U.S. Department of Labor Employment Standards Administration Wage and Hour Division Washington, D.C. 20210 JUN 22 1994 MEMORANDUM NO. 176 TO: All Government Contracting Agencies of the Federal Government and the District of Columbia FROM: MARIA ECKAVESTE Administrator SUBJECT: Application of the Davis-Bacon Act to Buildings and Works Constructed and/or Altered for Lease by the Federal Government BACKGROUND The Davis-Bacon Act (DBA) applies to Federal and District of Columbia contracts in excess of $2,000 for the construction, alteration, and/or repair, including painting and decorating, of a public building or a public work. The terms "public building" and "public work" are defined in 29 CFR 5.2(k) to include every building or work, the construction, prosecution, completion, or repair of which is carried on directly by authority of or with funds of a Federal agency to serve the interest of the general public regardless of whether title thereof is in a Federal agency. For several years, the application of DBA to lease construction contracts has been the subject of litigation and some uncer- tainty. On August 23, 1985, the Department of Labor's (DOL) Wage Appeals Board (WAB) determined that privately financed housing constructed off-base at-Fort Drum, New York, for lease to the Government for 20 years constituted a contract for construction of public buildings subject to DBA. On June 26, 1987, the WAB determined that a Veterans Administration contract for an out- patient clinic built in Crown Point, Indiana, constructed with private funds on private land for lease to the Government for 15 years with a five year option was also subject to DBA. In response to appeals filed by the Veterans Administration and the General Services Administration in the Crown Point clinic case, the Office of Legal Counsel (OLC), Department of Justice, issued an opinion on June 6, 1988 that leases are not "contracts for construction" within the meaning of DBA. -2- On October 28, 1988, the United States District Court for the District of Columbia ruled, in response to a suit filed by the Building and Construction Trades Department, AFL-CIO, in the Crown Point case, that "the WAB has interpreted the Davis-Bacon Act permissibly" in concluding that-DBA was meant to apply to contracts in which construction is more than an incidental element, and therefore, that leases can be "contracts for construction" within the meaning of of DBA. The OLC subsequently advised, however, that "the court's decision is incorrect as a matter of law for the reasons stated in our opinion of June 6, 1988 resolving a dispute between the Department of Labor and the Veterans Administration . . ." and that "the coverage of the Act does not extend to leases." The OLC concluded by requesting that DOL "in future cases adhere to the legal conclusion reached in the June 6 Office of Legal Counsel opinion." contracting agencies have, since that time, relied on the OLC opinion as the basis for not incorporating the requirements of DBA in similar lease/construction contracts. OLC's RETRACTION OF PRIOR OPINION LETTER The DOL and other interested parties requested OLC to reconsider its opinion in this matter. On May 23, 1994, in response to those requests, the Assistant Attorney General for OLC issued a memorandum, copy attached, to DOL and the Department of Veterans Affairs, concluding "that the 1988 Opinion erred in concluding that the plain language of the Davis-Bacon Act bars its applica- tion to any lease contract, whether or not the lease contract also calls for construction of a public work or public building. We believe that the applicability of the Davis-Bacon Act to any specific lease contract can be determined only by considering the facts of the particular contract." As further noted by OLC, factors to be considered in determining whether a lease/construction contract calls for construction of a public building or public work may include "length of the lease, the extent of government involvement in the construction project [such as whether the building is being built to Government requirements and whether the Government has the right to inspect the progress of the work], the extent to which the construction will be used for private rather than public purposes, the extent to which the costs of construction will be fully paid for by the lease payments, and whether the contract is written as a lease solely to evade the requirements of the Davis-Bacon Act. . ." -3- (In this regard, see also Building and Construction Trades Department, AFL-CIO v. Thomas K. Turnage, C. A. No. 87-2827 U.S.D.C. D.C.), October 28, 1988; Military Housing, Ft. Drum, New York, WAB Case No. 85-16, August 23, 1985; and Outpatient Clinic, Crown Point, Indiana, WAB Case No. 86-33, June 26, 1987, copies attached.) Accordingly, any lease calling for the construction, alteration, and/or repair of a public building or public work must be analyzed under the above criteria to determine if it is necessary to include the requirements of DBA. If there are any questions concerning the applicability of DBA coverage in a lease/construc- tion situation, please contact the Division of Contract Standards Operations at 202-219-7541. CONTRACTING AGENCY RESPONSIBILITIES Lease/construction contracts for which bids were opened or negotiations concluded on or after the date of this all agency memorandum, including any procurement actions resolicited or postponed so that bid opening occurs on or after the date of this all agency memorandum, must incorporate the DBA provisions and applicable wage determinations under governing procurement laws and regulations. Attachments GRAPHIC – “MEMORANDUM FOR THOMAS S. WILLIAMSON, JR.”