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“Adjacent” or “Virtually Adjacent” Under the Davis Bacon Act – What Every Contractor and Surety Professional Should Know

Sarah Carpenter Partner, Smith Currie & Hancock LLP

“Adjacent” or “Virtually Adjacent” Under the Davis Bacon Act – What Every Contractor and Surety Professional Should Know

Posted: April 2, 2021 | Legal

On federal and federally funded projects, contractors and sureties face a multitude of potential wage-related liabilities. However, contractors and sureties may limit this potential exposure by developing a thorough understanding of the Davis Bacon Act (the “DBA” or the “Act”) and its requirements. The Act, which applies to federal or federally-assisted contracts in excess of $2,000 for construction, alteration, or repairs, requires contractors and subcontractors to pay laborers who are “employed directly on the site of the work” locally prevailing wages and fringe benefits for corresponding work on similar projects in the area.

One critical question that must be answered in determining whether prevailing wages must be paid under the DBA is whether the contractor’s or subcontractor’s laborers are working “adjacent or virtually adjacent” to the site. The Federal Regulations governing the DBA defines “site of the work” as follows:

(1) The site of the work is the physical place or places where the building or work called for in the contract will remain; and any other site where a significant portion of the building or work is constructed, provided that such site is established specifically for the performance of the contract or project;

(2) Except as provided in paragraph (l)(3) of this section, job headquarters, tool yards, batch plants, borrow pits, etc., are part of the site of the work, provided they are dedicated exclusively, or nearly so, to performance of the contract or project, and provided they are adjacent or virtually adjacent to the site of the work as defined in paragraph (l)(1) of this section;

(3) Not included in the site of the work are permanent home offices, branch plant establishments, fabrication plants, tool yards, etc., of a contractor or subcontractor whose location and continuance in operation are determined wholly without regard to a particular Federal or federally assisted contract or project. In addition, fabrication plants, batch plants, borrow pits, job headquarters, tool yards, etc., of a commercial or material supplier, which are established by a supplier of materials for the project before opening of bids and not on the site of the work as stated in paragraph (l)(1) of this section, are not included in the site of the work. Such permanent, previously established facilities are not part of the site of the work, even where the operations for a period of time may be dedicated exclusively, or nearly so, to the performance of a contract. (Emphasis added).

The Department of Labor (“DOL”) has declined to define either “adjacent” or “virtually adjacent” under the DBA because it has decided that the only “fair and practical method for determining whether a temporary facility is virtually adjacent to the ‘site of the work’ is on a case-by-case basis.” More specifically, the DOL has chosen not to define “just how far such a facility can be from the actual construction site and still be considered part of the ‘site of the work.’” The DOL’s view is that any such definition would create an “artificial benchmark” that would enable contractors to avoid DBA coverage and defeat the purpose of the Act. Instead, the DOL expects contractors to perform a common sense, case-by-case analysis, based on the size and nature of the project, of whether facilities established nearby to serve a federal or federally assisted project are covered by the DBA.

Although the DOL has not offered a geographic definition for either “adjacent” or “virtually adjacent,” some guidance regarding the potential geographic scope of these concepts is available.  The DOL has favorably referred to the analysis set forth in the Administrative Review Board’s (the “Board”) decisions known as Bechtel I (1996 WL 874457). and Bechtel II (1998 WL 168939). Bechtel I and Bechtel II involved a project for the construction of 330 miles of aqueduct and pumping plants and a dispute over whether the DBA applied to work performed at three batch plants located less than one-half mile from various pumping stations (and often requiring concrete from the batch plants to be delivered to construction locations up to 15 miles away from the plants). The Board in Bechtel I and Bechtel II analyzed the nature of the project and determined that because of the project’s narrow, linear nature, work performed in actual or virtual adjacency to “one portion of the long continuous project is to be considered adjacent to the entire project.” Consequently, the Board held that the batch plants were located in virtual adjacency to the site of the work so that it would be reasonable to include them as the “site of the work.”

The DOL considers the Bechtel matters persuasive, even though they were decided prior to the 2001 amendment to the DBA’s definition of “site of the work” which added the terms “adjacent” and “virtually adjacent,” because they illustrate the “difficulties inherent in establishing a specific distance for defining the terms, ‘virtually adjacent.’” Because temporary batch plants constructed for the purpose of supplying asphalt for a project are likely to be located somewhere near the project, instead of directly on the site and in the way of the project, the DOL believes such batch plants exemplify the necessity of performing a factually specific analysis based on the size and nature of the project in determining whether a work site is “virtually adjacent” for purposes of the DBA. In sum, the DOL has determined that “[w]here to locate a storage area or a batch plant along such a project is a matter of the contractor’s convenience and is not a basis for excluding the work from the DBA.”

The Board has also provided guidance in its decisions (Forrest M. Sanders, 2007 WL 4248530 and Gary J. Wicke, 2008 WL 4462982) since Bechtel I, Bechtel II, and the 2001 amendment to the definition of “site of the work” indicating that 1,000-1,500 yards from the project site is “arguably” “virtually adjacent” whereas three to five miles from the project site is not.

Additional guidance regarding whether a work site is “adjacent” or “virtually adjacent” for purposes of the DBA may be found in state department of transportation (“DOT”) materials. For instance, several state DOTs have offered guidance regarding what is considered “virtually adjacent” with the general consensus being that any work areas located within one half mile to one mile (as the crow flies) of the closest point of the site of the work will be considered “virtually adjacent” for purposes of the DBA. On the other hand, a few state DOTs have declined placing a geographic limitation on the applications of “adjacent” or “virtually adjacent” and have instead defined “adjacent” as a “common boundary between the project and plant site” and “virtually adjacent” as a “plant site is separated from the project site by a narrow strip of land such as a local road between a project and a plant site.”

It is important to remember that even where a work site is not considered “adjacent” or “virtually adjacent” under the DBA, the work site may still be considered what is known as a “secondary site” – any site other than the project’s final resting place where a significant portion of the building or work is constructed, provided that such site is established specifically for the performance of the contract or project. Prior to award of a contract, an offeror may request a determination from the Contracting Officer regarding whether a work site satisfies the criteria for a secondary site. However, after award of a contract, a factually specific analysis of the work site will be necessary to determine whether the DBA applies.

If a contractor is found by the DOL to have violated the DBA, the contractor and its sureties may be liable not only for the difference between the applicable prevailing wage rate and the wages actually paid, but also for any excess costs incurred by the government to complete the work, in the event that the government chooses to terminate the work as a result of the alleged DBA violation. Therefore, in relying upon any geographic guidance in determining whether a project site is “adjacent” or “virtually adjacent” under the DBA, it is important to remember the reason why the DOL refused to define the terms in the first place – to avoid giving contractors an arbitrary benchmark for circumventing DBA coverage. By declining to provide a geographic test for just how far such a facility can be from the actual construction site and still be considered part of the “site of the work,” the DOL sought to enable a practical, case-by-case application of the DBA requirements. Although prevailing wage determinations are generally made prior to contract award and, therefore, likely before a surety’s involvement with a project, sureties should promote DBA compliance by encouraging their principals to verify applicable DOT guidance and perform a factually specific analysis of “the site of the work” with the assistance of counsel, if necessary. The exercise of conducting such a good-faith, case-by-case analysis may be pivotal in the DOL’s determination of whether a DBA violation has occurred or, at a minimum, may provide support for a contractor and its surety to negotiate a settlement with the DOL regarding alleged DBA violations.

Sarah K. Carpenter is a partner with Smith, Currie & Hancock LLP in the firm’s Washington, D.C. office. A substantially similar form of this article was originally published in the American Bar Association’s Fidelity & Surety Law Spring 2020 Committee Newsletter.

Smith Currie provides comprehensive legal services to all parts of the construction industry across the nation. Smith Currie lawyers have decades of demonstrated success representing construction and federal government contracting clients “From the Ground Up,” including procurement matters, contract formation and negotiation, project administration, claims prosecution and, when necessary, in litigation and other forms of dispute resolution.

The  views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.

Article republished with permission from ConsensDocs Newsletter, Volume 7, Issue 3, March 2021

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