U.S. v. New Age Dev. Grp.: Davis-Bacon Wage Issues Within Arbitrator Authority

Background

JRW Service Group, LLC (JRW) worked as a subcontractor for New Age Development Group, LLC (New Age) on a Department of Veterans Affairs (VA) construction project that fell under the Davis-Bacon Act (DBA). The DBA requires contractors on federally funded projects to pay workers prevailing wages as determined by the Department of Labor (DOL). Disputes arose between JRW and New Age regarding payment for work performed, progress payments, and compliance with wage requirements. JRW stopped work in 2017, and both parties later asserted claims for breach of contract.

Arbitration Proceedings

Under the subcontract, disputes were subject to arbitration. An arbitrator awarded JRW $91,463.57 for completed work and equipment but also granted New Age $392,940.06 for expenses incurred to complete JRW’s work, overhead, and JRW’s failure to pay prevailing wages required under the subcontract. After offsetting the awards, New Age received a net judgment of $301,476.49.

JRW sought to vacate the arbitration award in the U.S. District Court for the Eastern District of Pennsylvania, arguing that the arbitrator exceeded his authority by granting damages related to DBA compliance. He also argued that he awarded relief inconsistent with Pennsylvania law.The district court rejected JRW’s arguments, holding that the arbitrator acted within his authority and that JRW’s objections reflected disagreement with the outcome rather than legal error. The court confirmed the arbitration award.

Appellate Review

JRW appealed to the United States Court of Appeals for the Third Circuit, asserting three primary arguments: (1) the arbitrator exceeded his authority by awarding damages tied to the Davis-Bacon Act, which it claimed was under review by the DOL; (2) the arbitrator disregarded applicable state law by awarding New Age damages despite its alleged breach of contract; and (3) the district court improperly limited its review of the arbitration award.

The Third Circuit began by affirming that judicial review of arbitration awards is narrowly constrained under the Federal Arbitration Act. A court may vacate an award only when the arbitrator exceeds his powers, decides an issue not submitted for resolution, or issues an award that cannot be rationally derived from the parties’ agreement.

Legal Analysis

The court found that the arbitrator did not exceed his authority in awarding damages related to prevailing wages. Although the Davis-Bacon Act itself does not create a private right of action, the subcontract required compliance with prevailing wage requirements as a contractual term. Because JRW failed to pay the wages required by the subcontract, the arbitrator properly awarded damages to New Age on that basis. The court noted that JRW’s argument concerning the DOL’s concurrent investigation was immaterial, as the arbitrator’s decision rested on the contractual obligations between the parties, not on a statutory cause of action under the DBA.

The appellate court also rejected JRW’s claim that New Age’s failure to make progress payments constituted a material breach that barred recovery. The court explained that Pennsylvania law treats material breach as a fact-intensive inquiry, and the arbitrator reasonably concluded that New Age’s conduct did not excuse JRW’s nonperformance. The court emphasized that it could not reweigh the evidence or substitute its judgment for the arbitrator’s findings.

Finally, the Third Circuit held that JRW’s challenges to the computation of damages were outside the limited scope of review. The court reiterated that awards may be modified only to correct mathematical or clerical errors or if they are completely irrational. Because the damages were supported by the record and fell within the arbitrator’s authority, the court affirmed the district court’s confirmation of the award.

Court’s Ruling

On January 24, 2023, the Third Circuit affirmed the district court’s decision. It held that the arbitrator acted within his authority in awarding damages related to contractual obligations under the Davis-Bacon Act, that New Age’s conduct did not preclude recovery, and that the award was rational and final. The ruling reinforced the principle that prevailing wage obligations incorporated into federal subcontracts can be enforced through arbitration when contract terms require such compliance.

Assistance with Davis-Bacon Act Matters

If your business faces challenges involving prevailing wage compliance, subcontract disputes, or federal project payment issues, Whitcomb, Selinsky PC assists with Davis-Bacon Act matters. Contact our team to learn how we can help you resolve disputes and ensure compliance with federal contracting requirements.