citing Univs. Research Ass'n v. Coutu, 450 U.S. 754, 784 n. 38 (1981); BellSouth Commc'ns Sys., Inc., ASBCA No . 45955, 94-3 BCA ¶ 27, 231).
What this means as a practical matter is that if lessors can limit the applicability of the DBA through lease language that either omits or restricts the applicability of the DBA – typically through the deletion of Section 3.01 of the GSA L100 form or edits to the standard language – any subsequent determination that the DBA should be applied more broadly to the lease will entitle the lessor to an equitable adjustment.
Conclusion: Takeaways for Lessors and Agencies
The primary takeaway for lessors is that the language that makes it into your lease is what matters. If the boilerplate labor standards clause is included in your lease along with a Wage Determination, then the DBA will apply to "all work (including shell and TIs)." Lessors should examine whether that language is appropriate and seek to have it deleted or limited if it's not appropriate for the lease.
The good news for lessors is that the government should no longer be able to claim post-award that the DBA should be incorporated into leases via the Christian doctrine and thereby avoid paying lessors an equitable adjustment. If the DOL or any other government agency seeks to impose DBA labor costs on a lessor post-award, it will have to come via a lease amendment and the lessor should be entitled to recover any increase in costs.
So again, the language that makes it into your lease is what matters. The ambiguity surrounding the DBA's application to GSA leasing means that lessors must remain vigilant in the negotiation of lease terms.
Notes
1 Reconsideration of Applicability of the Davis-Bacon Act to the Veterans Administration's Lease of Medical Facilities, May 23, 1994.
2 U.S. Department of Labor memorandum, Jan. 11, 2017.
3 While the FAR does not apply to GSA lease (see 48 C.F.R. § 570.101(d)), GSA leases can and do incorporate specific FAR clauses by reference.
5 U.S. Department of Labor Final Rule.
6 The Christian doctrine comes from a decision, G.L. Christian & Associates v. United States, issued in 1963 by the Court of Claims (the predecessor to both the Court of Federal Claims and the Court of Appeals for the Federal Circuit). See, generally, 312 F.2d 418 (Ct. Cl. 1963). In that case, the court found that certain required contract terms allowing the government to terminate contracts for its convenience should be read into contracts that lacked those terms because the terms represented a "deeply ingrained strand of public procurement policy."
7 Supra note 5 at 782.
8 Id.