Review To Determine Whether the Davis-Bacon Act Has an Inflationary Impact and Increases Costs on METRO Construction

Preliminary findings are presented of a review of the effect of the use of wage rates issued by the Department of Labor under the Davis-Bacon Act on the construction of the Washington Regional Rapid Rail Transit System (METRO). GAO conducted a wage rate survey in Montgomery County, Maryland, but did not survey areas of northern Virginia because Labor was conducting a wage survey there at the time. The Act requires that minimum wage rates, to be paid to employees on construction contracts of over $2,000, be stated for the various classes of laborers and mechanics. The minimum wage rates must be based on wages determined by the Secretary of Labor to be prevailing for the corresponding classes of laborers and mechanics employed on projects similar to the contract work in the locality in which the contract work is to be performed.

Most of the wage rates prevailing on private construction in Montgomery County for the 13 crafts surveyed are substantially lower than those required by Labor. Overall, the higher wage rates established by Labor resulted in significantly higher wage costs for the METRO construction contracts. These costs averaged 33.9 percent higher. Setting prevailing wages for METRO construction, as required by the Davis-Bacon Act, may increase the construction cost by about 6.8 percent, or about $149 million. GAO recognized that the wage rate difference found in Montgomery County may not be the same for all types of labor in all jursdictions where METRO is being constructed, and that the proportion of labor provided by a particular craft classification may vary. However, it believes that the wage rates within the different Washington metropolitan area transit zones should be reasonably close to those in Montgomery County, and that its cost estimates are a useful indicator of the potential magnitude of the increased construction costs resulting from the Davis-Bacon wage determinations.