The idea of a prevailing wage is not the problem; the problem is 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 for a minimum of 45 days, usually longer, after the billing to the general contractor. Let's say that invoices for work performed are expected once a week. The subcontractor waits and compiles work hours all week and submits an invoice that same Friday. He has 10 employees, all earning $1,000 for the week, totaling $10,000 in payroll. There are six weeks of this before the subcontractor receives payment for the first week — if all the paperwork is submitted without mistakes. In this example, the subcontractor must be able to pay out $60,000 in labor expenses before he or she receives even $10,000 of what was earned by the company.
I have seen it take as long as 90 days for an invoice to be paid by a general contractor. The delay in payment is usually couched in business terms, but it is an excuse, nonetheless, to withhold payment for work performed. No wonder some are against it.
In addition to a wage, prevailing wage rules dictate paying benefits, which can run an additional $7 to $10 an 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 it 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 at a congressional hearing. He said, "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."
Both the federal General Accounting Office and a research team at Oregon State University found that the Davis-Bacon Act worked to the disadvantage of local contractors. According to the General Accounting Office, the 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. The research found that non-local contractors worked on the majority of these projects, indicating that the higher rates may have discouraged local contractors from bidding.
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 opposed to having it implemented on all Portland Development Commission projects.
It would seem the evidence about how the current law is written does not favor small, local contractors.
Cody Gray is assistant director of Portland State University's Business Outreach Program in the School of Business Administration. He can be reached at 503-280-0884 or by visiting the Web site: www.bop.sba.pdx.edu
