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3 min read

DBA Applicability in CHELCO Privatization Contract Challenged, Upheld

A construction worker looking at a job site with equipment and machines.

In a recent case, a dispute arose between Choctawhatchee Electric Cooperative, Inc. (CHELCO) and the Administrator of the Wage and Hour Division over the Davis-Bacon Act's (DBA) applicability to a contract for the privatization of the electrical system at Eglin Air Force Base (Eglin AFB).

Initially, the Administrator ruled that the DBA's prevailing wage and labor standards should be applied to the construction aspect of the contract. In response, CHELCO petitioned the Administrative Review Board (ARB) to review the Administrator's final ruling. Upon review, the ARB affirmed the Administrator's decision, maintaining that the DBA's prevailing wage and labor standards are indeed applicable to the contract.

Background: CHELCO's Dispute and Appeal to the ARB

To provide context, the Defense Logistics Agency (DLA) had issued a bid solicitation for the privatization of the electrical system at Eglin AFB comprising two parts: a bill of sale for the infrastructure and a utility services contract. The services contract was governed by the McNamara-O'Hara Service Contract Act (SCA), while the capital upgrades involving construction, alteration, or repair of buildings fell under the purview of the DBA.

After being awarded the contract, CHELCO argued against the applicability of the DBA. However, the Administrator ruled that the DBA did apply to the contract, leading CHELCO to appeal to the ARB. During the review process, the ARB does not generally reexamine factual matters unless there are extraordinary circumstances. Its role is to assess if the Administrator's rulings align with the DBA and its implementing regulations.

Determining DBA Applicability: Factors for Lease-Construction Contracts

The DBA was enacted to prevent federal construction projects from undermining local wages and benefits. For a contract to be covered under the DBA, it must exceed $2,000 and entail the construction, alteration, or repair of public buildings or public works. The DBA's implementing regulations offer definitions for key terms such as "contract," "building or work," and "public building or public work." Consequently, the privatization contract agreement between Eglin AFB and CHELCO qualifies as a "contract" for "construction" within the DBA's scope.

While it is more straightforward to determine DBA applicability when a federal agency contracts directly with a construction firm, complications arise when alternative financing or contractual methods are utilized. A 1994 opinion from the Office of Legal Counsel (OLC) outlines factors to consider when determining if a lease-construction contract falls under the purview of Davis-Bacon wages.

In a prior case, CityCenterDC, the ARB rejected an argument suggesting that the District of Columbia's contracts with a developer, rather than a construction contractor, did not constitute a "contract" for "construction." Although the district court initially set aside the ARB's decision, the United States Court of Appeals upheld it while reserving a final determination on the matter.

In response to the D.C. Circuit's opinion, the Department of Labor (DOL) issued AAM 222, stating that the Wage and Hour Division (WHD) would continue applying the DBA to military privatization projects involving construction. The ARB recognizes that the Administrator can issue legislative and interpretive rules and treats AAMs as interpretive rules. Consequently, the ARB considers AAM 222 a reasonable interpretation of the DBA's coverage position, drawing on the factors outlined in the 1994 OLC letter.

The ARB's Position on Public Funding and Government Ownership

Based on its assessment, the ARB affirms the Administrator's decision regarding CHELCO's privatization contract, stating that it involves significant and segregable construction that requires DBA wages and benefits. Additionally, the ARB concludes that the Eglin AFB Privatization Project qualifies as a "public work" within the DBA's definition.

In the discussion, the ARB also references the CityCenterDC case, in which it determined that a work could be considered a public work under the DBA's purview if it serves the public interest, regardless of whether the construction is publicly funded. However, the D.C. Circuit ruled that a "public work" must possess at least one of two characteristics: public funding for construction or government ownership or operation of the completed facility.

While CHELCO argues that both public funding and government ownership are required for a work to be classified as "public works," the ARB maintains that the Eglin AFB privatization contract involves substantial public funding for construction. The presence of government ownership is not a statutory requirement for a work to be considered a "public work." Consequently, the ARB affirms the Administrator's determination.

Conclusion: The ARB's Ruling

In conclusion, the ARB affirms the Administrator's ruling that the construction and improvements at Eglin AFB fall under the Davis-Bacon Act's prevailing wage and labor standards provisions. In support of this decision, the ARB highlights the 1998 National Defense Authorization Act, which permits the "conveyance" of utility infrastructure on military bases. 

Despite the ownership of buildings and equipment shifting to CHELCO, a private entity, under the privatization contract, the ARB agrees with the Administrator's argument that there are various indicators of federal government ownership intertwined in CHELCO's privatization of the Eglin AFB electrical utility. These indicators include control of access to the base, shared access to the base's infrastructure, and the possibility of the federal government regaining ownership of the infrastructure after the contract's expiration.