Tag Archives | Federal Acquisition Regulation (FAR)

Beware – Public Projects and Prevailing Wages

By on August 13, 2012 in Construction, General, Governments

Sandersen Knox & Associates LLP, CPA, Tax Accountants, AuditorsUnderstand prevailing wage laws before you bid on public works projects

As the economy continues to struggle, many contractors are adding public works projects to their repertoires just to stay profitable. Public projects can be a lucrative source of new work, but they’re also subject to complex federal and state requirements fraught with traps for the uninitiated. Prevailing wage laws are among the most treacherous.

What’s required?

Most federal projects are subject to the Davis-Bacon Act, which requires federal contractors to pay a “prevailing wage.” That is, Davis-Bacon — along with its state counterparts — requires you to pay wages on a public project that are comparable to wages for similar work in the same geographic area.

What’s more, a majority of states impose similar requirements on state-funded projects. If a project is financed by both federal and state funds, the higher wage usually applies.

How are wages determined?

On federal projects, the U.S. Department of Labor (DOL) sets prevailing wage rates. On state projects, the equivalent state agency sets the rates. One of the biggest challenges for contractors bidding on public projects is worker classification. Prevailing wages may vary among different classifications, so it’s critical to get them right.

Complicating matters further, the DOL and state agencies may restrict the types of work that can be performed by workers in certain classifications. For example, a worker classified as a laborer may not be permitted to perform tasks traditionally associated with members of a particular trade or craft, such as plumbers or electricians.

Cash or fringe benefits?

Generally, prevailing wage rates consist of a base rate paid in cash and a fringe benefit amount. Contractors have the option of paying fringe benefits in cash or applying fringe benefit credits for contributions to “bona fide” benefit plans, such as health and life insurance, long-term disability plans, retirement plans, and vacation days or other paid time off.

Computing fringe benefit credits is complex, so you might be tempted to simply pay the fringe benefit amount in cash. But satisfying the fringe benefit obligation using bona fide benefit plans can be more cost-effective. Moreover, cash wages are subject to Social Security, Medicare and other payroll taxes, while contributions to benefit plans are generally exempt from these taxes.

Your advisors can help you determine which approach would be better for your bottom line in light of your existing compensation and benefit programs.

What record-keeping is needed?

Compliance with prevailing wage laws demands timely, accurate record-keeping. You’ll need to submit certified payroll reports periodically and keep accurate internal payroll records on file. It’s particularly important that you document the classification of workers and the tasks they perform.

In addition, general contractors and upper-tier subcontractors are responsible for prevailing wage violations by lower-tier subcontractors. So it’s important to gather records from these subcontractors to ensure they’re in compliance.

What are the penalties for noncompliance?

The penalties for prevailing wage violations can be severe. Under the Davis-Bacon Act, for example, they may include fines, contract termination or even “debarment” from future federal contracts for up to three years. And that’s not all — contract payments may be withheld to cover the violator’s liabilities for unpaid wages and certain other damages.

Contractors or subcontractors that falsify payroll records or demand kickbacks of wages are subject to civil and even criminal prosecution.

Plan before you bid

Compliance with prevailing wage laws is complex, so be sure you understand your obligations before you bid on a public works project. Because miscalculations can quickly wipe out any expected profits on a job, seek professional advice before you venture into this territory.

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FAR-reaching Rules for Government Contractors

By on April 9, 2012 in Construction, General, Governments

If your company performs work for the federal government, it’s critical for you to become familiar with the recently revised Federal Acquisition Regulation (FAR). All federal contractors are now required to disclose certain overpayments and legal violations. And contractors involved with larger projects must implement rigorous business ethics programs and internal control systems. Sandersen Knox & Company LLP suggests that government  contractors pay special attention to all changes included these highlighted ones as part of their business planning.

Mandatory disclosure

The new rules impose mandatory disclosure requirements in place of the previous voluntary disclosure system. Certain disclosure requirements are limited to contracts or subcontracts in excess of $5 million with a performance period of 120 days or more. But one provision makes nondisclosure by any prime contractor grounds for suspension or debarment.

To comply, you must disclose to the government certain procurement-related criminal offenses — including fraud and bribery, violations of the civil False Claims Act and significant overpayments. Because disclosure is required for three years after final payment is received, you should look back at contracts completed in the last three years for any credible evidence of such violations.

Ethics and internal controls

With limited exceptions, the revised FAR imposes stricter ethics and internal control requirements for contracts or subcontracts in excess of $5 million with a performance period of 120 days or more. In addition to having a written code of business conduct, you must “exercise due diligence to prevent and detect criminal conduct” and promote an ethical culture. You also should have an ethics awareness and compliance program that includes effective training and periodic communication.

In addition, the revised rules spell out several “minimum” internal control requirements, including assignment of responsibility, periodic reviews, a hotline or similar reporting mechanism for suspected fraud or embezzlement, disciplinary action for improper conduct, and exclusion of violators from management.

Meeting the standards

If you’re currently under contract with the federal government or you plan to bid on federal projects in the future, make sure you’re in compliance with FAR disclosure requirements and that you have in place an ethics program and internal controls that meet the new standards.

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