1. Healthy economy carries hidden risk for developers
Scarcity of trade contractors for public projects threatens higher costs
Whitepaper by K. Carroll and M. Vasbinder
Kmc, mv, January 2015 Ruscilli Construction Company, Inc. Page 1 of 4
While the US economy continues to rebound from the Great Recession, other trends are emerging within
the construction industry as trade contractors react to an influx of new work opportunities. As one of
Ohio’s largest general contractors, Ruscilli has identified one particular trend that is causing concern over
its potential for increasing costs on projects governed by Davis-Bacon and Prevailing Wage legislation.
With more opportunities to bid on construction projects, subcontractors can be more selective in the
projects they pursue and many are choosing to avoid projects subject to the reporting requirements set by
Davis-Bacon wage legislation. This could translate to higher costs and other risks for developers and
public agencies.
The Problem
The Davis-Bacon and Related Acts (DBRA) apply to contractors and subcontractors performing on
federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair of
public buildings or public works. Created to ensure that contractors on public works projects are paid the
wage that prevails locally, federal law requires that contractors on public works projects submit weekly
certified payroll reports to ensure government contract compliance.
Davis-Bacon reporting requirements have received their fair share of criticism from small construction
businesses and trade contractors. Although the weekly wage reporting forms are relatively simple to
complete, it is estimated that it takes approximately 1 hour to complete a form containing information
about eight employees for a single job (1). Companies using 1099 employees are particularly affected by
these reporting requirements. Additionally, many popular accounting software programs used by small
businesses (like QuickBooks) are not properly equipped to track and report on all of the required
information necessary for these wage reports (2). Furthermore, the reporting process is not without its
risks: Improperly filling out the required forms can lead to a cumbersome paper process that usually
delays payment, affecting cash flow and working relationships with general contractors. Failing to
understand and rectify errors quickly can lead to penalties and fees. All of these factors discourage many
trade contractors from bidding on DBRA-governed projects (3).
As the U.S. economy continues to recover and improve, commercial contractors are enjoying increasing
breathing room as the country begins to invest again in construction. There are more projects being
planned and more opportunities to bid on them (4). This is having an adverse effect, however, on some
projects governed by DBRA laws. With more projects available for bid, many trade contractors have
more opportunity to select their preferred projects. When given a choice, the number of trade contractors

2. Healthy economy carries hidden risk for developers
Scarcity of trade contractors for public projects threatens higher costs
Whitepaper by K. Carroll and M. Vasbinder
Kmc, mv, January 2015 Ruscilli Construction Company, Inc. Page 2 of 4
willing to bid on DBRA-governed projects over non-DBRA projects is decreasing. When subcontractors
are interviewed on the subject, they reveal that the hassles and costs associated with required wage
reporting is a key factor in these decisions.
Other economic indicators show that disparate growth rates in construction employment and industry
growth further compound the issue. Experts forecast a total non-residential increase in construction
spending of up to 9% in 2015, which is in line with increases in previous years (5). Construction
employment, however, continues to increase by only roughly 3.5%, which is similar to the construction
employment increase of 2.6% that the U.S. saw from 2013 to 2014. (4). This means that although there
are more and more construction projects available for subcontractor bid, there are not necessarily enough
trade contract laborers available to meet all the demand. These factors are positioning subcontractors to
have greater liberty in selecting their preferred jobs than they had four to five years ago. When faced with
limited staff and the options of paperwork-heavy jobs versus those that are not, more and more
subcontractors are choosing projects not governed by Davis-Bacon and Related Acts.
Effects on Developers
Ruscilli saw evidence of this trend increase in Q4 of 2014, especially among carpentry, drywall and
masonry subcontractors. One of the primary concerns around this trend for general contractors and their
clients is the potential for increasing costs from skilled and unskilled trade subcontractors. Those who are
willing to bid on DBRA programs may have the opportunity to adjust their rates upwardly according to the
laws of supply and demand, which can indirectly raise costs for developers.
Developers of publicly-funded construction projects are at direct risk of cost increases as well due to other
factors. Our experience with projects governed by Davis-Bacon legislation has shown us that general
contractors with limited experience with these programs often under-bid them. The reporting
requirements are complex and cumbersome, and misunderstanding the costs associated with these can
translate to higher overall operations costs, which are usually passed onto the end client.
Additionally, inexperienced general contractors and construction managers commonly fail to account for
the slowed billing cycles, payment lags, and delayed closeout payments resulting from the DRBA
reporting processes as well. The financial stress this imposes on inexperienced general contractors can
cause firms to recoup costs later in the construction process, with some even filing claims at the end of
projects. In extreme cases, this can cause adversarial relationships and tension with clients and trade
contractors on the jobsite.

3. Healthy economy carries hidden risk for developers
Scarcity of trade contractors for public projects threatens higher costs
Whitepaper by K. Carroll and M. Vasbinder
Kmc, mv, January 2015 Ruscilli Construction Company, Inc. Page 3 of 4
Solutions
With fewer trade contractors willing to bid on publicly funded programs, general contractor firms and their
clients will need to define solutions to control risks and cost increases.
To address the effects of this shrinking pool of trade contractors, Ruscilli is aiming to educate its clients
on the potential impacts that this trend may have on estimates for DBRA-governed projects.
In selecting general contractors for projects governed by Davis-Bacon and Related Acts, developers and
public agencies should consider a general contractor’s background and depth of experience with public
projects. Choosing a general contractor or construction manager with solid experience in these programs
will lower the risk of inaccurately low bids, cost and schedule overruns, and post-project financial claims.
Additionally, developers and public agencies should look for a firm with a solid financial and credit history.
This indicates that a general contractor has a solid monetary footing and will be well positioned to absorb
any payment delays resulting from the DBRA payment process without those passing payment delays on
to clients.
As the US construction industry continues to recover, developers and public agencies undertaking new
projects need to understand the changing landscape of trade contracting. Limited labor pools and healthy
construction project volumes are allowing subcontractors to be more selective in the projects they pursue.
The hassles, expenses, and risks involved with projects governed by Davis-Bacon and Related Acts are
enough to discourage many subcontractors from participating in these programs. Those willing to gamble
on them often lack an understanding of these types of projects, or simply plan to increase their rates on
publicly funded projects. Both can lead to increased costs for a developer.
Developers can avoid these risks by choosing a well-established general contractor that has plenty of
experience with DRBA projects and a solid financial history. A stable, experienced firm will be well-
equipped to develop the most accurate estimates, avoid cost overruns due to cumbersome reporting
requirements, and withstand payment delays in DBRA projects without passing them onto their clients.

4. Healthy economy carries hidden risk for developers
Scarcity of trade contractors for public projects threatens higher costs
Whitepaper by K. Carroll and M. Vasbinder
Kmc, mv, January 2015 Ruscilli Construction Company, Inc. Page 4 of 4
Resources
1) U.S. Department of Labor, form WH-347 Inst.
http://www.eastpointcity.org/DocumentCenter/Home/View/1235
2) Sunburst Software Solutions, http://www.sunburstsoftwaresolutions.com/certified-payroll-
reporting.htm
3) U.S. Department of Labor, Office of the Assistant Secretary for Policy.
http://www.dol.gov/elaws/firststep/results.htm?fs=AF00000000000000000000000000000000
0#dbra
4) Associated Builders and Contractors, Inc. “ABC Predicts Continued Construction Industry
Growth in 2015.“ http://www.abc.org/NewsMedia/NewsReleases/tabid/144/entryid/3052/abc-
predicts-continued-construction-industry-growth-in-2015.aspx
5) Dodge Data & Analytics, “Construction Industry to See More Balanced Growth in 2015
According to Dodge Data & Analytics.” http://construction.com/about-us/press/construction-
industry-to-see-more-balanced-growth-in-2015-according-to-DDG.asp