What the Expansion of the Davis-Bacon Act Would Mean for the Modular Construction Industry [podcast transcript]
What the Expansion of the Davis-Bacon Act Would Mean for the Modular Construction Industry
MBI executive director Tom Hardiman discusses the potential expansion of the Davis-Bacon Act—which would impose prevailing wages on offsite and modular manufacturers working on federal construction projects—and its many implications for the modular industry at-large.
Tom also describes what industry members can do to assist MBI's efforts in opposing this expansion.
Hello and welcome to Inside Modular: The Podcast of Commercial Modular Construction, brought to you by the Modular Building Institute.
With a compact footprint, variety of unit options and seamless system management, City Multi-Variable Refrigerant Flow Zoning Systems from Mitsubishi Electric Train HVAC US are a one-stop solution for modular projects. With efficient operation and the ability to connect to commercial ventilation equipment, third-party systems, and comprehensive control solutions, City Multi-VRF can help you meet energy and performance goals on your next project.
From off-site development to on-site assembly, you can trust our manufacturer-level support to guide you from system selection to design to startup no matter the application.
To learn more about our offerings visit Mitsubishipro.com
Welcome everyone. My name is John McMullen. And I'm the Marketing Director here at MBI. Today I'm talking with MBI executive director Tom Hardiman. Tom is here to discuss a critical issue facing the modular construction industry, and what we can all do to protect our collective interests.
Tom, thanks for being here.
John, thanks for having me on today.
My pleasure. Before we start, we're just coming off World of Modular and I was wondering if you could give us a brief recap your recollections, your feelings of how that event went?
Oh, I think it was great. We had over 1000 attendees in San Antonio. And it's just so good to be back in person and reconnect with everyone. The energy was real high, you could just kind of sense a buzz in the air and excitement about our industry. So I was thrilled with how it went.
Excellent. Excellent. I brought up World of Modular for a reason, actually. On Thursday, we had our business meeting, and leads us into the topic of this podcast. Actually, at that business meeting, you made some very important comments about the expansion of the Davis-Bacon act. And so I was wondering if you could sort of give us some background on that.
What is the Davis-Bacon act in a nutshell?
Well, sure. You know, about a week before we went to the conference, we learned that there was going to be an expansion or proposed expansion to the Davis-Bacon act. And just real brief summary: The Davis-Bacon Act is a 90-year-old law. In 1931 Congress passed the Davis-Bacon Act. And the intent is to set what they call prevailing wages for various construction trades, laborers, electricians, plumbers, etc. For any federally funded work. So if you're bidding on this work, you have to pay these prescribed prevailing wages for your tradespeople.
So that's the law as it exists, and it's been that way for 90 years.
What effect has the Davis-Bacon Act historically had on offsite and modular construction and what's being proposed now?
Well, historically, it's very specific. the Davis-Bacon Act applies to construction on the site of work. That's always been the case. There have been numerous legal challenges that attempts to expand that definition to offsite fabrication, not just our industry, not as modular but everything from sheet metal, ductwork, fencing, all sorts of cases have been filed to prevent the expansion of Davis Bacon from applying off the side of work. The proposal that we're talking about, does just that it calls for prevailing wages to be applied back in our factories back in our modular factories, regardless of where those factories are located. So it creates numerous challenges, as you might imagine.
So what are the what are some of the specific impacts that the Davis-Bacon expansion would have on offsite and modular?
Well, specifically, we'll start with this: it is a construction labor law. The way it's written, the trade classifications are construction specific laborers, carpenters, electricians, painters, drywall, installers, tile installers, so forth. The attempt is to try to pick up those on-site trades and apply them to factory workers, modular factory workers. And it's ill-fitting because the work that happens in the factories--the tasks, the activities, the skill set, the risk profile--is different than what happens on-site. So it the trade classifications just don't fit the workers in the factory. And there doesn't seem to be an understanding by the Department of Labor, or they just don't care, that they don't fit and it would just create an administrative nightmare for the factories to try to force those prescribed rates on their workers when they're going sometimes in different projects, different tasks, if you will.
So that's, that's kind of the first obstacle: it doesn't fit our industry. Backing up a little bit more specifically, we don't think the Department of Labor has the authority to expand the Davis-Bacon law without congressional oversight. This was not a law that was passed, there was no hearings. This is just the agency saying, we read it. And we we interpret it a little differently than everyone else has for the past 20-30 years. So we're now going to apply this to offsite, modular prefabrication shops. were opposed to that we're fighting against the trend to fit the traditional construction rates back in the factory. And then there's some other challenges with it as well. But you know, we can we can touch on.
What is MBI doing? What response does the industry have?
I've been the director here for almost 20 years. And I think and I believe this is the biggest threat to our industry growth in my all my time I've been here...or maybe the biggest threat to industry growth ever.
We are looking at this, this is our line in the sand. This is our fight, and we're going to take it to the US Department of Labor, really a three-pronged approach is what we're looking at. There's an immediate response, there's a midterm, and then there's probably going to be a long term action required. In the immediate term, we need to submit public comments for this proposed rule, we have about a week left to do that. So that's happening, we, we hired a very powerful law firm in Washington, DC to help facilitate this. So we'll submit public comments, we don't think that's going to have a great deal of influence in changing the Department of Labor's mind. So we're prepared for the next steps, which includes getting some congressional reps involved, to help make our case force more of an advocacy campaign. And then ultimately, if this does pass and gets applied to our industry, we plan to challenge it in court.
So there, there's a regulatory response. There's a legislative advocacy piece, and then there's a judicial response that we're playing, we're going to utilize all three branches of government to fight this thing.
What is the Davis-Bacon Act and How Does it Affect Modular Construction?
Adopted in 1941, the Davis-Bacon Act was written long before the modular construction industry gained momentum. Now, the US Dept. of Labor is considering applying the law in ways that will seriously curtail the use of modular construction for federal and state projects.
What's your message to members who may be thinking, "Hey, I don't think this applies to me, I don't really do federal work." Is there any risk of this sort of trickling down to the state level?
Yeah, that is a huge concern. So the federal Davis-Bacon law...I realize not a lot of our members do federally-funded work, but it's more than you might think about. There are multifamily housing projects that are funded through HUD grants that are required to pay Davis Bacon rates, we haven't had to pay him in the past, we will have to pay them going forward. All of this new stimulus money that they're talking about spending, it's going to be wrapped up in Davis-Bacon rates, everything from installing solar panels, all the new spinning that's coming out of DC, it's going to trigger Davis-Bacon.
And even if that still doesn't concern you, there are 26 states that have what they call little Davis Bacon laws or state prevailing wage laws. And if the feds say, they've changed the rules on us and off site is now covered. You can bet California, New York, and Maryland and several other states are going to follow suit. And what that means now is this could impact state-funded projects. And education is our one of our biggest markets and our industry, housing, healthcare projects that are that utilize state funds.
So if you're doing anything for a federal- or state-funded agency, you're at risk. You're at risk of either saying "this is too complicated, I don't want to do it and I'm walking away" or trying to figure out how you're going to apply these construction rates back in your factory and it's a nightmare scenario, either way.
So what is MBI--and you touched on this a little bit ago--what is MBI going to be doing in the months to come and in the medium- to long-term?
Well, right away, we're going to encourage our members to submit comments. And again, that's that regulatory short term piece. So that's happening. We are currently reaching out to congressional reps. The challenge here is we have everyone does high inflation across everything costs more now than it did a year ago. We also continue to have affordable housing crisis. We have numerous developers affordable housing developers To utilize modular because it, it lets them get more housing inventory on the streets faster and more economically, this will take that tool away from them. So we not only plan to rally our industry, we want to talk to those housing authorities at state and local level to say, look, this is going to impact your ability to provide housing and your communities. And that is something that political leadership will be tuned into a crisis. Now, this is only going to make it worse.
So that intermediate term, we're going to do a lot of visits with congressional reps, get them writing letters to the administration and Department of Labor, find out who our allies are on this issue, we've got several trade groups that are opposing Davis Bacon expansion as well, several housing authorities. And then like I mentioned earlier, not a hollow threat, we will seek an injunction on this, if it if it gets to that we will hire legal representation and fight in court. And that's a long and messy and expensive battle.
But honestly, I think this has the potential to to hit our industry and reduce the size of our overall industry by as much as 20%. So that's a multibillion dollar risk that we're looking at. I think it's well worth it for us to fight this with everything we've got.
So what can members do to stay engaged as this goes forward?
Well, certainly, you know, hopefully, they're listening to this podcast, and they're, they're educated on the issue. The Davis-Bacon Act is a huge, cumbersome, multifaceted act. And it's, it's really hard to grasp all the aspects of it. So try to stay educated on what it is and how it impacts your business.
Look, if we send these emails out--and we will be updating alerts--take action. Please read those emails and follow up with us. Or if they're just have a question about it, they can email me at email@example.com, or our government affairs director, Jon Hannah-Spacagna, and just say, "I'm not sure how this impacts me, help me out." We'll be glad to have those calls.
We're going to be doing some town hall calls coming up in the near future with our members just to, again, get the word out and educate everyone that we have set up a regulatory relief fund, because we know, this is not only gonna be the biggest issue facing us, it's gonna be the most costly issue facing us. And we're gonna need some members stepping up and supporting us through voluntary contributions to that regulatory relief fund.
And sadly, this isn't going to be the only issue we have. And it would be great if we could just set aside all of our other state and provincial issues and only focus on this but that's not reality. You know, we're gonna have to keep fighting all those other issues on top of this, this massive expansion, so help support the funds. They educated, email us with any questions they have about about this and and share it with. If you're a contractor or developer, talk to your manufacturers about this and how it's going to impact them. We want to hear from them.
Well, I really appreciate your time today, Tom. I said at the top: this is a critical issue for the industry to understand the implications of so I really appreciate you taking the time to explain it.
Once again, I'd like to encourage our members to keep an eye on their email. Keep an eye on the Government Affairs section of MBI's website modular.org. For up to date news and developments. As Tom mentioned, we'll also have town halls that you can join. And if you're not a member, this is a great time to join so you can stay on top of this and all the other issues that MBI is tackling. Thanks again to Tom. I appreciate it.
Thank you, John, and stay tuned. It's a it's a big issue and it's one that MBI is prepared to fight.
My name is John McMullen. And this has been another episode of Inside Modular: the Podcast of Commercial Modular Construction. Until next time.