Dear Editor,
I read with interest your reporting on the prevailing wage issue and how it may affect minority owned firms negatively. While there is not enough space to discuss all issues, and specific issues about any pay differences between skilled and unskilled labor that is not addressed in the current "Prevailing Wage" rules, hopefully I can provide some additional clarity here from a "cash flow and expense" requirements perspective.
Prevailing wage is not the problem, the problem are the laws that govern prevailing wage pay, what constitutes taxable pay, and the time lag between paying workers and receiving pay from the general contractor.
Prevailing wage rates fluctuate depending on the work performed, but I will use $25 per hour as an example. Some work pays more, some less. If an employee works 40 hours per week, this totals $1,000 per week. If you have 10 employees, this is $10,000 per week.
Subcontractors get paid on invoices for work completed a minimum of 45 days, usually longer, after the billing to the general contractor. Let's say that invoices for work performed are excepted once per week. The subcontractors waits and compiles work hours all week and submits an invoice that same Friday. He has 10 employees, all earned $1,000 for the week, totaling $10,000 in payroll. There are 6 weeks of this before the subcontractor receives payment for the first week - if all the paperwork is without question. In this example, the subcontractor must be able to pay out $60,000 in labor expenses before they receive even $10,000 of what was earned by the company.
I said it usually takes longer than 45 days for invoice reimbursement for good reason, personal experience. I have seen it take as long as 90 days for an invoice to be paid by a general. The delay in payment is usually couched in business terms, but it is an excuse, nonetheless, to withhold payment for work performed. If it takes 90 days, then the subcontractor must pay out $120,000 before receiving their first invoice reimbursement. No wonder some are against it.
In addition to a wage, prevailing wage rules dictate paying benefits which can run an additional $7 - $10 per hour. If a firm does not have benefits that qualify for this section of the program, then this amount must be paid in cash to the worker and taxed as pay, and not benefits (there is no tax on benefits), increasing the payroll taxes of the company significantly. For a small company, this realistically eliminates them from a competitive bid and acts as an artificial barrier for small business to work in the prevailing wage arena.
Samuel Carradine, Executive Director of the National Association of Minority Contractors during the 103rd Congress testified: "Rather than protecting local contractors from unfair competition, Davis - Bacon has practically fostered a closed group of large contractors who follow federal construction work around the country to the exclusion of smaller, local contractors." - Library of Congress: http://thomas.loc.gov/cgi-bin/cpquery/?&sid=cp10405RrJ&refer=&r_n=sr080.104&db_id=104&item=&sel=TOC_15786&
Another quote from the Library of Congress: This anecdotal evidence confirmed the findings of both the GAO and a research team at Oregon State University, both of whom found that Davis-Bacon worked to the disadvantage of local contractors. According to the GAO: [t]he increased costs [due to Davis-Bacon] may have had the most adverse effect on local contractors and their workers--those the act was to protect--by promoting the use of non-local contractors on Federal projects. We found that non-local contractors worked on the majority of these projects, indicating that the higher rates may have discouraged local contractors from bidding. - Library of Congress: http://thomas.loc.gov/cgi-bin/cpquery/?&sid=cp10405RrJ&refer=&r_n=sr080.104&db_id=104&item=&sel=TOC_15786&
According to 2004 academic research data the median net worth of a White owned business at start up was $67,000 and the median net worth of a Black owned business at start up was $6,166. This fact negatively affects the ability of Black owned businesses to gain financing needed to compete.
One can see how difficult it is, on average, for a minority firm to deal with the financial requirements of prevailing wage and why some are against it to be implemented on all PDC projects. It would seem the evidence about how the current law is written does not favor small, local contractors.
Cody Gray
Assistant Director
Business Outreach Program
School of Business Administration
Portland State University
4134 N Vancouver Ave. suite 309
Portland, OR 97217
Web: www.bop.sba.pdx.edu
