Plans by the US Department of Labour to extend the Davis-Bacon Act to cover modular and offsite construction sparked a staunch lobbying effort by the industry opposed to what they saw as an ill-suited and impractical change. John McMullen of the Modular Building Institute takes us inside a major victory for the US modular construction industry
On 8 August 2023, the United States Department of Labour (DOL) published its final rule revising and expanding the Davis-Bacon Act. As proposed, the act would have been expanded to include “secondary sites” such as modular factories on federally funded projects.
However, after an extensive year-and-a-half long lobbying effort by the Modular Building Institute (MBI) and its members, the DOL recently published the final rule WITHOUT the proposed expansion to the modular building industry.
The modular building industry voiced concerns over the Davis-Bacon Act
MBI members expressed numerous concerns over the rule, including its legality, its impact on small business and its inflationary impact on housing.
Additionally, a big concern for the industry was the 26 states with so-called “Little Davis Bacon” acts (state-level laws that mirror the Davis-Bacon Act’s requirements) that would have likely adopted the federal government’s reinterpretation, thus eliminating all state-funded projects from consideration as well.
MBI members submitted dozens of written comments opposing the expansion during the proposed rule phase. Members also participated in calls with the Office on Information & Regulatory Affairs (OIRA) to express their concerns.
Additionally, MBI executive director Tom Hardiman, Jim Gabriel of member company MODLOGIQ and Alan Rasmussen of member company Modern Building Systems went to Washington DC to personally share their testimony of the negative impacts of this rule with key Congressional staffers.
“We had a fantastic team in place,” said MBI’s board president, Chuck Walen of Satellite Shelters. “We had one of the nation’s top labour law firms in our corner, allies on Capitol Hill, supporters in the affordable housing sector and, most importantly, the support of our members.”
It is important to note that MBI was specifically mentioned eight times in the final rule, while members including Blazer Industries, Phoenix Modular Elevator, Southeast Modular, Modular Solutions, Cloud Apartments, Quartz Properties and many others were also specially cited.
“It’s great to see that the Department of Labour heard the voice of MBI and our membership,” said Jon Hannah-Spacagna, MBI’s government affairs director. “This will allow the partnerships our industry has established with government agencies to support affordable housing and government projects to continue to grow.”
“In my 20 years with MBI, this is by far the biggest win for our industry,” said MBI executive director Tom Hardiman. “MBI and our members were able to delay this rule’s implementation for over a year and ultimately prevailed in getting the anti-industry language removed.”
How has the Davis-Bacon Act affected modular construction?
The Davis–Bacon Act of 1931 is a federal law that requires paying labourers and mechanics the local prevailing wages for work done on public works projects. Specifically, it applies to contractors and subcontractors performing work on federally funded or assisted contracts valued in excess of $2,000. Simply put, a prevailing wage is the basic hourly rate of wages and benefits paid to a number of similarly employed workers in a given area.
Until recently, the effects of Davis-Bacon on the modular construction industry were minimal. Because modular buildings are not built at the “site of the work” (being instead built using more modern manufacturing techniques in one or more offsite factories, often in different states), prevailing wages didn’t apply to modular construction projects, public or otherwise.
Under the DOL’s original proposals, the definition of “site of the work” would have been changed to apply to offsite construction of “significant portions” of a building or work.
The MBI argued that the changes would have had a multi-faceted effect on the modular construction industry. Firstly, that the 26 states with “Little Davis-Bacon” acts would adopt the federal government’s reinterpretation, limiting the financial viability of offsite and modular construction for public projects in those states.
The second concern was that federal and eventually state developers and contractors would simply turn to foreign modular companies, who would not have to abide by the Davis-Bacon Act. This could have led to US-based modular construction, which is being used to combat the urgent need for affordable housing and infrastructure precisely due to its speed and lower labour costs, becoming “financially impractical”.
In addition, the MBI argued that, at a time when the modular and industrialised building industry is growing by leaps and bounds, a labour law created in the Great Depression would be a poor fit.
Modular construction more closely resembles a manufacturing process rather than traditional onsite construction, and therefore imposing construction trade rates to factory workers makes no more sense than applying car worker rates to carpenters.
The MBI’s said its position is not anti-union and indeed it has a number of union factories within its membership. Instead, it said the issue comes down to federal government overreach in an area where it does not have regulatory authority, reversing decades of legal precedent.
A victory for the modular construction industry in the United States
The changes to the final published rule represent a tremendous victory for the United States’ modular construction industry.
Without the support of MBI members in the form of written and in-person feedback, fundraising, travel and direct donations to MBI’s regulatory relief fund, MBI would not have been successful.
In particular, the testimony from the following MBI members was critical in helping communicate the industry’s opposition to the proposed rules:
- Jim Gabriel, MODLOGIQ.
- Ralph Tavares, R&S Tavares Associates.
- John Buongiorno, Axis Construction Corp.
- Amin Irving, Ginosko Development Company.
- Brad Gudeman, Modular Genius.
- Vaughn Buckley, Volumetric Building Companies.
- Matt Slataper, Ramtech Building Systems, Inc.
- Bostjan Jevsek, Piva Group.
- Mike Wilmot, Wilmot Modular Structures.
- Stephen Shang, Falcon Structures.
- Alan Rasmussen, Modern Building Systems.
This victory is also a credit to the US Department of Labour, which took the time to understand the potential impacts on MBI member companies and the greater needs of the country to which the industry can contribute.
Implications for the industry
Due to the feedback from MBI and its members, the Department of Labour’s recently published rule has been changed from its proposed form to exclude offsite construction facilities that are not built specifically for a particular project.
While this victory is huge on its own, the implications of the clarifications in this rule are even more beneficial to the industry.
John McMullen
Marketing director
Modular Building Institute
Tel: (434) 296-3288
However this is spun, it is a successful attempt to drive down worker compensation in offsite construction. The same trades are used as for onsite work, but paid less because of employer power and location of the factory outside the unionised big cities. The language used is transparently anti labor.