LCPtracker Blog

Prevailing Wage Investigations & the Most Common Contractor Errors

So here’s the thing: investigations might capture your interest and elicit excitement when you’re watching an episode of CSI or your favorite crime-related tv show. But they’re no fun when you are the one being investigated.

Any contractors that have worked on publicly-funded construction projects often and consistently enough can attest that it’s an unavoidable part of the business. But surely if you’ve done everything right the first time, you don’t have anything to worry about. Right? We’d all like to think that was the answer, but unfortunately, even the most ethical of contractors needs to be prepared for the worst. All it really takes to make these situations less painful is some good preparation, an ethical conscience, and full cooperation. If you don’t have those, things can go wrong in a lot of ways.

What to Expect When Expecting… a Prevailing Wage Investigation

Let’s get down to business. First off, yes, public entities can, and will, conduct investigations to ensure that prevailing wage statutes and other labor standards are being met by contractors working on their projects. And yes, this can often mean they will perform site visits to in order to aid their efforts in determining compliance.

The exact procedure and specifications of these investigations can vary depending on which agency is conducting them. On the federal level, these reviews are performed by the Wage and Labor Division (WHD) of the US Department of Labor (USDOL) to uphold Davis-Bacon and its “Related Acts.”

How Will I Know if I Am Being Investigated?

You will know, trust me. This isn’t some secretive scheme. An official from the WHD will contact you to retrieve basic company information and at the same time provide the scope of the investigation, which can include inspection of both records and construction site(s) as well as conducting employee interviews.

Yes, employee interviews. Not only are investigators documenting observations, but they have full authority to conduct confidential interviews with your employees on your project site during working hours. The interviews can very well extend beyond just the employees working on the site if they find cause to do so, namely when there are discrepancies between the employer’s submitted records and the initial interview findings.

The Common Contractor Errors

So what kind of mistakes are most often found during these investigations? Well, for starters, a few of the most frequent issues include: simple wage and fringe calculations, missing payroll or employee information, forgotten or ruined statement of compliance copies or faxes, etc. Contractors that still do their certified payrolls by hand tend to run into these problems more than those using a software application that includes fail-safes to help with this.

But in addition to these, one of the big standouts is misrepresentation of trades/crafts and classifications. Rarely does this issue arise more prevalently than after an investigator walks a jobsite. Why would that be, you ask? Well, imagine an investigator’s surprise when they find Bob the Builder performing sheet metal work despite certified payroll reports showing he’s a laborer. Believe me, wilder things have been found on the construction site. An issue like this can easily result in restitution since the prevailing wage rate for a sheet metal worker is likely to be higher than laborer work. It doesn’t matter what a worker’s “title” is; investigators are looking for what type of work he is actually performing.

Even more common than blatant craft misrepresentation is an issue stemming from the granular differences between classifications within specific crafts themselves. The scope of work outlined for different groups of teamsters, for instance, might differ only slightly and can easily be overlooked if you are not careful. Add on top of that, separate jurisdictions might have different descriptions for their crafts. For example, a Federal wage determination calls an Operator a “Power Equipment Operator,” but on a California state prevailing wage determination they are called “Operating Engineers”. This is yet another issue that can often be aided by an application that can help you more easily match your typical craft descriptions with those of another jurisdiction’s.

Red Flags

Beyond common errors, there are some cases that just beg investigators to snoop further. Avoid these at all costs. One of the biggest red flags? “Ghosts”.

There are two examples of ghosts: 1) workers that are working on the jobsite but don’t appear on your payroll, and 2) workers who are documented on payroll but are nowhere to be seen on the jobsite. Nothing screams, “Hey, something’s fishy here!” more so than a ghost. This is a surefire way to prompt a larger scale investigation (one that in some cases might lead the investigator to look into other projects as well).

Another red flag can be the ratio of apprentices to journeymen working on a jobsite. Jurisdictions might differ on requirements, but if they deem that there are too few journeymen for every apprentice performing work, it’s a fast-track to discovering underpayments. The reason? Paying apprentices less than prevailing rates is only legal if the appropriate ratio is met. If it’s not, apprentices are entitled to journeyman rates.

What Happens If Errors Are Uncovered in the Audit?

The investigator will discuss any potential violations with you at a closing conference, informing you of what steps need to be taken to rectify them. You will also be given the chance to provide documentation to either refute the claim or provide evidence that the error was not willful. If the investigator deems that a worker is underpaid, back-wages will need to be paid to the worker. And if subcontractors do not cooperate, primes are legally obligated to cover all the wages owed to their workers.

Is That It?

Not necessarily. Different auditing and investigating organizations might handle the process a little differently, but generally there is the possibility of further repercussions. Penalties and liquidated damages may need to be paid in excess of the back-wages if determined appropriate. Sometimes these go directly to the employee, and sometimes they go to the agency.

In addition, should the investigator determine willful falsification of documents and/or complicit knowledge of violations with no recourse, the contractor could potentially be debarred from further public works contracts for three to five three to five years .

In some cases, primes can even be debarred if a subcontractor has committed the violations. It’s therefore recommended that primes: 1) choose their subcontractors wisely, and 2) implement a compliance application that not only requires subs to create and submit certified payrolls to the prime, but utilize the app’s features to double check for violations prior to submitting.

It is important to understand that you can be investigated at any time, for any reason – which is all the more reason to be prepared. In most cases, violations are unintentional by the contractor, and investigators know this. Even the most experienced contractors can have audits that turn up mistakes or violations. But what you will also realize with experience is that auditors and investigators are not always there to throw the gavel down and dole out punishments. They simply want to make things right. And many times, you will find that violations committed by prepared, well-intentioned, and cooperative contractors are met with more leniency.

To mitigate the risks outlined above, adopting a labor compliance solution with the ability to run validation checks on certified payroll reports is key. To learn more, visit www.lcptracker.com.