Inaccurate Data Were Frequently Used in Wage Determinations Made Under the Davis-Bacon Act

U.S. Department of Labor
Office of Inspector General

Audit Report

INACCURATE DATA WERE FREQUENTLY USED IN WAGE DETERMINATIONS MADE UNDER THE DAVIS-BACON ACT

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Report Title: Report Title: Inaccurate Data Were Frequently Used in Wage Determinations Made Under the Davis-Bacon Act

Report Number: 04-97-013-04-420

Issue Date: March 10, 1997

The Davis-Bacon Act requires each contractor and subcontractor involved in the construction, alteration, or repair of Federal works to pay its employees no less than "locally prevailing" wages and fringe benefits. The Congressional Budget Office estimates that $42 billion was spent in Federal construction during Fiscal Year 1996; therefore, the economic effect of the Davis-Bacon program is substantial. Under the Act, DOL is responsible for determining the wages and fringe benefit rates prevailing in local geographic areas. The WHD establishes prevailing rates through data voluntarily provided by employers and third parties, which include union and trade associations.

In response to a congressional request, the OIG conducted an audit to assess the accuracy of wage and fringe benefit data used by the Department in prevailing wage surveys. The OIG audited a sample of data affecting Calendar Year 1995 wage decisions.

The audit found that WHD staff generally did a creditable job in operating the program. OIG did not find evidence of fraud or deliberate misreporting of wage data. However, we determined that inaccurate data were frequently used in Davis-Bacon wage determinations.

Specifically, the OIG identified 211 significant errors in 123 (15 percent) of the 837 survey instruments (WD-10 forms) examined. Inaccuracies in data reported by employers and third parties accounted for 84 percent (177 of 211) of the total exceptions. The remaining 16 percent (34 exceptions) were attributed to errors in WHD's compilation of the data. Material errors resulted in wage decisions needing revision in five states. Among these decisions, wages or fringe benefits for certain crafts were overstated by as much as $1.08 per hour and understated by as much as $1.29 per hour. However, the errors discovered did not materially change wage decisions in the majority of the cases because the data sampled often represented a small portion of the responses for an individual WHD survey.

The audit report also identified other issues involving WHD's survey methodology, provisions of the Davis-Bacon legislation, and Labor's regulations that either contributed to the exceptions found or bring representativeness of the wage decisions into question.

To achieve validity and representativeness in the data used to determine locally prevailing wages, OIG recommends the Assistant Secretary for Employment Standards reform the survey process to:

1. Select contractors for participation using statistical or other independent means. This helps to prevent outcomes from being skewed by employers and third parties, who frequently respond to WH surveys, from exerting greater influence over the wage levels that are established.

2. Obtain necessary data directly from contractors' records through onsite collection, thus eliminating the need for third party reporting. If mail surveys are used for statistically selected employers, onsite reviews to verify submissions on at least a sample basis should be built into the process.

3. Obtain assistance from the Commissioner of the Department's Bureau of Labor Statistics in reviewing procedures used in the Davis-Bacon wage determination process and recommending legislative, regulatory or administrative changes as needed in the survey methodology. In the interim, contractor-submitted data can be verified on a sample basis and appropriate enforcement actions initiated against persons making false reports. In responding to the draft audit report, WHD expressed concern for the large number of significant errors discovered by the audit. However, WHD took issue with OIG's recommendations to draw statistical samples of employers and conduct onsite payroll reviews in order to obtain wage data. WHD did not believe that either of these recommendations would correct the errors cited in the audit. WHD indicated that independent samples of employers would eliminate the input from third parties, which they consider useful. Moreover, it is their position that onsite payroll reviews would be time-consuming, expensive, and more burdensome to employers. WHD did agree to work with BLS in seeking program improvements. They also planned to continue recently increased verification of wage data.

OIG believes that having the WHD independently select employers provides many benefits, including eliminating errors and undue influence in the establishment of wage levels. The time and costs of onsite payroll reviews may be offset by broadening the geographical coverage of the surveys and by combining efforts with other of BLS' survey efforts. Any resistance from employers could be lessened by the reduced frequency of wage requests due to combined surveys.

[[Full Report in PDF] 47 pp.

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