IOWA DEPARTMENT OF TRANSPORTATION, WAB No. 94-11 (WAB Oct. 7, 1994)
CCASE:
IOWA DEPARTMENT OF TRANSPORTATION
DDATE:
19941007
TTEXT:
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[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D.C.
In the Matter of:
IOWA DEPARTMENT WAB CASE NO. 94-11
OF TRANSPORTATION
With respect to the applicability of an
updated Davis-Bacon wage determination to
construction of the new Burlington Bridge (U.S.34)
over the Mississippi River at Burlington, Iowa
BEFORE: David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
DATED: October 7, 1994
DECISION OF THE WAGE APPEALS BOARD
This matter is before the Wage Appeals Board pursuant to 29
C.F.R. [sec] 7.9 on the petition of the Iowa Department of
Transportation ("IDOT") seeking review of a May 5, 1994 ruling
issued by the Deputy Assistant Administrator, Wage and Hour
Division, of the Department of Labor ("Administrator"), relating
to an extra work order on a construction contract for a new
bridge over the Mississippi River at Burlington, Iowa. In that
ruling the Administrator determined that the work order issued by
IDOT requiring the performance of additional demolition work on
the old bridge constituted "a separate contract for Davis-Bacon
purposes." See Record, Tab A-1. IDOT was therefore, ordered to
incorporate a current Davis- Bacon wage determination to apply to
the demolition work performed pursuant to that extra work order.
The Federal Highway Administration ("FHWA") intervened on behalf
of IDOT and the National Joint Heavy and Highway Construction
Committee intervened in support of the Administrator's decision.
For the reasons stated below the ruling of the Administrator is
affirmed.[1]
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[2] I. BACKGROUND
On June 29, 1990, IDOT awarded two contracts to Edward
Kraemer & Sons, Inc. ("Kraemer") in connection with the
construction of a new bridge over the Mississippi river at
Burlington, Iowa. One contract was for the construction of the
new bridge ("construction contract"). The second contract, BRF
34-9-(60)-38-29 ("approach contract"), required the removal of
approximately 1151 linear feet of the Iowa approach structure to
the old MacArthur Bridge, including demolition of the approach
ramp structure and removal of part of the through truss section.
The plans for the approach contract required removal of two piers
and construction of a temporary pier to support the remaining
truss section. The total costs of these two contracts was
$30,561,000.
The original project plans provided for the award of a third
contract to remove the remaining portion of the old bridge
("demolition contract"). Bid opening date for this contract was
scheduled for May 3, 1994 and the estimated cost of this final
contract was $1,095,000. Based upon environmental concerns and
because of possible substructure damage resulting from the 1993
floods IDOT elected to have Kraemer remove an additional 915 feet
of the truss superstructure as an additional work order under the
approach contract, as opposed to performing that work under the
demolition contract as originally planned. On October 6, 1993
IDOT issued the work order requiring Kraemer "to remove the
existing truss superstructure above the piers from the limit of
removal specified in the original contract to Pier 5 of the
MacArthur Bridge." Kraemer was to be compensated an additional
$636,000 pursuant to the new work order.
The Administrator found that the new work order
substantially modified the original approach contract and ordered
that an updated wage determination be applied. The Administrator
stated that "when a contract for construction is substantially
modified or amended in such a manner that the changed contract
becomes a new contract for application of the labor standards
statutes then an updated wage determination must be applied to
the additional construction activity." The Administrator based
this finding on the significant monetary value of the $636,000
extra work order, the actual amount of physical construction work
required, the fact that the work was originally to be performed
under the demolition contract and that the new work order was
issued over three years after the award of the original approach
contract.
II. DISCUSSION
The Davis-Bacon and Related Acts ("DBRA") were adopted to
protect the laborers and mechanics employed on federally-funded
and assisted contracts. Prevailing wages must be paid to
laborers and mechanics on such construction [2]]
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[3] projects. Universities Research Assn., Inc. v. Coutu, 450 U.S. 754
(1981). The very concept of a prevailing wage necessarily encompasses a
current wage. A wage simply cannot be prevailing if it is outdated.
See Modernization of the John F. Kennedy Federal Building, WAB Case No.
94-09 (Aug. 19, 1994). The only legitimate reason for not including the
most recently issued wage determination in a contract is based upon
disruption of the procurement process. See 47 Fed. Reg. 23646 (May 28,
1982).
In this case the original approach contract incorporated the
most recent wage determination available at the time it was
awarded on June 29, 1990. The extra work order was issued on
October 6, 1993, after an updated wage determination had been
published. IDOT argued in its Statement in Support of Petition
for Review that 29 C.F.R. 1.6 contains two exceptions to the
general rule that a wage determination remains effective
throughout the life of a contract, neither of which was
applicable to the extra work order issued in this case.
Therefore, IDOT reasoned, the wage determination issued in
conjunction with the original contract must remain valid for
work performed pursuant to the extra work order.
IDOT's argument must fail for a number of reasons. First,
because it violates DBRA policy by incorporating an outdated wage
determination. Secondly, because it violates that policy in a
situation in which adherence to the policy will not disrupt the
procurement process. And finally, because the Administrator's
reasonable interpretation of the DBRA implementing regulations is
that a previously awarded contract that has been "substantially"
modified must be treated as a "new" contract in which the most
recently issued wage determination is applied. See the ruling
letters attached by the Administrator to the Statement in
Opposition to Petition for Review.
The Secretary's regulations state that a new or modified
wage determination published after contract award, or after the
start of construction where there is no contract award, shall not
be effective. 29 C.F.R. 1.6(c)(3)(vi). The ruling letters cited
by the Administrator clearly show that this regulation has been
interpreted not to include situations in which the original
contract has been "substantially" changed. Extra work orders
which "substantially" change the original contract are considered
"new" contracts for DBRA purposes. The Administrator's
interpretation of the regulation is entirely reasonable given
that the substantially changed portion of the contract is not in
any respect "awarded" until the issuance of the extra work
order.<1> The Administrator's interpretation is supported in
analogous situations by All Agency Memorandum ("AAM") No. 157 and
the decisions of the Comptroller General.[3]
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[4] AAM No. 157 specifically clarifies the application of
Davis-Bacon wage determinations to contracts that contain option
clauses. Therefore, AAM No. 157 is not right on point, but does
contain language which supports the Administrator's policy of
applying new wage determinations to "substantial" extra work
orders. The relevant portion of AAM No. 157 states that "a
provision to extend an existing contract -- pursuant to an option
clause or otherwise -- so that the construction is performed over
an extended period of time (as opposed to situations where a
contractor is given additional time to complete its original
contract commitment), must include a current Davis-Bacon wage
determination." The modified contract is considered a "new"
contract pursuant to AAM No. 157 because it "requires a
contractor to perform work for a period of time for which it
would not have been obligated -- and for which the government
would not have been required to pay -- under the terms of the
original contract."
Both IDOT and FHWA argued pursuant to AAM No. 157 that the
extra work order in this case did not extend the length of the
original contract. At oral argument counsel for IDOT admitted
that the original contract did not contain a set completion date.
Therefore, the argument that the length of the contract was not
extended due to the extra work order is irrelevant and
disingenuous. The contractor did not get an additional $636,000
for nothing. That amount of money pays for a substantial amount
of physical construction work for which the contractor would
otherwise have not been obligated.<2> Whatever the anticipated
length of time was for completion of the approach and
construction contracts, that time period must have been extended,
or considerable overtime undertaken, in order for the extra work
to be completed.
In an analogous situation under federal procurement policy
the Comptroller General has held that "an existing contract may
not be expanded so as to include additional work of any
considerable magnitude, unless it clearly appears that the
additional work was not contemplated at the time the original
contract was entered and is such an inseparable part of the
original work that it is reasonably impossible of performance by
any other contractor." 5 Comp. Gen. 508 (1926). The work
required under the extra work order in this case was originally
to be performed under the demolition contract. Thus, the work in
question was clearly contemplated at the time of the original
contract. The fact that the demolition contract had to be
awarded to the lowest bidder, whether or not that happened to be
Kraemer, shows that the work could have been performed by another
contractor.[4]
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[5] Counsel for IDOT conceded at oral argument that a
"substantially" changed contract should include an updated wage
determination. He went on to argue that the $636,000 cost of the
extra work order in this case is not "substantial" when compared
to the more than 30.5 million dollar cost of the combined
approach and construction contracts. The approach and
construction contracts were referred to as "tied contracts." The
record is unclear as to what extent these two contracts were
"tied" together. However, the extra work order only applies to
the approach contract and makes no reference to the construction
contract. We find that the only appropriate comparison is to the
actual contract being modified.
The record does not reflect an exact breakdown of the cost
of the approach contract. However, common sense dictates and
counsel for IDOT confirmed at oral argument, that the vast
majority of the more than 30.5 million dollar figure is for
performance pursuant to the construction contract. Therefore,
we find that regardless of how you define "substantial" in this
case, i.e. as a determination made by comparing the cost of the
change to the cost of the original contract, or by examining the
$636,000 on its own, the extra work order in this situation was
so "substantial" as to be considered a new contract for
Davis-Bacon wage determination purposes.
A review of the actual work order itself also provides ample
evidence of the substantial nature of the work to be performed.
In the upper right hand corner of the IDOT form for a "change or
extra work order" is a space to be marked to indicate whether the
work order is "Non-Substantial" or "Substantial." The work order
is marked Substantial. IDOT argued at oral argument that the
exact nature of what is meant by this portion of the form is
unclear from the record and this is no doubt true. However, if
IDOT is going to come before this Board and submit one of its own
pre-printed forms as evidence, without elaborating on a key
portion of the form, we have no hesitation whatsoever in reading
that unexplained portion of the form against IDOT. Alone and
without explanation the notation that the work order was
considered "substantial," for whatever reason, by the person
filling out the form is certainly not dispositive, but just as
certainly it is relevant and probative.
Another reason the IDOT form is helpful in determining the
substantial versus non- substantial nature of the extra work
order is based upon the regulations of FHWA. 23 C.F.R. 635.120
mandates that "Following authorization to proceed with a project,
all major changes in the plans and contract provisions and all
major extra work shall have formal approval by the Division
Administrator in advance of their effective dates." The extra
work order in question was deemed to be a major change in the
original contract by FHWA which required approval of the Division
Administrator, Daniel Fuchs. "Major change or major extra work"
is defined by 23 C.F.R. [sec] 635.101 as [5]
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[6] meaning "a change which will significantly affect the cost of the
project to the Federal Government or alter the termini, character or
scope of the work."
Since IDOT considered the extra work to be, as indicated on
its form anyway, "substantial" and FHWA considered it to be
"major" we do not see how the Administrator could have erred in
determining the extra work order to be substantial.
The Administrator's decision notes the age of the original
contract in determining whether or not the extra work order is
considered a new contract. IDOT states that the age of the
original contract is "completely irrelevant." The Administrator
did not attempt to determine the substantial versus
non-substantial nature of the extra work order based upon this
information. A review of the length of time between the award of
the original contract and the date of the extra work order is
appropriate in the sense that the older the original contract is
the more circumspect the extra work order becomes. Therefore,
the Administrator's reference to the length of time between the
original contract and the extra work order was appropriate.
III. CONCLUSION
Reversal of the Administrator's decision in this case would
create a gaping loophole in the enforcement of the DBRA
prevailing wage laws. Contracting agencies could enter into
contracts which would, for example, name a contractor to perform
all highway repair in the state of Iowa for the next five, ten,
or more years with each new job being authorized as an extra work
order under a wage determination locked in at the time of the
original contract award. The policy and purpose of the
Davis-Bacon prevailing wage law would be lost in a flood of extra
work orders. As long as workers on federally funded and assisted
construction contracts are required to be paid prevailing wages
this cannot be allowed to happen. A contract that has been
"substantially" modified must be treated as a "new" contract in
which the most recently issued wage determination is applied.
The decision of the Administrator is affirmed.
BY ORDER OF THE BOARD:
David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
Gerald F. Krizan, Esq.
Executive Secretary[6]
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<UL>FOOTNOTES</UL>
<1> For a discussion of what it means to "award" a contract See
Modernization of the John F. Kennedy
Federal Building, supra.
<2> The Administrator made a specific factual finding, which was not
disputed by IDOT, that a significant amount of physical construction
work was required under the extra work order. See p.2 of the
Administrator's May 5, 1994 ruling.
