Wednesday, August 22, 2012

When Do Residential Prevailing Wage Rates Apply?

While all public works projects must require contractors to pay prevailing wages based on a worker's classification or trade, public agencies must also appropriately classify the project as subject to either "residential" or "commercial" prevailing wages.  
Definition of residential construction:  Rates for residential construction are generally lower than those for commercial construction, and projects must meet the specific criteria of WAC 296-127-010 (9) to qualify for using residential wage rates:
  • Type of Work: The definition of residential construction establishes that the work must be "construction, alteration, repair, improvement, or maintenance."
  • Type of Building: The definition of residential construction establishes that the work must be performed on "single family dwelllings, duplexes, apartments, condominiums, and other residential structures."
  • Height of Building: The residential structure must "not exceed four stories in height, including basement." An apartment building with four stories of structure above grade and with a basement would not meet the definition for residential construction.
  • Purpose of Building: The residential structures must be "used solely as permanent residences." Thus, a weekly or monthly apartment or hotel type arrangement would not qualify for residential construction prevailing wage rates. Neither would a single family home that was used on a rotating basis by different individuals to be housed in a location based on business needs.
Recent L&I determination on mixed-use project:  The Washington Department of Labor and Industries (L&I) recently released a determination that commercial prevailing wage rates should apply to a four-story residential structure since the first floor was reserved for future commercial development. 

The developer claimed that the project was essentially residential on the grounds that the first floor was simply being set aside and would "remain essentially unfinished" for the time being. In spite of this, L&I ruled that "mixed use" was a more accurate description for the City of Spokane project, which was funded by the U.S. Department of Housing and Urban Development. 

Narrow definition of "residential":  L&I based the opinion on the WAC 296-127-010, which defines "residential construction" as work on "residential structures ... when used solely as permanent residences." 

L&I concluded that since the project contained space for future commercial development, its use was not "solely" for permanent residences.  Click here to read L&I's determination.

Risks of "Residential" determination for agencies:  Deciding that residential prevailing wage rates apply to a project can pose a risk for public agencies.  RCW 39.12.030 not only mandates that public agencies specify in the bidding and contract documents whether residential or commercial wages apply, but requires a public agency to pay the difference if it is later determined that the project, in fact, requires commercial prevailing wage rates instead of residential wages specified. 

Different federal standards:  All of the above applies only to Washington state prevailing wages.  The federal criteria for residential rates is slightly different from Washington state's and is outlined in U.S. Department of Labor All Agency Memorandum No. 130 (pg. 4): 
"Residential projects for Davis-Bacon purposes are those involving the construction, alteration, or repair of single family houses or apartment buildings of no more than four(4) stories in height. This includes all incidental items such as site work, parking areas, utilities, streets and sidewalks."
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

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