E & M SALES, INC., WAB No. 91-17 (WAB Oct. 4, 1991)
CCASE:
E & M SALES, INC.
DDATE:
19911004
TTEXT:
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[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
E & M SALES, INC. WAB Case No. 91-17
With Respect to Application of
Wage Determination No. CO88-2
to Corps of Engineers Contract
No. DACA45-88-C-0126, U.S. Army
Hospital, Fort Carson, Colorado
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Patrick J. O'Brien, Member
APPEARANCES: Robert E. Miller, Esq., for the Petitioner;
Douglas J. Davidson, Esq., and Arthur
Bolstein, Esq., Office of the Solicitor, U.S.
Department of Labor, for the Wage and Hour
Division; and Terry R. Yellig, Esq., for the
Building and Construction Trades Division,
AFL-CIO
DATED: October 4, 1991
DECISION OF THE WAGE APPEALS BOARD
This matter concerns both the sometimes problematic world of
government construction contracting as well as the need for
complete administrative recordkeeping. It is before the Board on
the petition of E & M Sales, Inc. ("E & M") for review of a ruling
of the Wage and Hour Division of September 25, 1990, wherein the
Acting Administrator denied the addition of a "technician"
classification to the above-captioned contract. An oral argument
was held on [1]
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[2] September 13, 1991. For the reasons contained
herein, this matter is remanded to the Wage and Hour Division for
further proceedings consistent with this opinion.
I. BACKGROUND
On or about September 7, 1988, E & M was awarded a contract
from the Army Corps of Engineers for the installation of a fire
alarm system at the Army Hospital at Fort Carson, Colorado. The
date of this contract, which is central to the resolution of this
matter, is apparently uncontested by both E & M and Wage and Hour
(Statement on Behalf of the Administrator, p.1; Statement on Behalf
of E & M Sales, Inc., p.2). The contract was allegedly "cost-
plus;" i.e., E & M's profit would increase in absolute terms
depending on the cost of the labor and materials employed.
Accordingly, E & M had a positive incentive to pay its employees at
the highest rate permissible.
A brief historical digression is in order. In 1983, another
contractor attempted to install a fire alarm system in the same
hospital. That contractor asked for and received a classification
for "low voltage wiremen" for the project, who were to be paid at
a rate of $7.75 per hour. When, in 1986, the hospital was
completed and the first contractor was still working on the alarm
installation, it became apparent that the system would not function
properly. E & M, as the authorized factory representative, was
asked to evaluate the problem.
The following year, E & M contracted to repair a portion of
the system. The negotiations were allegedly conducted by telephone
and fax machine and E & M claims it notified the Army that it would
pay its technicians $11.95 per hour. The initial contract, which
was later expanded and extended, was apparently executed on
September 7, 1991. E & M allegedly received a notice to proceed
with the work on September 26, 1988, with the understanding that
all deliberate speed was necessary (a claim of no small
credibility, given the presence of a nonfunctioning fire alarm
system in a fully operational hospital).
On September 28, 1988, during a pre-job meeting, E & M first
saw the area wage determination. It called for a rate of $15.70
per hour for electricians. E & M claims it would have gladly paid
the higher rate, as the payment would have increased its overall
profit. The Army declined the offer, and had E & M submit a
request for an additional classification on October 3, 1988. The
initial request was approved by a DOL officer shortly thereafter;
but that approval was reversed in July of 1989. E & M appealed
this reversal through the Army on July 13, 1989; however, the Army
did not forward that appeal to the Department of Labor until
November 22, 1989 (Record, Tab B). [2]
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[3] The Department of Labor denied E & M's appeal and notified
the Army of that fact on September 25, 1991. The Army did not
notify E & M of the denial until six more months had elapsed, on
March 23, 1991. In the meantime, and throughout the entire period
under consideration, the Army negotiated changes and modifications
which raised the total contract value from some $28,000 to
approximately ten times that original amount. The record in this
matter, such as it is, suggests that the Army knew or should have
known the appropriate wage rate all along; the record further
suggests that the Army deceived E & M to control the overall
contract costs (although the Army is not a party to this
proceeding, and thus had no opportunity to present its view of the
facts).
On appeal, E & M argues that it has a legal and equitable
right to rely on the original wage conformance issued to the first
contractor. Counsel for the Administrator argues that E & M's
request for an additional classification was properly denied.
II. DISCUSSION
E & M argues that it has a legal and equitable right to rely
on the wage conformance issued to its predecessor system installer.
Its "legal" argument stems from the fact that the work in question
was identical even though there were different contracts involved
in the project. Therefore, claims E & M, it has a right under the
Portal-to-Portal Act to the rate obtained by the first contractor.
E & M does not claim any privity between it and the first
installer.
The Portal-to-Portal Act, 29 U.S.C. 255, generally creates a
"safe harbor" to any contractor acting in good faith reliance on
certain types of agen[c]y statements. In this case the relevant
statement in question is the wage rate granted to the first
contractor, a type of ruling specific to a given undertaking (as
opposed to regulations, enforcement policies, or other statements
of general applicability).
Were the Board to accept this position, Davis-Bacon
administration could be compromised out of existence. If, for
example, an incorrect wage determination was issued on a highway
construction project, any highway builder in that geographic area
could rely on it merely because of the similarity of the work in
question. Over time, an initial error would be compounded to the
point where collective bargaining agreements or other area wage
practices would have little relevance to Davis-Bacon construction
projects. The Board sees no point in continuing error, regardless
of how time-honored the precedent. [3]
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[4] Accordingly, the Board holds, for purposes of the legal
argument arising under the Portal-to-Portal Act, that E & M may not
rely on a wage determination granted to another party regardless of
the similarity of the work in question.
E & M's equitable argument is based on the ruling in Eurostyle
Construction ("Eldon Flett"), WAB Case Nos. 88-18 and 88-19 (Mar.
22, 1991), where, pursuant to 29 C.F.R. 7.1(c), the Board
recognized the possibility of an equitable defense analogous to the
Portal-to-Portal Act safe harbor depending upon the posture of the
parties, the conduct of the government, the public interests
embodied in the Davis-Bacon and Related Acts, and other pertinent
factors. In essence, E & M argues that the employees in question
were not injured because they received their usual wages -- an
amount far greater than the wages received by the employees of the
predecessor contractor. Furthermore, argues E & M, it was not
unjustly enriched as a result of the wages paid; indeed, it would
have preferred the higher rate and is being injured by virtue of
the conduct of the contracting agency.
While E & M's argument has some appeal, it misses an important
point. Under the Davis-Bacon Act, E & M's employees were entitled
to the wage rate contained in the wage determination -- not the
lesser amount E & M actually paid. The employees were deprived of
their rightful wages just as E & M would be deprived of its
rightful profit if the Administrator's position were upheld. The
Board therefore declines to apply an equitable defense under the
present circumstances.
It appears to the Board that the only party being unjustly
enriched is the Army: it knew or should have known that E & M's
employees were entitled to greater compensation. The Army's
failure to act appropriately not only deprived the workers of their
wages and E & M of its profit, but also reduced its costs. There
may, however, be a vehicle for rectifying the situation. 29 C.F.R.
1.6(f) provides, in pertinent part, that
The Administrator may issue a wage
determination after contract award or after
the beginning of construction if the
[contracting] agency has failed to incorporate
a wage determination in a contract .... [T]he
[contracting] agency shall ... incorporate the
valid wage determination retroactive to the
beginning of construction through supplemental
agreement or through change order, Provided
That the contractor is compensated for any
increases in wages resulting from such change. [4]
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[5] The utilization of this provision would compensate the
workers at the appropriate rate, preserve and enhance the contract
proceeds payable to E & M, and prevent unjust enrichment of the
Corps of Engineers. There is, however, a problem. The record in
this matter does not contain the September 7 contract referred to
by counsel for Wage and Hour, nor any of the subsequent supplements
or changes.
Accordingly, this matter is remanded with the following
instructions: if there was a September 7 contract, it shall be
modified pursuant to the above language of 29 C.F.R. 1.6(f) and the
proceeds withheld from E & M shall be released. Both of these
events shall occur within thirty days, and the Board shall be so
informed by written statement. If there was not a September 7
contract, the record in this matter shall be sent back to the Board
with any relevant supplemental information (including copies of any
contract modifications, supplemental agreements, and/or change
orders) -- also within thirty days. In either case, the Wage and
Hour Division shall inform the Board of how it constitutes the
official record in these cases; and whether the parties have the
opportunity to review, supplement, or object to the contents of the
official record. This statement shall accompany the other
information.
III. CONCLUSION
For the above-stated reasons, this matter is remanded for
further proceedings consistent with this opinion.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Patrick J. O'Brien, Member
_____________________________
Gerald F. Krizan, Esq.
Executive Secretary [5]
