Date: December 2, 1996 (Rev 1)
Letter No. LR-96-03
Subject: Application of Department of Labor guidance concerning "projects of a similar character".
I. DOL All Agency Memoranda #130 and #131.
II. Definitions: "Incidental" versus "substantial".
III. HUD policy and practice.
IV. Considerations for residential construction.
V. Mixed-use projects.
VI. Important Notes about Multiple Schedules.
VI. Case Studies.
U.S. Department of Labor (DOL) All Agency Memoranda (AAMs) #130 and #131 provide guidance as to identifying character of work (e.g., building, residential, heavy, highway) for the purpose of applying Davis-Bacon wage determinations. These memoranda are focused primarily toward public improvements such as water and sewage treatment plants and roadways rather than housing development projects. Questions, however, are raised from time to time concerning the application of AAMs 130 and 131 to HUD housing programs. The purpose of this Letter is to review the DOL policies in the context of HUD programs, in particular housing development.
The following is provided with the cooperation and advice of the DOL.
I. DOL All Agency Memoranda
AAM 130 provides definitions for four (4) broad categories of construction: residential; building; heavy and highway. AAM 130 generally states that a "project" is classified as belonging in one of the 4 categories and that a "project" would consist of all construction necessary to complete a facility. In a footnote, AAM 130 states that a multiple classification may be appropriate if there are substantial portions of the project that would fall into different categories (e.g., building and heavy).
AAM 131 provided clarification to AAM 130 by explaining that a literal application of AAM 130 guidance may be inappropriate in certain cases. AAM 131 emphasizes in particular the complexities inherent in the application of multiple wage schedules and cautions that agencies should proceed with multiple schedules1 only after advance consultation. It is further stated that area practice is determinative for any question about the proper classification of construction.
We would note that the primary thrusts of AAM 130 and 131 are not to advise on the issuance of multiple schedules or to define "incidental" or "substantial". The overall purpose of these AAMs is to ensure the appropriate selection of the one category of construction that best suits the proposed work. We would also note that none of the examples given in AAM 130 or 131 where multiple schedules might be appropriate is a housing project.
II. Definitions: "Incidental" vs "substantial" Incidental items do not alter the overall character of the project but are installed for the purpose of the total project to which they relate in function. Incidental items are subject to the same wage schedule that applies to the overall project.
In addition to "incidental" relative to function, AAMs 130 and 131 discuss "incidental" relative to cost. Twenty percent of the project cost is offered as a rough guide for what is "incidental" in relation to the overall project, which would not warrant a multiple schedule.
Substantial is defined in terms of relative cost: more than 20% of the total project cost. In recognition that very large projects may contain components of a different character that may be sufficiently "substantial" to warrant a separate schedule even though these components may not exceed 20% of the total project cost, a $1 million or more absolute cost was offered as a supplementary guide to help define "substantial."
III. HUD policy and practice.
HUD policy and practice is consistent with AAMs 130 and 131 in that HUD seeks to identify the (one) category of construction that best suits the proposed work and issues the (one) corresponding Davis-Bacon wage determination. Most HUD-assisted projects fit cleanly in a single construction category and incidental items are not "substantial." As a result, the issuance of multiple schedules has been rare for HUD-assisted construction projects and would represent a departure from the norm. (Some geographic areas may experience more multiple schedule activity because, for example, DOL wage decisions for heavy and highway construction are issued separately.)
IV. Considerations for residential construction
Residential construction is defined in AAM 130 as projects "involving the construction, alteration, or repair of single family houses or apartment buildings of no more than 4 stories in height. This includes all incidental items such as site work, parking areas, utilities, streets and sidewalks" (emphasis added).
The primary component, which determines the character of the project and the type of wage schedule that applies, is the housing. Elements such as site work, parking areas, etc., are incidental in that their purpose is to support the housing. Other items which may be incidental to housing construction include swimming pools, community buildings, storage sheds, carports and on-site management offices. However, such items constructed alone, without accompanying housing construction, would be the primary component and, accordingly, the character of the project and the type of wage schedule that applies would be determined on that item alone.
Recently on some projects involving housing development it has been estimated that the cost of certain incidental items such as site improvement might exceed the DOL guide for "substantial" by absolute or relative cost. The mere existence of cost that may be "substantial," however, does not justify the use of multiple wage schedules.
Generally, any housing development project (4 stories or less) is classified as "residential." This classification is not altered by the cost of incidental items, even if such costs exceed the guide(s) for "substantial." Except in the most extraordinary circumstances, such as where local industry practice clearly demonstrates otherwise, only residential wage schedules shall be issued for housing development projects. Multiple schedules shall not be issued because of the incidental items noted above and other similar items. HUD Field Labor Standards and Enforcement staff shall consult with the appropriate Headquarters Labor Standards and Enforcement representative in advance where the issuance of multiple schedules is contemplated for a housing development project.
V. Mixed-use projects.
Mixed-use projects are those which contain elements of different construction characters but these different elements are not incidental to each other2. Examples include a housing project that contains both low-rise and highrise buildings; and a 4-story apartment building with commercial space on the first floor. The different elements in these cases are components that each have their own purpose - they are not merely supportive of another element's function. Therefore, multiple schedules are appropriate where mixed-use projects are involved.
VI. Important Notes about Multiple Schedules:
- The project/contract specifications must clearly delineate the portions of the project subject to each wage decision issued.
- All wage decisions must be posted at the job-site with an explanation as to where each wage decision applies.
- The developer/prime contractor must agree to establish adequate controls to ensure that all laborers and mechanics are paid in accordance with the wage schedules.
- All employers (contractor, subcontractors, lower-tier subcontractors) must agree to prepare, submit and maintain accurate employee time and payroll records to demonstrate compliance with all wage decisions applicable to the project.
- Use of multiple schedules is contingent upon the agreement and compliance with these conditions.
VI. Case studies.
The following examples illustrate how the guidance in this Letter may be applied to various situations. And, how timely Labor Standards and Enforcement advice may relieve contractors and contracting agencies from inordinate administrative burdens. A description of the project is followed by the wage determination issuance decision and rationale.
1. a. Project The project involves the new construction of 60 family units in three 3-story walk-ups and 50 elderly units in a highrise building; other improvements include clearing and grading, streets, sewers, utilities, play areas, driveways, parking areas.
b. Decision Separate wage decisions, residential for the walk-ups and building for the highrise, may be issued for the construction of the buildings. These are distinguishable components which are substantial in their own right; neither can be considered "incidental" to the other, therefore, multiple wage decisions are issued provided that the contractor agrees to comply with the recordkeeping requirements in paragraph V above.
The site improvements must be considered as well. Since the improvements are incidental to the construction of the housing a separate wage decision need not be issued. To the extent that certain site improvements can be demonstrated to serve the walk-up buildings rather than the highrise building (e.g., parking areas, sidewalks, play areas dedicated to the family units) those site improvements may be completed under the residential wage decision. The remainder of the improvements, i.e., those dedicated to the highrise and those common to both the family and elderly units must be completed using the building wage decision.
2. a. Project The project involves the rehabilitation of two large 4-story buildings containing retail/office space on the first floor and residential units on the upper floors. The residential units will each receive new interior walls, windows, doors, carpet, fixtures, appliances, and other finishings. Work in the retail/office spaces will include some electrical and HVAC upgrades, new windows, doors and other exterior finishings consistent with the improvements to the residential units. This work in the retail/office spaces represents 10% of the total rehabilitation costs on these structures.
b. Decision A single residential wage decision is issued for all work performed on the two 4-story buildings. Work on the first floor interiors and exteriors is incidental to the rehabilitation work on the upper three floors. This finding of incidental is additionally confirmed because the lower floor work represents less than 20% of the rehabilitation costs.
3. a. Project Assume the same project described in example #2 and add a 3-story parking garage that will be newly constructed adjacent to the two 4-story buildings to serve the residential and retail/office tenants, as well as hourly parking for the general public.
b. Decision The rehabilitation work would still be performed under a single residential wage decision. However, the parking garage would be subject to the building wage decision. The garage cannot be considered to be incidental to the rehabilitation work. The garage is substantial in its own right and has as its purpose a service well beyond the residential or retail/office tenants.
4. a. Project A public housing authority (PHA) has undertaken a 3 year comprehensive improvement program, e.g., CIAP project, at one of its larger family developments consisting of several 4-story walk-ups. The total program will involve rehabilitation to all of the housing units in varying degrees. For example, some units will require only cosmetic repairs and minor replacements which can be classified as nonroutine maintenance; other units will require extensive repairs including some "gut rehab," and others are being converted to accommodate larger families (e.g., 2-bedroom units grouped and converted into 5-bedroom units). Other improvements include sidewalk repairs, curb and gutter replacement, parking lot expansion and the installation of a security fence. The PHA has divided the "program" into phases so that the work will be more manageable and to minimize disruption to the residents. The first contract will be awarded for the security fence installation. Immediately thereafter, the PHA will advertise and award a contract for all of the rehabilitation work. The PHA is considering using its own work force to perform some of the work. The PHA sends a request for wage determination to the Labor Standards and Enforcement staff describing the work as "installation of security fence".
b. Discussion and Decision For this example, there could be several "right" answers. It would be correct to issue a heavy wage decision if the scope of work is limited to a security fence. The PHA's wage decision request and Labor Standards and Enforcement's response, however, may be shortsighted.
For example, if the PHA had grouped the security fence with a portion of the rehabilitation work (which calls for a residential wage decision), the security fence could be incidental to the residential work and performed under the same residential wage decision rather than a heavy wage decision (which often contains much higher wage rates). The same would be true for the sidewalks and other infrastructure improvements: combined with the rehabilitation work on the housing units, the infrastructure could be incidental to the residential work and performed under the same wage decision3.
Client agencies may not fully grasp the impact of "phasing" and/or "packaging" certain work items. Labor Standards and Enforcement staff can play a significant role assisting client agencies, like PHAs, to plan work activities to its best advantage.
In this example, Labor Standards and Enforcement could suggest to the PHA that the work items be grouped as described above to secure residential wage rates for those activities. In addition, since the PHA is contemplating using its own maintenance workers (i.e., force account) to perform a portion of the work, the most logical activities for this force account crew are those that can be characterized as nonroutine maintenance. These activities will be subject to HUD-determined wage rates which oftentimes are closely related (or even based upon) the maintenance wage rates issued to the PHA. Since PHA force account workers must receive no less than whatever rate is applicable to the type of work they perform, the potential similarity of these wage schedules (maintenance and nonroutine maintenance) may result in less administrative burden to the PHA.5. a. Project A PHA submits a wage determination request for minor repairs and replacements in 20 housing units which can be characterized as nonroutine maintenance; however, two of those units also require more extensive repairs that exceed nonroutine maintenance parameters.
b. Decision There are two options available to the Labor Standards and Enforcement staff and the PHA. Following consultation and depending on the PHA's local circumstances and its own needs, all of the work may be performed under the appropriate Davis-Bacon wage decision (residential or building depending on number of stories, etc.) or the two units needing extensive repairs can be separated from the nonroutine maintenance work and be performed under a Davis-Bacon wage decision while the nonroutine maintenance is performed under a HUD-determined wage schedule. (Note advance consultation requirement for multiple schedules.) Work items that require Davis-Bacon wage rates shall not be considered incidental to other work subject to HUD-determined wage rates.
Any questions concerning this Letter may be directed to the Office of Davis Bacon and Labor Standards at (202)708-0370 or, in the case of HUD program participants, to the HUD Field Labor Standards and Enforcement Staff with jurisdiction for your area.
Visit the Office of Davis Bacon and Labor Standards.