oversight

Davis-Bacon Act: Labor Now Verifies Wage Data, but Verification Process Needs Improvement

Published by the Government Accountability Office on 1999-01-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Committees




January 1999
                 DAVIS-BACON ACT
                 Labor Now Verifies
                 Wage Data, but
                 Verification Process
                 Needs Improvement




GAO/HEHS-99-21
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-280302

      January 11, 1999

      Congressional Committees

      The Davis-Bacon Act was enacted in 1931 to protect communities and
      workers from the economic disruption caused by contractors hiring
      workers from outside the local geographic area, where wages are lower,
      thus obtaining federal construction contracts by underbidding contractors
      who pay local wage rates. The act requires that employers pay locally
      prevailing wage rates, including fringe benefits, to laborers and mechanics
      employed on the more than $40 billion of federal construction projects a
      year.1 Since 1931, the Congress has enacted many statutes that extend
      Davis-Bacon’s prevailing wage provisions to construction projects for
      which the federal government provides only partial funding, such as the
      construction of local schools. The Department of Labor, which
      administers the act, surveys construction contractors and other interested
      third parties to obtain information on wages paid to workers in each
      construction craft and uses the data submitted on these survey forms to
      determine local prevailing wage rates.2

      In previous reports and testimony, we expressed concern that Labor’s
      procedures for determining prevailing wage rates were vulnerable to the
      use of inaccurate or fraudulent data.3 The use of such data could lead to
      the payment of wages that are either lower than what workers should
      receive or higher than the actual prevailing wages, which would inflate
      federal construction costs at the taxpayers’ expense. We also noted that
      basing wage determinations on old wage data raises questions about
      whether the wage results still reflect current conditions.4 In 1996, we
      recommended that Labor verify wage data it receives by obtaining




      1
       The $40 billion dollar estimate does not include the cost of construction projects covered by the
      prevailing wage laws for which others such as state and local governments, rather than the federal
      government, are responsible for the contract costs.
      2
      “Interested parties” may include the employers or contractors; contractor associations; construction
      workers; labor unions; and federal, state, and local agencies.
      3
       For a list of selected reports and testimony we have issued on this topic, see Related GAO Products at
      the end of this report.
      4
       Labor reported that in 1996 the average age of a wage determination was 7 years. In addition, when
      the wage determination is issued, it can be based on survey data that are already out of date. For
      example, in 1998 Labor was verifying some data for wages reported to have been paid in 1993 and had
      not yet issued a wage determination as of September 30, 1998.



      Page 1                                                           GAO/HEHS-99-21 Davis-Bacon Act
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                       appropriate documentation from a sample of participating employers or
                       conducting a limited number of on-site reviews of employer wage data.5

                       The House Appropriations Committee has also expressed concerns about
                       the accuracy and timeliness of Davis-Bacon wage determinations. The
                       Committee’s reports on appropriations for the Departments of Labor,
                       Health and Human Services, and Education and related agencies for fiscal
                       years 1998 and 1999 directed Labor to ensure that a portion of the funds
                       appropriated for the wage survey program be used to randomly sample all
                       data submissions to verify their accuracy.6 Moreover, the reports specified
                       that Labor select a sample of all wage data submissions for on-site data
                       verification against actual payroll records. In response to a request in the
                       Committee reports, we reviewed these verification activities to determine

                   •   what Labor has done in response to the Committee’s directive that it verify
                       a random sample of employers’ wage data submissions and select a
                       sample of submissions for on-site data verification and
                   •   the likely effect of these efforts on the accuracy and timeliness of
                       Davis-Bacon wage determinations.

                       We are sending this report to you because of your committees’ oversight
                       responsibilities for Labor (see list of addressees at the end of this letter).
                       We conducted our review between June and October 1998 in accordance
                       with generally accepted government auditing standards. For information
                       on our methodology, see appendix I.


                       In response to a Committee directive and our recommendation, Labor has
Results in Brief       implemented a program to verify wage survey data submitted on
                       standardized wage data forms by construction contractors and interested
                       third parties, such as contractor associations and trade unions. To verify
                       these data, Labor has developed procedures to select samples of these
                       forms for telephone verification that differ depending on whether the
                       forms are submitted by contractors or third parties. In addition, Labor has
                       hired a private accounting firm to conduct on-site verification reviews. As
                       of September 30, 1998, the accounting firm had issued final reports for 9 of
                       the 85 geographic area surveys scheduled for audit from April 1997 to

                       5
                       Davis-Bacon Act: Process Changes Could Raise Confidence That Wage Rates Are Based on Accurate
                       Data (GAO/HEHS-96-130, May 31, 1996).
                       6
                       U.S. Congress, House of Representatives, Departments of Labor, Health and Human Services, and
                       Education and Related Agencies Appropriations Bill, 1998, H. Rept. 105-205, 105th Cong., 1st sess., and
                       U.S. Congress, House of Representatives, Departments of Labor, Health and Human Services, and
                       Education and Related Agencies Appropriations Bill, 1999, H. Rept. 105-635, 105th Cong., 2nd sess.



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             June 1998 and had identified errors in wages reported in about 70 percent
             of the wage data forms reviewed (see fig. 4). In both the telephone and
             on-site verification processes, all data—regardless of the entity that
             submitted them—are verified only with the contractors.

             Even though Labor has identified and corrected numerous errors in the
             wage data submitted, its verification efforts will have limited impact on the
             accuracy of the wage determinations and will increase the time required to
             issue them. Specifically, errors the accounting firm identified and
             corrected in all nine area surveys averaged 76 cents per hour. But, because
             Labor was only able to correct the limited number of wage data forms
             verified, which contain a small portion of the wage rates submitted, on
             average, changes to these wage determinations will be an average of 10
             cents per hour, according to Labor officials’ estimates. The extent to
             which correcting the errors found through verification will improve the
             accuracy of wage determinations is limited by (1) the Committee directive
             to use a random sample of wage data forms for verification, given the
             characteristics of the wage data with respect to the universe being
             sampled, and (2) the procedures Labor uses to implement this directive.
             For example, in its procedures, Labor assumes that data from contractors
             that refuse access to supporting documentation are correct and includes
             the wages in calculating wage determinations. While the time needed for
             verification reduced the timeliness of wage determinations, telephone
             verification added less time to the process than did on-site
             verification—an estimated average of 2 weeks as compared with an
             average of 211 days for the 30 area surveys for which the auditor
             submitted preliminary reports. The verification efforts completed to date
             may, however, have a significant impact on improving the accuracy of
             future wage determinations by deterring the submission of fraudulent and
             inaccurate data, educating contractors on how to complete wage data
             forms, and providing Labor with information to use in its long-term
             reengineering efforts. We are recommending specific changes to Labor’s
             verification procedures that should increase their impact on the accuracy
             of the wage determinations while reducing the time and the cost to collect
             this information.


             The Davis-Bacon Act and related legislation require employers on federally
Background   funded construction projects valued in excess of $2,000 or federally
             assisted projects to pay their workers no less than the prevailing wage
             rate. According to its regulations, the Department of Labor determines the
             wages “prevailing for the corresponding classes of laborers and mechanics



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employed on projects of a character similar to the contract work in the . . .
city, town, village, or other civil subdivision of the State in which the work
is to be performed.” The Department of Labor’s Wage and Hour Division
(WHD) is responsible for making these wage determinations.

In addition to making these determinations, Labor is responsible for
ensuring that employers covered by the law pay at least the mandated
wage. While some of the same staff work on both responsibilities, Labor
estimates that in fiscal year 1997, it used the equivalent of 51 full-time staff
and spent about $5.5 million on the process of determining Davis-Bacon
prevailing wages at both its Washington, D.C., headquarters and five
regional offices.7

To determine the prevailing wage rates, Labor periodically conducts
surveys, called “area surveys,” to collect data on wages and fringe benefits
paid to workers in similar job classifications on comparable construction
projects in a specific geographic area.8 The agency solicits information
from employers and third parties, such as representatives of unions and
contractor associations. As shown in figure 1, after receiving and analyzing
the data, Labor issues wage determinations for a series of job
classifications such as electricians, carpenters, and drywallers in specific
geographic areas varying in size from a section of a county to an entire
state.9 For example, the prevailing wage determination for the Washington,
D.C., metropolitan area in 1996 included individual wage rates for 143
different construction crafts. For a more complete description of the wage
determination process, see appendix II.




7
 This amount excludes $3.75 million that the Congress appropriated specifically for Davis-Bacon
program reengineering efforts in fiscal year 1997, as well as some costs incurred by states conducting
area wage surveys.
8
 Fringe benefits considered in computing the prevailing wage rate include, but are not limited to,
holiday and vacation pay, health insurance, and pension benefits.
9
 Labor conducts wage surveys and issues wage determinations for four basic types of
construction—building, residential, heavy, and highway. For determining prevailing wage rates for
highway construction, both the survey and its analysis are often done by individual state agencies.
Labor also uses a contractor to complete both the survey and preliminary analysis for a limited
number of area surveys. Labor includes both the state- and contractor-completed surveys among those
sent to the accounting firm for on-site verification. The contractor-completed surveys are also subject
to telephone verification, but the state-completed surveys are not.



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Figure 1: Flowchart of Wage Determination Process




                                         Labor relies on the voluntary participation of contractors and other
                                         interested parties in conducting the wage survey. While participation is
                                         voluntary, failure to supply truthful answers can have serious



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consequences: it is a crime under federal law (18 U.S.C. 1001) to
knowingly submit false data to the government, and it is a crime under
federal law (18 U.S.C. 1341) to use the U.S. mail for fraudulent purposes.

Contractors and interested third parties generally submit data on wage
survey forms, called WD-10s, which are supplied by WHD.10 As shown in the
sample forms WD-10 in figure 2, regardless of whether data are submitted
by contractors or third parties, a separate WD-10 is submitted for each
construction project and for each contractor that employed workers on
that project. Wage rate determinations are issued for different job
classifications, such as drywallers and electricians. In fiscal year 1997, WHD
issued 1,860 individual wage rate determinations, which were based on
information obtained from 43 area wage surveys.11

In accordance with its regulations, Labor determines an area’s prevailing
wage rate on the basis of the 50-percent rule, which states that the
prevailing wage will be the wage paid to the majority of workers employed
in a specific job classification. If the same rate is not paid to a majority of
those workers in the classification, the prevailing wage will be the average
of the wages paid, weighted by the total number of workers employed in
the classification. See the prevailing wage formula in figure 2 for an
example of this calculation using the two hypothetical forms WD-10.




10
  In an effort to obtain the greatest participation, Labor staff sometimes complete the WD-10 form with
information provided over the telephone by employers.
11
 This number does not include ongoing modifications to wage determinations when there are
automatic or negotiated changes to the wage rate specified in the collective bargaining agreement or
wage determinations limited to specific projects rather than for entire geographic areas.



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Page 7     GAO/HEHS-99-21 Davis-Bacon Act
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Figure 2: Examples of Wage Data
Forms (WD-10s) Submitted for an Area
Survey




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                  (Figure notes on next page)




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Note: The hypothetical example chosen is simplified for ease of discussion. It illustrates a case in
which the majority of workers employed in a specific job classification are paid the same wage
rate. In many other cases, a majority does not exist and Labor calculates a weighted average.




We previously reported that Labor’s wage determination process
contained internal control weaknesses that contributed to a lack of
confidence in the resulting wage determinations. These weaknesses
included limitations in Labor’s verification of the voluntarily submitted
wage and fringe benefit data. We recognized, however, that accurately
reported wage data are not sufficient to ensure the accuracy of the wage
determinations. For example, in a previous report, we concluded that
reporting bias resulting from the voluntary nature of the wage surveys may
also reduce the accuracy of the wage determinations.

In 1995, a congressional committee heard specific allegations that
inaccurate and fraudulent wage data were submitted and used to
determine prevailing wage rates in Oklahoma City. Both GAO and Labor’s
Office of Inspector General (OIG) then received congressional requests to
review Labor’s wage determination process. Labor responded to the
allegations by introducing a policy to verify a sample of wage data forms
received from third parties, but it did not extend this verification process
to forms submitted by contractors.12 Before that, Labor had contacted
both contractors and third parties to obtain clarification about data that
were inconsistent or unclear, but it had not attempted to verify data that
were not obviously inaccurate.

In May 1996, we recommended that Labor obtain appropriate
documentation or conduct a limited number of on-site inspection reviews
to verify a sample of wage data submissions. Our recommendation was
intended to improve data reliability and increase confidence in the
accuracy of wage data in the short term while Labor continued its
longer-term efforts to address larger weaknesses in the wage
determination process. We expected that verification would also increase
the accuracy of future wage determinations by reducing errors through
educating both contractors and third parties about how to complete wage
data forms and deterring the submission of fraudulent data.

In March 1997, Labor’s OIG issued a report on its audit of a judgmental
sample of wage data collected for use in calculating prevailing wage rate


12
  Third parties generally provide about one-third of all wage survey forms.



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                             determinations issued in calendar year 1995.13 The audit did not find
                             evidence of fraud or deliberate misreporting of wage data. However, OIG
                             determined that inaccurate data submitted by both employers and third
                             parties were frequently used in prevailing wage determinations and that
                             access to payroll records was the most important factor to successfully
                             verifying wage data. OIG echoed our suggestion that verification efforts be
                             viewed as temporary steps until more fundamental reforms in Labor’s
                             survey methodology could be made.


                             In response to the House Appropriations Committee’s directive and our
Labor Has                    recommendation, Labor has implemented a program to verify wage survey
Implemented a                data submitted by construction contractors and interested third parties,
Program to Verify            such as contractor associations and trade unions. To verify these data,
                             Labor established procedures to select samples of wage data forms for
Wage Data                    telephone verification that differ depending on the entity that submitted
                             the form. In addition, Labor has hired a private accounting firm to conduct
                             on-site verification reviews. In both the telephone and on-site verification
                             process, all data—regardless of which party submitted them—are verified
                             only with the contractors.


Labor’s Telephone            In response to our recommendation, in June 1996 Labor expanded its
Verification Procedures      telephone verification process begun the previous year from one of
Differ Depending on          verifying wage data submitted by third parties to one that also verifies
                             wage data submitted by contractors. However, Labor verifies a different
Whether the Data Are         percentage of wage data forms submitted by third parties than that for
Supplied by Contractors or   data forms submitted by contractors. In addition, regardless of who
Third Parties                submitted the wage data form, Labor asks for supporting documentation
                             only from contractors, not from third parties.

                             Labor verifies a larger percentage of wage data forms submitted by
                             interested third parties than for those submitted by contractors, as shown
                             in figure 3. For wage data submitted by third parties, wage analysts must
                             select every tenth—10 percent—WD-10 wage data form submitted (and no
                             fewer than two WD-10 forms) for verification with the contractor.14 In


                             13
                              Department of Labor, OIG, Inaccurate Data Were Frequently Used in Wage Determinations Made
                             Under the Davis-Bacon Act, Final Report #04-97-013-04-420 (Mar. 10, 1997).
                             14
                              Labor also requires its wage analysts to verify with the contractor all third-party data submitted by a
                             union that reports wages for workers employed by a nonunion firm. Labor’s policy does not include
                             any similar procedures to verify data submitted by third parties that are not unions, such as contractor
                             associations and federal and state agencies. However, Labor’s procedures require wage analysts to
                             verify any wage data that on the surface are questionable, regardless of the source of the data.



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contrast, for wage data submitted by contractors, Labor requires that
regions select every fiftieth—2 percent—wage data form (but no fewer
than five) for telephone verification. Regional wage officials told us that
they always use the sample size required by Labor’s national office for
contractors, but they exceed it for third parties. For example, wage
analysts in one region told us that they verify 100 percent of wage data
forms submitted by third parties by requiring that all such forms be signed
by contractors who paid the wages that were reported. A senior wage
analyst in another region told us that they conduct telephone verification
of almost all third-party wage data forms.




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Figure 3: Selecting Wage Data Forms
for Verification




                                      Labor’s procedures require that wage analysts verify data only with the
                                      contractors, not with third parties, even for data submitted by third
                                      parties. The procedures require the regional offices to send letters to the
                                      contractors selected for verification requesting that supporting payroll
                                      documents be mailed to Labor. (See app. III for a sample of the letter
                                      Labor sends to contractors.) Wage analysts contact the contractors



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                       selected for verification by telephone to verify wage data regardless of
                       whether the contractor has provided the requested documents. Wage
                       analysts told us that they generally do not receive the documents
                       requested from the contractor and, therefore, rely on the contractor’s
                       verbal assurance that the data are correct. When the wages reported by
                       the contractor, either with documentation or with oral confirmation, are
                       different from those originally submitted, Labor replaces the wage data
                       submitted on the WD-10.15 When the information provided by the
                       contractor does not agree with the data submitted by a third party,
                       regional wage analysts told us that they always take the word of the
                       contractor over the information supplied by the third party. Unlike the
                       process Labor uses with contractors, Labor seldom notifies third parties
                       that the wage data forms they submitted have been selected for
                       verification and does not ask them for documentary evidence to support
                       the data they provided.

                       Even though information from contractors who participate in the
                       verification process sometimes leads to changes in the wage data, Labor
                       includes in the prevailing wage calculation data reported by contractors
                       who refuse to participate in the verification process, thereby assuming
                       these data to be accurate. Labor does not keep records that would allow
                       us to assess how often this occurs. One of Labor’s regional offices,
                       however, provided data showing that in the 18-month period from April 1,
                       1997, to September 30, 1998, wage analysts in that region were unable to
                       verify data by telephone for 41—57 percent—of the 72 WD-10 forms
                       submitted by contractors that were selected for verification. Labor’s
                       procedures allow it to assume that these data are correct and to include
                       them in the wage calculation. However, this assumption is questionable
                       because, of the remaining 31 forms that were verified by telephone,
                       analysts found errors in data submitted in 9 of the forms, or 29 percent.


Labor Uses a Private   In April 1997, Labor began a process of on-site wage data verification
Accounting Firm to     under a contract awarded to a private accounting firm. As of
Conduct On-Site        September 30, 1998, Labor had paid the firm a total of $1 million for on-site
                       verification for fiscal years 1997 and 1998, and had awarded a new
Verification           contract to the same firm for $500,000 in fiscal year 1999.16



                       15
                        Labor does not keep records, however, that would show how often errors are found in telephone
                       verification or how often changes are made.
                       16
                        This $1 million is in addition to the $10 million Labor estimated it spent for fiscal years 1997 and 1998
                       wage determination activities other than verification.



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The contract requires the accounting firm to review a sample of payroll
records to verify wage survey data and interview employers to obtain
information to assist in Labor’s efforts to reengineer the wage
determination process. Labor selects what it describes as a 10-percent
sample of the wage data forms submitted by both contractors and
interested third parties for a specific area wage survey. It reaches this
percentage by selecting every tenth data form for verification. In fact, the
percentage of WD-10s selected for on-site verification usually exceeds
10 percent. This is because, after selecting every tenth data form
submitted, Labor adds to the set of forms the auditor will review all other
usable WD-10s that could be examined at that contractor’s office, such as
the forms for other projects for which data were reported.17 As a result,
10 percent is the minimum sample size; the actual sample size varies from
one survey to another.18 For example, for the 9 surveys for which final
audit reports were completed, the actual percentage of WD-10s selected
for on-site verification ranged from 10 to 56 percent.

As with the telephone verification conducted by WHD wage analysts,
auditors verify the data on-site only with the contractor who employed the
workers, even when the data were submitted by third parties. The WHD
regional office mails the contractors selected for verification a letter
notifying them that an auditor will contact them to request a visit to their
establishments. (See app. III for a sample letter sent to contractors.) The
contractor is asked to make payroll records available to the auditor to
confirm that the data reported on the WD-10 are complete and correct.
While the contractor’s cooperation with the auditor is requested, it is
voluntary for contractors whose wage data cover private construction
projects, because Labor is not authorized to require contractors to provide
records for such projects.19 In contrast, contractors on federal projects are
required by law to grant access to payroll records related to the federal
projects. Labor, however, does not specify this in its letters to these
contractors. Labor is concerned that doing so might discourage
contractors from participating in future Davis-Bacon surveys, which could
reduce the number of survey respondents and thus affect the accuracy of
wage determinations.


17
 The data are submitted on a separate WD-10 form for each contractor and project. Thus, a contractor
who employed workers on more than one project will be identified as the contractor on more than one
WD-10 form. (See #1 in fig. 2.)
18
  Multiple WD-10 forms may be submitted for the same contractor and project if data are submitted for
the project by both contractors and third parties.
19
 Legislative proposals for providing such authority have been introduced in the Congress in recent
years, but none has been enacted to date.



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The auditor compares the data reported on the WD-10 with the payroll
records for the reported project. Discrepancies between the original
WD-10 submitted and the payroll records or contractor’s testimony are
recorded by the auditor. After completing the audit of the area wage
survey data, the auditor submits a preliminary report to Labor, which
includes a list of all discrepancies and a list of contractors that did not
participate in the verification process.20 Labor reviews the preliminary
report and makes follow-up telephone calls with contractors as necessary.
After Labor reviews the auditor’s findings, the accounting firm submits a
final report reflecting changes on which Labor and the firm have agreed.
Regional wage analysts told us that only after Labor receives the final
report do the analysts incorporate appropriate changes to wage data,
recalculate wage data, and forward recommended wage rate
determinations to Labor’s national office for final review and issuance.

During the 15-month period from the beginning of the on-site verification
process in April 1997 to June 30, 1998, Labor sent 85 surveys to the
auditors for on-site verification.21 As of September 30, 1998, the auditors
had completed audits for 30 of the 85 area surveys and had issued final
reports for 9 of these.

The auditors reported finding errors in both the wages and the number of
workers reported in the majority of wage data forms they reviewed.
Specifically, for the nine surveys for which they had completed final
reports, the auditors found errors in wage rates reported in about
70 percent of all wage data forms reviewed. Labor has issued new wage
determinations based on four of these nine surveys (see fig. 4).




20
 The report also describes the contractors’ responses to five specific questions, including the
contractors’ experience using the WD-10 to submit wage data, and their interest in providing and
ability to provide wage data electronically. This information is collected as part of the second purpose
of the audit: to gather information to help Labor improve the wage determination process.
21
  This represented an unusually large number of surveys because it included 42 surveys that were
begun before the beginning of the on-site verification process in April 1997 and 43 that were initiated in
the following 15 months.



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Figure 4: Status of 85 Area Surveys Subject to On-Site Verification, as of September 30, 1998




                                           Verification efforts conducted to date will have a limited impact on the
Verification Will Have                     accuracy of prevailing wage rate determinations and will increase the time
Limited Impact on                          required to issue them. The extent to which the verification process
Accuracy of                                improves the accuracy of Labor’s prevailing wage determinations will be
                                           limited by the congressional directive to use a random sample of wage
Prevailing Wage                            data forms to select wage data for verification and the procedures Labor
Determinations and                         uses to implement the directive. In addition, on-site verification has added
                                           time to the wage determination process, increasing the likelihood that data
Will Reduce                                used will be outdated. The on-site verification process has, however,
Timeliness

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                                provided information that Labor is using as it tries to improve the process
                                for future wage determinations.


Errors Identified, but          Although Labor has identified and corrected numerous errors in the wage
Impact on Accuracy of           data submitted, it has been able to correct only the limited number of
Wage Determinations Is          wage data forms verified. Since this represents only a small portion of the
                                total number of data forms submitted, these corrections have only a
Limited                         minimal impact on the accuracy of the data used to calculate wage
                                determinations. As a result, even though we found that errors the auditors
                                identified in all nine area surveys averaged 76 cents per hour, Labor
                                officials estimate that the changes to wage determinations will amount to
                                an average of 10 cents per hour.

                                Furthermore, both the Committee directive to use a random sample of
                                wage data forms to select wage data for verification and the procedures
                                Labor uses to implement the directive also limit the extent to which errors
                                found will improve the accuracy of wage determinations. While a random
                                sample is often assumed to be the most effective approach to selecting a
                                sample, it is not the best approach for verification in this situation. It
                                would be impractical to verify a large enough random sample of wage
                                forms to ensure that verification would have an impact on the accuracy of
                                the wage determination. Moreover, the procedure Labor uses to verify
                                wage data (1) does not take into account whether the data it selects for
                                verification are likely to be used in calculating wage determinations,
                                (2) assumes that data from contractors that refuse access to supporting
                                documentation are correct, and (3) does not attempt to verify data with
                                third-party submitters when contractors are unable to provide or refuse
                                access to supporting documentation.

Verification Sample Not Large   Although the House Committee directed Labor to use a random sample to
Enough to Ensure Impact on      select wage data forms to verify the accuracy of wage data, Labor does not
Accuracy of Wage                select a large enough number of data forms to ensure that the errors found
Determinations                  will improve the accuracy of wage determinations, nor would it be feasible
                                to do so.22 Although random sampling is sometimes the best approach to
                                selecting data, in some circumstances other sampling strategies are more
                                effective. A random sample would allow Labor to assume that data found
                                to be in error were representative of all data submitted, and Labor could
                                adjust the prevailing wage rate rather than adjusting the data on only the
                                WD-10s selected for verification. However, the sample size needed for this

                                22
                                  In addition, the sample Labor draws is systematic but does not meet the criteria to be considered
                                random. See app. IV for more information.



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                              approach would require Labor to verify most of the wage data submitted.
                              Conversely, a carefully chosen judgmental sample would allow Labor to
                              select wage data forms for which correcting errors found would have the
                              greatest effect on the accuracy of the wage determinations.

                              To select a representative random sample that would ensure the accuracy
                              of the data used to determine prevailing wage rates, Labor would have to
                              sample workers within each job classification rather than wage data
                              forms, which often combine job classifications, as it does now. Labor
                              currently determines the amount of wage data to be verified by selecting a
                              uniform percentage of WD-10s for each area survey, ranging from
                              2 percent to 10 percent. However, because Labor determines multiple
                              prevailing wage rates, one for each job classification, it must select a
                              sample of wage data from every job classification within a survey to
                              ensure a representative sample for all prevailing wage rates. Since wage
                              data forms often include data for multiple job classifications, sampling
                              wage data forms alone does not ensure representativeness within specific
                              job classifications.

                              Labor would also have to select a sufficient number of workers within
                              each job class to meet the statistical criteria for appropriately projecting
                              from sampled cases to all the wage data. However, data submitted on the
                              number of workers within a job class can be small, often fewer than 10. As
                              a result, Labor would need to select a sample size equal or close to the
                              total number of workers. For example, we calculated that the sample size
                              required for a statistically representative sample would require that Labor
                              verify all data submitted for 40 of 45 job classifications in one fiscal year
                              1997 area survey in order to be within 50 cents per hour of the correct
                              wage. For all job classifications, Labor would have had to verify the wages
                              of more than 5 times the number of workers it verified, 439 rather than 78
                              of the 664 workers for whom wages were reported. (See app. IV.)

Labor Selects Wage Data for   Using a random sample does not allow Labor to judgmentally select for
Verification That Will Have   verification wage data that will have the greatest potential impact on
Little or No Impact on        accuracy. For example, Labor verifies wage data that it does not expect to,
Accuracy of Wage              and does not, use to calculate prevailing wage determinations. In addition,
Determinations                Labor does not consider the cost of travel and staff time in selecting wage
                              data forms to verify.

                              Of the 30 area surveys for which on-site verification preliminary reports
                              had been completed as of September 30, 1998, 29 included verification of
                              wage data that would not be used in calculating prevailing wage rates. The



                              Page 19                                          GAO/HEHS-99-21 Davis-Bacon Act
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data verified would not be used for two reasons. First, in some instances,
wage determinations would be based on wage rates included in collective
bargaining agreements, not on the wage data reported—whether the data
were accurate or not. In general, when the same wage is paid to 50 percent
or more of the workers employed in a job classification, the wage rate is
the same because it is specified in a collective bargaining agreement that
covers the specified job classification.23 When this occurs, Labor does not
determine the prevailing wage rates on the basis of data reported on the
WD-10s. Instead, it uses the collective bargaining rate as the prevailing
wage rate. Second, in some instances, Labor knew it would not use the
wage data because it had received insufficient data within the specific job
classification to allow it to issue a wage determination. Labor’s procedures
require that it receive responses from a minimum of 25 percent of the
contractors and third parties it contacts for data and wages covering a
minimum of three workers from two contractors to determine the
prevailing wage.24 When Labor receives too few responses, it does not
issue a new wage determination.

For example, for one of the four area surveys for which Labor has issued
prevailing wage rate determinations, none of the verified wages were used
to determine the prevailing wage rates. For this specific survey, the rate
specified in the collective bargaining agreement was used for 34 of the 36
individual job classifications. Data for the remaining two job
classifications were not used because Labor did not receive sufficient data
for these two job classifications from the survey responses. Thus, although
the on-site verification for this one survey cost about $40,000, and it
required 5 weeks to complete the preliminary report, none of the results
were used.

Labor also does not balance the benefits against the costs of verifying
specific wage data forms when selecting its sample. For example, selecting
wage data forms with wages reported for the greatest number of workers
within a specific job classification has the potential for greater benefit in
improving the accuracy of the wage determination than does selecting and
verifying wages for a smaller number of workers. Using the sample
WD-10s in figure 2, if Labor’s random sample resulted in verifying
submission 2, which includes data for only 2 of a total of 82 workers for
whom wages were used in the calculation, correcting even large errors
would have little impact on the prevailing wage determination because

23
 Labor obtains data on the WD-10 about whether the workers are covered by a collective bargaining
agreement (see #3 in fig. 2).
24
  When Labor receives data from an entity it has not contacted, it counts these data in the response
rate as though it had requested the data.


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                                         B-280302




                                         only these 2 wage rates could be adjusted. On the other hand, even a small
                                         error in wage rates reported for the 80 workers would have a direct effect
                                         on the wage determination. Using the hypothetical WD-10s in figure 2, if
                                         the fringe benefits reported on submission 1 were incorrectly omitted from
                                         submission 2, correcting the wages would increase the prevailing wage
                                         rate from $18.64 to $18.71, an increase of 7 cents. However, as figure 5
                                         shows, if the workers did not receive the fringe benefits on submission 1,
                                         which includes data on 80 workers, correcting the error would reduce the
                                         prevailing wage rate from $18.64 to $16.00, a decrease of $2.64.


Figure 5: Calculation Comparing Effect
of Correcting Errors on Simplified
Hypothetical Wage Data Forms




                                         Note: For the purpose of illustration, we use only two forms WD-10 with widely differing numbers
                                         of workers reported in the job classification. In actual practice, the 50-percent rule would apply;
                                         the prevailing wage rate would not be calculated but would be the rate paid to those on
                                         submission 1 because more than 50 percent of the workers are paid the same wage, to the
                                         penny.




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Labor also does not consider the cost of accessing payroll records when
selecting wage data forms for verification. To do on-site verification, the
accounting firm’s auditors must contact individual contractors and visit
their administrative offices to review payroll records; these offices may be
located far from one another. For example, as shown in figure 6, for the
area wage survey covering Lawrence and Greene counties in
Pennsylvania, contractors’ offices were located in six states and were as
far away as Texas and Massachusetts. Using Labor’s systematic selection
process, auditors would attempt to visit the contractor’s administrative
office for submission 1 in our example, regardless of the great distance
from the other sites and the small number of drywallers whose reported
wages were to be verified.




Page 22                                         GAO/HEHS-99-21 Davis-Bacon Act
                                         B-280302




Figure 6: Geographic Dispersion of Contractors in Pennsylvania Area Survey




Labor Assumes Data Are                   Labor assumes that data from contractors that are unable to provide or
Accurate When Contractors                refuse access to supporting documentation are correct by including them
Refuse or Are Unable to                  in the wage rate calculations. A more reasonable assumption would be
Provide Supporting                       that data from contractors who refuse access have a greater chance of
Documentation                            being inaccurate than data from contractors who provide access. Labor




                                         Page 23                                       GAO/HEHS-99-21 Davis-Bacon Act
B-280302




did not have comprehensive data on the reasons contractors would not
provide access to the payroll records necessary to verify reported wage
data. Both Labor’s wage analysts and the on-site accounting firm auditors
reported that contractors had many reasons for not participating, such as
not wanting to devote the necessary resources to access the records or
that the records were no longer available. It is also possible, however, that
wage data may be fraudulent or carelessly reported, because contractors
who knowingly submit fraudulent data may be unlikely to voluntarily
submit to an audit of their payroll records out of fear of prosecution for
committing a federal crime.

As shown in figure 7, 27 percent of the contractors selected for verification
either refused or were unable to provide on-site auditors access to some
or all of the payroll records required for verification. For the 30 on-site
audits for which Labor has received preliminary reports, auditors were
unable to visit 20 percent, or 59, of the 293 contractors selected for on-site
verification either because the contractors would not participate in on-site
verification or the accounting firm was unable to schedule an acceptable
time for auditors to visit. Another 7 percent of the contractors denied or
were unable to provide access to some or all of the necessary payroll
records after the auditors arrived at the contractors’ offices.25 Labor’s OIG
found in its verification review that access to payroll records was the most
important factor in successfully verifying wage data.




25
  Labor sometimes asks government contracting agencies to provide certified payroll records, but it
reported limited success in obtaining these records.



Page 24                                                         GAO/HEHS-99-21 Davis-Bacon Act
                                 B-280302




Figure 7: Access Provided by
Contractors to Payroll Records




                                 While Labor does not have legal authority under the Davis-Bacon Act to
                                 access payroll records for workers involved in private construction, it
                                 does have authority to access such records for federally funded or assisted
                                 construction work covered by the act. Labor officials told us that they do
                                 not exercise this right because to do so might result in reduced accuracy
                                 of future wage determinations if it discouraged contractors from
                                 voluntarily providing wage data for future surveys.

Verifying Data Only With         Labor’s procedure of verifying wage data only with contractors also limits
Contractors Limits Accuracy of   the accuracy gains achievable from the verification process and could
Wage Determinations              actually result in decreased accuracy. For example, our review of on-site
                                 verification reports found wage data, including fringe benefit data,
                                 submitted by third parties that auditors were unable to verify through the
                                 contractor. The contractor either did not have records on fringe benefits
                                 paid or refused the auditors access to any payroll records. In some cases
                                 in which the contractor did not verify the accuracy of the fringe benefits,
                                 the auditors recorded $0 under the fringe benefits as though the reported
                                 data were inaccurate. These workers, however, were covered by a
                                 collective bargaining agreement. Especially for fringe benefits paid under
                                 collective bargaining agreements, unions often have documentation to
                                 verify amounts paid. In fact, regional wage analysts told us that, in some
                                 cases, unions may be the only source of data on fringe benefits. By not
                                 seeking documentation from the third party, the verification process may




                                 Page 25                                         GAO/HEHS-99-21 Davis-Bacon Act
                            B-280302




                            have erroneously reduced the amount of wages and fringe benefits paid
                            and thus contributed to a less accurate wage determination.


Verification Process Adds   As would be expected, verification efforts have increased the time
Time to Issuance of Wage    required to issue wage determinations after the area survey has been
Determinations              completed. Labor does not collect data on the amount of time required to
                            complete telephone verification, but Labor officials who administer the
                            wage determination process estimated that telephone verification added
                            an average of 2 weeks to the process. Telephone verification can be
                            accomplished relatively quickly because Labor can conduct telephone
                            verification as wage data are being submitted. In addition, it does not
                            require travel, which would add time and expense.

                            On-site verification, however, adds much more time—months rather than
                            weeks—to the process because (1) it requires travel and (2) in order to
                            identify all wage data forms related to a specific contractor and more
                            efficiently manage travel, it does not begin until after the survey cutoff
                            date for wage forms has passed. In fact, regional wage analysts told us that
                            they do not send the surveys to the accounting firm for on-site verification
                            until the telephone verification and all preliminary analysis have been
                            completed such that wage determinations are ready to be forwarded to the
                            national office for review and publication. Our analysis of the 30 area
                            surveys for which the auditors submitted preliminary reports shows that
                            the time between when Labor sent the area survey data to the accounting
                            firm for verification and when Labor received the firm’s preliminary report
                            ranged from 36 to 408 days, with an average of 211 days. However, Labor
                            officials told us they cannot begin final calculations until they receive the
                            final report from the auditors, which incorporates the results of
                            discussions with Labor. Other Labor activities, such as reviewing the
                            results of on-site verification audits and making any necessary
                            adjustments to wage determinations before issuance, also add time to the
                            wage determination process, but Labor has no data to estimate the amount
                            of time these activities take. Thus, while the impact verification is having
                            on timeliness is greater than the time elapsed between when Labor
                            forwards the surveys to the auditors and receives the preliminary report,
                            the total time required is not available. WHD officials told us that they
                            expect this delay will decrease over time, attributing some of it to the time
                            required for WHD staff and accounting firm auditors to master the
                            verification process.




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                          B-280302




Verification Process      While the effect of the verification process on the accuracy of data used in
Facilitates Long-Term     wage determinations has been minimal, these efforts may have a greater
Efforts to Improve Wage   impact over the long term by deterring contractors and third parties from
                          submitting inaccurate or fraudulent data, educating contractors about
Survey Process            wage data form procedures, and assisting Labor in its reengineering
                          efforts. Labor officials stated that they had focused their verification
                          procedures on identifying and deterring fraud rather than on ensuring the
                          accuracy of the wage determinations. But they also told us that the value
                          of verification as a deterrent to the submission of fraudulent wage data
                          must be balanced with its potential to deter voluntary participation in
                          future Davis-Bacon Act surveys, which could, conversely, reduce the
                          accuracy of the wage determinations.

                          Verification efforts may help educate contractors about how to complete
                          wage survey forms properly. But Labor’s procedure of not including
                          third-party submitters in the verification process limits the potential for
                          verification to improve the accuracy of future wage determinations. Third
                          parties do not benefit from the potential educational value that verification
                          has because they are not informed of any errors identified on the WD-10s
                          they submitted, nor do they learn how to properly complete them.

                          Through its verification efforts, Labor has also obtained information that it
                          is using in its long-term efforts to reengineer the wage determination
                          process. Labor included in the on-site verification process questions to
                          contractors about the wage survey form and its terms, such as whether the
                          contractors had difficulty understanding and completing the survey form.
                          Of those contractors who reported confusion or difficulty with the form,
                          many identified the “peak week” and the number of workers employed
                          during the peak week as major sources of confusion.26 In addition, the
                          accounting firm found in the course of its on-site payroll verification that
                          contractors and third parties that submitted wage data had difficulty
                          completing the form, including accurately identifying the job classification
                          of workers. The auditors found that these difficulties affected the accuracy
                          of the wage data reported. For example, for the nine area surveys for
                          which the auditors completed final reports, they identified errors in wage
                          data for 38 percent of all contractors visited caused by misidentification of
                          the peak week. Labor is also redesigning its wage reporting form, which
                          responds to concerns raised by contractors during on-site verification.




                          26
                           The “peak week” refers to the work week in which the contractor employed the largest number of
                          workers in a particular craft or classification for work on a specific project.



                          Page 27                                                       GAO/HEHS-99-21 Davis-Bacon Act
              B-280302




              Labor is also piloting a statewide survey using wage data for “total
              man-hours” in place of wage data for the peak week.27


              Without accurate and timely data, Labor cannot determine prevailing wage
Conclusions   rates that correctly reflect the labor market. While obtaining accurate
              wage data through Labor’s voluntary surveys will not ensure that wage
              rate determinations are accurate, inaccurate data guarantee inaccurate
              wage determinations. We recognize that achieving 100-percent accuracy is
              not possible. However, inaccurate prevailing wage determinations could
              lead to the payment of wages that are either lower than what workers
              should receive or higher than the actual prevailing wages, which would
              inflate construction costs at the taxpayers’ expense. A system to verify
              wage data submitted by contractors and third parties is necessary to
              ensure that inaccurate data do not have a negative effect on the prevailing
              wage determination.

              As directed by the House Appropriations Committee, Labor has
              implemented a process to verify wage data submitted by both contractors
              and third parties. This process allows it to identify and correct errors it
              finds in wage data reported. It may also have a positive impact on the
              accuracy of wage data obtained in future wage surveys by educating
              contractors on the proper completion of wage data forms. In addition, this
              process has helped Labor obtain information that will assist it in
              reengineering efforts. For example, errors in wages reported often occur
              because of confusion by contractors and third parties over how to report
              workers and wages for the peak week. Labor is exploring the alternative
              use of “man-hours” rather than peak week, which may be easier for
              contractors and third parties to report.

              The process Labor is using, however, is unnecessarily costly, in terms of
              both money and time. On-site verification is a costly approach to verifying
              wage data, and it delays the issuance of wage rate determinations by
              months, especially when compared with telephone verification that is
              combined with supporting payroll records submitted upon request. On-site
              verification requires a cadre of auditors to travel to worksites around the
              country to review payroll records. While Labor’s OIG found that access to
              payroll records was essential to successfully verifying wage data, the
              process need not require that the contractor be contacted in person rather

              27
               Total man-hours differs from the peak week. Total man-hours does not count the number of workers,
              but the number of total hours worked within a specific job classification for the entire length of the
              project. In contrast, peak week counts the number of workers within a job classification for only one
              week, regardless of the number of hours worked and the wages paid them.



              Page 28                                                         GAO/HEHS-99-21 Davis-Bacon Act
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than by telephone. Obtaining copies of payroll records by mail as part of
the telephone verification is significantly less costly and takes less time.

Relying on a random rather than a judgmental sample limits the accuracy
gains achievable through verification. While a random sample is often
assumed to be better than a judgmental sample, it is actually less effective
in selecting wage data forms to verify that will have an impact on the
accuracy of the wage determinations. Labor does not gain the most
significant benefits of a random sample—that is, being able to assume that
errors found in verified wage data forms are representative of all wage
data forms and adjust wage rates accordingly—because it is not feasible to
verify a sufficiently large number of wage data forms. In contrast, a
carefully designed judgmental sample to select contractors for verification
could consider the likelihood that the data will be used, the number of
workers within a job classification, and the geographic dispersion of
contractors.

The impact of Labor’s verification procedures on the accuracy of the wage
determinations is also limited by the action it takes when documentation
cannot readily be obtained from a contractor. In our view, at least two
aspects of Labor’s verification procedures contribute to limiting accuracy.
First, contractors may refuse access to supporting documentation for
many legitimate reasons—such as the time required—but contractors who
refuse to provide the supporting documentation are more likely than those
who provide access to have submitted fraudulent or carelessly reported
data. Labor, however, (1) accepts the data and uses it as if documentation
had supported it and (2) allows federal contractors to deny access to the
supporting documentation even though Labor has the legal authority to
access their records. While discarding all such data might have negative
consequences on Labor’s ability to issue wage determinations, accepting
all such data may contribute to inaccurate wage determinations. Labor’s
approach does not achieve the needed balance in deciding which data to
include and exclude.

Second, Labor sometimes eliminates or revises data inappropriately when
it does not seek supporting documentation from third parties that have
submitted it. Wage data submitted for a project by a third party are
generally verified against the payroll or oral testimony of the contractor
associated with that project. The third party that submitted the original
WD-10 is not provided the opportunity to validate the information it
submitted; final corrections are generally provided only by the contractor.
As a result, data supplied by third parties may be eliminated or revised



Page 29                                          GAO/HEHS-99-21 Davis-Bacon Act
                      B-280302




                      inaccurately, even though, in some cases, only the third party, not the
                      contractor, can provide supporting documentation, for example, for
                      benefits provided by a union. Supporting documentation provided by third
                      parties could improve the completeness and thus the accuracy of the data
                      used.


                      To reduce the cost of verification and increase the benefits, we
Recommendations       recommend that the Secretary of Labor direct the WHD Administrator to
                      revise verification procedures to maximize the expected value to be
                      gained from verification. Specifically, Labor should

                  •   increase the use of telephone verification—while decreasing on-site
                      verification audits—and increase efforts to obtain payroll documentation
                      from all selected submitters;
                  •   change the procedures used to select wage data for verification, using a
                      judgmental sample of wage data forms based on the potential impact of
                      the data on prevailing wage rate determinations rather than using a
                      random sample; and
                  •   revise verification procedures to take more appropriate action when
                      documentation cannot readily be obtained from a contractor, such as not
                      using data when supporting documentation is requested but not provided,
                      requiring documentation where possible, and giving third parties an
                      opportunity to provide supporting documentation for data they submitted.


                      We provided a draft of this report to the Department of Labor for its
Agency Comments       review and comment. It generally agreed with our recommendations and
                      agreed to implement them by revising the verification process. Labor also
                      stated that our report was generally helpful and that some of our
                      recommendations would decrease costs and improve timeliness. However,
                      the Department took issue with some of our conclusions concerning the
                      accuracy of survey data submissions by contractors and the use of data
                      from contractors who refuse auditors access to supporting payroll
                      records. Labor also provided technical comments and corrections, and we
                      have revised our report as necessary.

                      With regard to the accuracy of the survey data, Labor stated that despite
                      the many errors found by both the on-site auditors and Labor’s OIG, the
                      limited revisions to wage determinations that resulted from correcting
                      these errors demonstrated that the wage determinations closely
                      approximated the accurate prevailing wage rate. We disagree, because the



                      Page 30                                       GAO/HEHS-99-21 Davis-Bacon Act
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small number of data submissions verified is not a valid representative
sample of all data submissions used to calculate the revised wage
determinations. Furthermore, the OIG’s report does not support Labor’s
conclusion. It states that: “The errors we discovered did not materially
change many of the wage decisions because the data we sampled often
represented a small portion of the responses for an individual WH
survey. . . . If we had conducted more payroll reviews, we believe more
exceptions would have been identified and would have revealed more
material errors in published wage decisions.”

With regard to the use of data when contractors refuse access to the
supporting payroll records, Labor disagreed with our conclusion that
contractors unable or unwilling to provide auditors access to payroll
records are more likely to have submitted fraudulent data than those who
provide records. Labor based its conclusions that contractors try to
provide accurate and complete information on the data verification that
has been done to date by both Labor’s OIG and WHD. Basing conclusions
about contractors unwilling or unable to provide access to payroll records
on verification of data from contractors that do provide access is not
logical or convincing. We continue to believe that employers submitting
fraudulent or unsubstantiated wage data forms are unlikely to voluntarily
provide access to payroll records for review. Because all verification
efforts conducted to date, including those of the OIG, have relied on
voluntary access to payroll records, the absence of fraud in verified wage
data submissions provides no evidence that contractors who denied
access did not submit fraudulent data.

We have, however, clarified our conclusion on the use of data submitted
by contractors or third parties that do not cooperate with verification
efforts to allow Labor analysts to use judgment in deciding when to
exclude such data from its wage determination calculations. For example,
we agree that Labor should consider including data from contractors that
routinely cooperated with data verification efforts in the past and whose
data were determined to be generally accurate. Another factor to consider
would be the possible adverse impact of discarding specific data on
Labor’s ability to issue a wage determination.

Finally, in agreeing to select data using a judgmental sample, Labor stated
that it intends to continue selecting some data for verification using a
systematic sample, albeit fewer than it does now. To the extent that data
selected randomly represent a small segment of all data verified, Labor’s
proposed approach is consistent with our recommendation.



Page 31                                         GAO/HEHS-99-21 Davis-Bacon Act
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We are sending copies of this report to the Secretary of Labor, appropriate
congressional committees, and other interested parties.

Please call me at (202) 512-7014 or Larry Horinko at (202) 512-7001 if you
or your staffs have any questions about this report. Other major
contributors were John Carney, Robert G. Crystal, Lise Levie, Ann P.
McDermott, Elizabeth T. Morrison, and Ronni Schwartz.




Carlotta C. Joyner
Director, Education and
  Employment Issues




Page 32                                         GAO/HEHS-99-21 Davis-Bacon Act
B-280302




List of Addressees

The Honorable Ted Stevens
Chairman
The Honorable Robert C. Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate

The Honorable Arlen Specter
Chairman
The Honorable Tom Harkin
Ranking Minority Member
Subcommittee on Labor, Health and Human
  Services, and Education
Committee on Appropriations
United States Senate

The Honorable C.W. Bill Young
Chairman
The Honorable David R. Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives

The Honorable John Edward Porter
Chairman
The Honorable David R. Obey
Ranking Minority Member
Subcommittee on Labor, Health and Human
  Services, Education and Related Agencies
Committee on Appropriations
House of Representatives




Page 33                                      GAO/HEHS-99-21 Davis-Bacon Act
Contents



Letter                                                                                               1


Appendix I                                                                                          36
Objectives, Scope,
and Methodology
Appendix II                                                                                         38
                         Stage 1: Planning and Scheduling Survey Activity                           38
Labor’s Wage             Stage 2: Conducting Surveys of Participants                                41
Determination            Stage 3: Clarifying and Analyzing Respondents’ Data                        42
                         Stage 4: Issuing the Wage Determinations                                   45
Process Under the        Labor’s Appeals Process                                                    45
Davis-Bacon Act
Appendix III                                                                                        47
Sample Letters Sent to
Contractors Selected
for Verification
Appendix IV                                                                                         49
Methodological Issues
in Labor’s Sampling
Procedures
Appendix V                                                                                          52
Comments From the
Department of Labor
Related GAO Products                                                                                60


Table                    Table IV.1: Sampling Sizes, by Job Classification, Required to             50
                           Ensure a Representative Sample for Selected Area Survey


Figures                  Figure 1: Flowchart of Wage Determination Process                           5




                         Page 34                                         GAO/HEHS-99-21 Davis-Bacon Act
Contents




Figure 2: Examples of Wage Data Forms Submitted for an Area               8
  Survey
Figure 3: Selecting Wage Data Forms for Verification                     13
Figure 4: Status of 85 Area Surveys Subject to On-Site                   17
  Verification, as of September 30, 1998
Figure 5: Calculation Comparing Effect of Correcting Errors on           21
  Simplified Hypothetical Wage Data Forms
Figure 6: Geographic Dispersion of Contractors in Pennsylvania           23
  Area Survey
Figure 7: Access Provided by Contractors to Payroll Records              25




Abbreviations

CBA        collective bargaining agreement
OIG        Office of Inspector General
RSPR       Regional Survey Planning Report
WHD        Wage and Hour Division


Page 35                                       GAO/HEHS-99-21 Davis-Bacon Act
Appendix I

Objectives, Scope, and Methodology


                 The House Committee on Appropriations in its reports on appropriations
                 for the Departments of Labor, Health and Human Services, and Education
                 and related agencies for fiscal years 1998 and 1999 asked us to (1) review
                 the Department of Labor’s efforts to verify a random sample of employers’
                 wage data submissions and select a sample of submissions for on-site data
                 verification and (2) determine the likely effect of these efforts on the
                 accuracy and timeliness of Davis-Bacon wage determinations.

                 To describe Labor’s actions, we interviewed Department of Labor officials
                 in the Wage and Hour Division (WHD) at both headquarters and the five
                 regional offices responsible for determining prevailing wage rates. At the
                 southeast regional office in Atlanta, Georgia, we interviewed WHD officials
                 and reviewed the wage determination process in more detail, including
                 reading relevant documentation and reviewing the process used to create
                 a computerized database of wage data forms. We also obtained a draft of
                 WHD’s procedures for telephone and on-site verification and task orders for
                 on-site verification. In addition, we interviewed representatives of the
                 private accounting firm contracted to conduct on-site payroll verification,
                 who provided time schedules, cost data, and other information about the
                 firm’s on-site reviews.

                 To determine the likely effect of Labor’s verification efforts, we obtained
                 and analyzed data from a number of different sources. These data include
                 the following:

             •   all available WHD preliminary analyses (forms WD-22) for all wage surveys
                 sent to the contractor for verification for the 18-month period from the
                 beginning of on-site verification in April 1997 through September 1998;
             •   all preliminary and final reports completed by the accounting firm for
                 on-site audits as of September 30, 1998; and
             •   electronic records of wage data forms (forms WD-10) maintained by WHD
                 under contract with Computer Data Systems, Inc., concerning the area
                 surveys for which the accounting firm had issued final reports for on-site
                 verification.

                 Using these and other data provided by WHD, we conducted several
                 analyses.

             •   To obtain the average error amount in wage rates and the percentage of
                 wage data forms with errors for the nine area surveys for which the
                 accounting firm issued final reports, we identified the dollar value of
                 errors on each WD-10 by job classification. We determined the dollar value



                 Page 36                                         GAO/HEHS-99-21 Davis-Bacon Act
    Appendix I
    Objectives, Scope, and Methodology




    of errors in wage rates by calculating the absolute value of the difference
    between the sum of the reported wages and fringe benefits and the sum of
    the verified wages and fringe benefits. We weighted the amount of error by
    the lower of the number of employees reported or the number of
    employees verified. Because the auditors were not consistent in their
    analysis and reporting, as necessary we made assumptions about
    individual wage rates, such as when an average wage rate was reported
    but individual wage rates were verified. We then calculated the average of
    the absolute value of error for all workers.
•   To determine the percentage of contractors providing full and partial
    access to payroll records, we analyzed data in the 30 preliminary reports
    summarizing the results of on-site verification audits. Specifically, we
    counted the number of selected contractors the auditors reported as
    refusing access and those the auditors failed to access despite persistent
    efforts over a matter of weeks or months. For those contractors who
    allowed the auditors access to the workplace, we identified the number of
    contractors unable or unwilling to provide access to the payroll records
    necessary to verify the wage rates reported on the selected forms WD-10.
•   To determine the amount of time between when Labor sent area survey
    data to the auditor for on-site verification and when Labor received the
    auditor’s preliminary report, we relied on data provided by WHD for the 30
    surveys with preliminary reports completed by the auditor. We computed
    the time elapsed between the date Labor sent the survey to the auditor for
    on-site verification and the date the regional office received the
    preliminary report.

    In addressing the second objective, we recognize that while accurate wage
    data are necessary, they are not sufficient to ensure that wage
    determinations accurately reflect the prevailing wage that a contractor
    would have to pay to obtain construction workers from the local area at
    the market wage. Other issues must be considered to improve the wage
    determination process, such as the time lag between obtaining the wage
    surveys and issuing the wage determinations. Labor is exploring options to
    reengineer its wage determination process in the long term, which we will
    review at a later date. We did not attempt to assess the accuracy of the
    prevailing wage determinations that result from these surveys, which was
    outside the scope of this review. We also did not verify the results of
    on-site audit reviews; we focused on problems with procedures used
    rather than contract compliance.




    Page 37                                        GAO/HEHS-99-21 Davis-Bacon Act
Appendix II

Labor’s Wage Determination Process Under
the Davis-Bacon Act

                            The Davis-Bacon Act requires that workers employed on federal
                            construction contracts valued in excess of $2,000 be paid, at a minimum,
                            wages and fringe benefits that the Secretary of Labor determines to be
                            prevailing for corresponding classes of workers employed on projects that
                            are similar in character to the contract work in the geographic area where
                            the construction takes place.

                            To determine the prevailing wages and fringe benefits in various areas
                            throughout the United States, Labor’s WHD periodically surveys wages and
                            fringe benefits paid to workers in four basic types of construction
                            (building, residential, highway, and heavy).28 Labor has designated the
                            county as the basic geographic unit for data collection, although Labor
                            also conducts some surveys setting prevailing wage rates for groups of
                            counties. Wage rates are issued for a series of job classifications in the
                            four basic types of construction, so each wage determination requires the
                            calculation of prevailing wages for many different trades, such as
                            electrician, plumber, and carpenter. For example, in 1996 the prevailing
                            wage rates for the Washington, D.C., metropolitan area included wage
                            rates for 143 different construction trade occupations. Because there are
                            over 3,000 counties, more than 12,000 surveys could be conducted each
                            year if every county in the United States was surveyed. In fiscal year 1997,
                            Labor issued 1,860 individual wage rate determinations based on 43 area
                            wage surveys. As shown in figure 1, Labor’s wage determination process
                            consists of four basic stages:

                        •   planning and scheduling surveys of employer wages and fringe benefits in
                            similar job classifications on comparable construction projects;
                        •   conducting surveys of employers and third parties, such as representatives
                            of unions or industry associations, on construction projects;
                        •   clarifying and analyzing respondents’ data; and
                        •   issuing the wage determinations.29


                            Labor annually identifies the geographic areas that it plans to survey.
Stage 1: Planning and       Because Labor has limited resources, a key task of Labor’s staff is to
Scheduling Survey           identify those counties and types of construction most in need of a new
Activity
                            28
                             Heavy construction is a catch-all grouping that includes projects not properly classified under the
                            other three types of construction: for example, dredging and sewer projects.
                            29
                              A wage determination is the listing of wage and fringe benefit rates for each classification of workers
                            that the WHD administrator has determined to be prevailing in a given area for a type of construction.
                            Each wage determination involves establishing prevailing wage rates for many occupations.



                            Page 38                                                           GAO/HEHS-99-21 Davis-Bacon Act
                               Appendix II
                               Labor’s Wage Determination Process Under
                               the Davis-Bacon Act




                               survey.30 In selecting areas for inclusion in planned surveys, the regional
                               offices establish priorities based on criteria that include

                           •   the need for a new survey based on the volume of federal construction in
                               the area;
                           •   the age of the most recent survey; and
                           •   requests or complaints from interested parties, such as state and county
                               agencies, unions, and contractors’ associations.

                               If a type of construction in a particular county is covered by a wage
                               determination based on collective bargaining agreements (CBA) and Labor
                               has no indication that the situation has changed such that a wage
                               determination should now reflect nonunion rates, an updated wage
                               determination may be based on updated CBAs. The unions submit their
                               updated CBAs directly to the national office.


The Regional Survey            Planning begins in the third quarter of each fiscal year when the national
Planning Report Shows          office provides regional offices with the Regional Survey Planning Report
Where Federally Financed       (RSPR). The RSPR provides data, obtained under contract with the F.W.
                               Dodge Division of McGraw-Hill Information Systems, showing the number
Construction Is                and value of active construction projects by region, state, county, and type
Concentrated                   of construction and giving the percentage of total construction that is
                               federally financed.31 Labor uses the F.W. Dodge data because they
                               comprise the only continuous nationwide database on construction
                               projects. Labor supplements the F.W. Dodge data with additional
                               information provided to the national office by federal agencies regarding
                               their planned construction projects. The RSPR also includes the date of the
                               most recent survey for each county and whether the existing wage
                               determinations for each county are union, nonunion, or a combination of
                               both.

                               Using this information, the regional offices, in consultation with the
                               national office, designate the counties and type of construction to be
                               included in the upcoming regional surveys. Although Labor usually
                               designates the county as the geographic unit for data collection, in some
                               cases more than one county is included in a specific data-gathering effort.




                               30
                                 In 1996, the average age of a wage survey was more than 7 years.
                               31
                                The F.W. Dodge data consider a project to be active from the time on-site work begins (ground
                               breaking) until it is released to and accepted by the owner.



                               Page 39                                                          GAO/HEHS-99-21 Davis-Bacon Act
                           Appendix II
                           Labor’s Wage Determination Process Under
                           the Davis-Bacon Act




                           The regional offices determine the resources required to conduct each of
                           the priority surveys. When all available resources have been allocated, the
                           regional offices transmit to the national office for review their schedules
                           of the surveys they plan to do: the types of construction, geographic area,
                           and time periods that define each survey.

                           When Labor’s national office has approved all regional offices’ preliminary
                           survey schedules, it assembles them in a national survey schedule that it
                           transmits to interested parties, such as major national contractor and
                           labor organizations, for their review and comment. The national office
                           transmits any comments or suggestions received from interested parties to
                           its affected regional offices. Organizations proposing modifications of the
                           schedule are asked to support their perceived need for alternative survey
                           locations by providing sufficient evidence of the wages paid to workers in
                           the type of construction in question in the area where they want a survey
                           conducted.


Each Regional Office       The target date for establishing the final fiscal year survey schedule is
Obtains a File of Active   September 15. Once the national office has established the final schedule,
Projects That Match Its    each regional office starts to obtain information it can use to generate lists
                           of survey participants for each of the surveys it plans to conduct. Each
Survey Objectives          regional office then contacts Construction Resources Analysis at the
                           University of Tennessee, which applies a model to the F.W. Dodge data
                           that identifies all construction projects in the start-up phase32 within the
                           parameters specified in the regional office’s request and produces a file of
                           projects that were active during a given time period. The time period may
                           be 3 months or longer, depending on whether the number of projects
                           active during the period is adequate for a particular survey. F.W. Dodge
                           provides information on each project directly to the regional offices. The
                           F.W. Dodge reports for each project include the location, type of
                           construction, and cost; the name and address of the contractor or other
                           key firm33 associated with the project; and, if available, the
                           subcontractors.34




                           32
                            F.W. Dodge defines the start-up phase as one in which the construction will commence within 60
                           days.
                           33
                             Other examples of key firms would be the owner or architect of the project.
                           34
                            A subcontractor is an employer that has a contractual agreement with the project’s prime employer.
                           On a typical construction project, most employees working on the job will be employees of
                           subcontractors.



                           Page 40                                                          GAO/HEHS-99-21 Davis-Bacon Act
                                  Appendix II
                                  Labor’s Wage Determination Process Under
                                  the Davis-Bacon Act




Analysts Screen Projects to       When the F.W. Dodge reports are received by the regional offices, Labor
Determine Those to Be             analysts screen them to make sure the projects meet four basic criteria for
Surveyed                          each survey. The project must

                              •   be of the correct construction type,
                              •   be in the correct geographic area,
                              •   fall within the survey time frame, and
                              •   have a value of at least $2,000.

                                  In addition to obtaining files of active projects, Labor analysts are
                                  encouraged to research files of unsolicited information that may contain
                                  payment evidence submitted in the past that is within the scope of a
                                  current survey.


                                  When the regional offices are ready to conduct the new surveys, they send
Stage 2: Conducting               a WD-10 wage reporting form to each contractor (or employer) identified
Surveys of                        by the F.W. Dodge reports as being in charge of one of the projects to be
Participants                      surveyed, together with a transmittal letter that requests information on
                                  any additional applicable projects the contractor may have. Every WD-10
                                  that goes out for a particular project has on it a unique project code, the
                                  location of the project, and a description of it. Data requested on the
                                  WD-10 include a description of the project and its location, in order to
                                  assure the regional office that each project for which it receives data is the
                                  same as the one it intended to have in the survey (see examples in fig. 2).
                                  The WD-10 also requests the contractor’s name and address; the value of
                                  the project; the starting and completion dates; the wage rate, including
                                  fringe benefits, paid to each worker; and the number of workers employed
                                  in each classification during the week of peak activity for that
                                  classification. The week of peak or highest activity for each job
                                  classification is the week when the most workers were employed in that
                                  particular classification. The survey respondent is also asked to indicate
                                  which of four categories of construction the project belongs in.

                                  In addition, about 2 weeks before a survey is scheduled to begin, regional
                                  offices send WD-10s and transmittal letters to a list of third parties, such as
                                  national and local unions and industry associations, to encourage
                                  participation. Labor encourages the submission of wage information from
                                  third parties, including unions and contractors’ associations that are not
                                  the direct employers of the workers in question, in an effort to collect as




                                  Page 41                                           GAO/HEHS-99-21 Davis-Bacon Act
                            Appendix II
                            Labor’s Wage Determination Process Under
                            the Davis-Bacon Act




                            much data as possible.35 Third parties that obtain wage data for their own
                            purposes may share it with Labor without identifying specific workers. For
                            example, union officials need wage information to correctly assess
                            workers’ contributions toward fringe benefits. Third-party data generally
                            serve as a check on data submitted by contractors if both submit data on
                            the same project. Regional offices also organize local meetings with
                            members of interested organizations to explain the purpose of the surveys
                            and how to fill out the WD-10.

                            Because the F.W. Dodge reports do not identify all the subcontractors,
                            both the WD-10 and the transmittal letter ask for a list of subcontractors
                            on each project. Subcontractors generally employ the largest portion of
                            on-site workers, so their identification is considered critical to the success
                            of the wage survey. Analysts send WD-10s and transmittal letters to
                            subcontractors as subcontractor lists are received.

                            Transmittal letters also state that survey respondents will receive an
                            acknowledgment of data submitted and that the respondent should
                            contact the regional office if one is not received. Providing an
                            acknowledgment is intended to reduce the number of complaints that data
                            furnished were not considered in the survey. Labor analysts send
                            contractors who do not respond to the survey a second WD-10 and a
                            follow-up letter. If they still do not respond, analysts attempt to contact
                            them by telephone to encourage them to participate.



Stage 3: Clarifying and
Analyzing
Respondents’ Data

Analysts Review the Data    As the Labor wage analysts receive the completed WD-10s in the regional
Submitted as They Receive   offices, they review and analyze the data. Labor’s training manual guides
Them                        the analyst through each block of the WD-10, pointing out problems to
                            look for in data received for each one. Analysts are instructed to write the
                            information they received by telephone directly on the WD-10 in a
                            contrasting color of ink, indicating the source and the date received. They

                            35
                              Labor officials said that third-party data submissions generally account for about one-third of all
                            wage survey submissions. The percentage of survey respondents that are third parties can be
                            substantial for surveys of metropolitan areas. Staff estimated that third-party participation may have
                            been as high as 50 percent for one survey of metropolitan building construction. There is little or no
                            third-party participation in surveys of rural areas, staff said.



                            Page 42                                                           GAO/HEHS-99-21 Davis-Bacon Act
                             Appendix II
                             Labor’s Wage Determination Process Under
                             the Davis-Bacon Act




                             are instructed to draw one line through the old information so it is still
                             legible.

                             Labor’s wage analysts review the WD-10s to identify missing information,
                             ambiguities, and inconsistencies that they then attempt to clarify by
                             telephone. For example, an analyst may call a contractor for a description
                             of the work done on a project in order to confirm that a particular project
                             has been classified according to the correct construction type. An analyst
                             may also call a contractor to ask about the specific type of work that was
                             performed by an employee in a classification that is reported in generic
                             terms, such as a mechanic. In that situation, the analyst would specify on
                             the WD-10 whether it is a plumber mechanic or some other type of
                             mechanic to make sure that the wages reported are appropriately matched
                             to the occupations that are paid those rates.

                             Similarly, because of variations in area practice, analysts may routinely
                             call to find out what type of work the employees in certain classifications
                             are doing. This is because in some areas of the country some contractors
                             have established particular duties of traditional general crafts—for
                             example, carpenters—as specialty crafts, which are usually paid at lower
                             rates than the general craft.


Verifying Third-Party Data   See letter portion of this report for a description of the verification
                             process.


Data Are Recorded and        When an analyst is satisfied that any remaining issue with respect to the
Tabulated                    data on the forms WD-10 for a particular project have been resolved, the
                             data are recorded and tabulated. The analyst enters them into a computer,
                             which uses the data to generate a Project Wage Summary, form WD-22a,
                             for reporting survey information on a project-by-project basis. The WD-22a
                             has a section for reporting the name, location, and value of each project;
                             the number of employees who were in each classification; and their hourly
                             wage and fringe benefits. It also has a section for reporting the date of
                             completion or percentage of the project completed, whichever is
                             applicable.


Analysts Determine           At least 2 weeks before the survey cutoff date, the response rate for the
Whether Data Are             survey is calculated to allow time to take follow-up action if the response
Adequate                     rate is determined to be inadequate. For example, WHD operational



                             Page 43                                           GAO/HEHS-99-21 Davis-Bacon Act
                            Appendix II
                            Labor’s Wage Determination Process Under
                            the Davis-Bacon Act




                            procedures specify that if data gathered for building or residential surveys
                            provide less than a 25-percent usable response rate or less than one-half of
                            the required key classes of workers,36 the analyst will need to obtain data
                            from comparable federally financed projects in the same locality.37

                            If an analyst has no data on occupations identified by Labor as key
                            classifications of workers for the type of construction being surveyed,
                            Labor’s procedures require him or her to call all the subcontractors
                            included in the survey who do that type of work and from whom data are
                            missing, to try to get data. If the analyst still cannot obtain sufficient data
                            on at least one-half of the required key classes, consideration must be
                            given to expanding the scope of the survey geographically to get more
                            crafts represented. If the overall usable response rate for the survey is
                            25 percent or more, data on three workers from two contractors are
                            sufficient to establish a wage rate for a key occupation.

                            After the survey cutoff date, when all valid data have been recorded and
                            tabulated, the final survey response rate is computer-generated. Typically,
                            it takes a WHD analyst 4 months to conduct a survey.


Prevailing Wage Rates Are   Once all the valid project data have been entered, the prevailing wage rate
Computer-Generated          for each classification of worker can be generated by computer. If there is
                            a majority of workers paid at a single rate in a job classification, that rate
                            prevails for the classification. The wage rate needs to be the same, to the
                            penny, to constitute a single rate. If there is no majority paid at the same
                            rate for a particular classification, a weighted average wage rate for that
                            occupation is calculated.

                            The prevailing wage rate for each occupation is compiled in a
                            computer-generated comprehensive report for each survey, called the
                            Wage Compilation Report, form WD-22. The WD-22 lists each occupation
                            and the wage rate recommended for that occupation by the regional office.
                            The form indicates whether the rate is based on a majority or a weighted
                            average, and provides the number of workers for which data were used to
                            compute each wage rate. The regional offices transmit survey results to
                            the national office, which reviews the results and recommends further
                            action if needed.


                            36
                             Labor defines key classes of workers as those determined necessary for each of the four types of
                            construction surveys.
                            37
                             Since 1985, regulation has prohibited, to the extent practicable, the use of wages for federal
                            construction in determining prevailing wages.


                            Page 44                                                           GAO/HEHS-99-21 Davis-Bacon Act
                          Appendix II
                          Labor’s Wage Determination Process Under
                          the Davis-Bacon Act




                          When all its recommendations have been acted upon, the national office
Stage 4: Issuing the      issues the wage determination. These determinations are final. There is no
Wage Determinations       review or comment period provided to interested parties before they go
                          into effect. Access to wage determinations is provided both in printed
                          reports available from the U.S. Superintendent of Documents and on an
                          electronic bulletin board. Modifications to general wage determinations
                          are published in the Federal Register.


                          An interested party may seek review and reconsideration of Labor’s final
Labor’s Appeals           wage determinations. The national office and the regional offices accept
Process                   protests and inquiries relating to wage determinations at any time after a
                          wage determination has been issued. The national office refers all the
                          complaints it receives to the relevant regional offices for resolution. Most
                          inquiries are received informally by telephone, although some are written
                          complaints. Regional office staff said that a majority of those with
                          concerns appear to have their problems resolved after examining the
                          information (collected on a form WD-22a) for the survey at issue, because
                          they do not pursue the matter further. If an examination of the forms does
                          not satisfy the complainant’s concerns, the complainant is required to
                          provide information to support his or her claim that a wage determination
                          needs to be revised. The national office modifies published wage
                          determinations in cases in which regional offices, on the basis of evidence
                          provided, recommend that it do so, such as when it has been shown that a
                          wage determination was the result of an error by the regional office.
                          However, some of those who seek to have wage rates revised are told that
                          a new survey will be necessary to resolve the particular issue that they are
                          concerned about. For example, if the wage rates of one segment of the
                          construction industry were not adequately reflected in survey results
                          because of a low rate of participation in the survey by that segment of the
                          industry, a new survey would be necessary to resolve this issue.


An Interested Party May   Those who are not satisfied with the decision of the regional office may
Appeal a Decision of      write to the national office to request a ruling by Labor’s WHD
Labor’s WHD               Administrator. If the revision of a wage rate has been sought and denied
                          by a ruling of Labor’s WHD Administrator, an interested party has 30 days to
Administrator             appeal to the Administrative Review Board for review of the wage
                          determination. The board consists of three members appointed by the
                          Secretary of Labor. The Solicitor of Labor represents WHD in cases
                          involving wage determinations before the Administrative Review Board. A




                          Page 45                                         GAO/HEHS-99-21 Davis-Bacon Act
Appendix II
Labor’s Wage Determination Process Under
the Davis-Bacon Act




petition to the board for review of a wage determination must be in writing
and accompanied by supporting data, views, or arguments.




Page 46                                        GAO/HEHS-99-21 Davis-Bacon Act
Appendix III

Sample Letters Sent to Contractors Selected
for Verification




               Page 47            GAO/HEHS-99-21 Davis-Bacon Act
Appendix III
Sample Letters Sent to Contractors Selected
for Verification




Page 48                                       GAO/HEHS-99-21 Davis-Bacon Act
Appendix IV

Methodological Issues in Labor’s Sampling
Procedures

               In reviewing Labor’s process of sampling wage data for verification, we
               identified problems with its sampling methodology that are primarily
               technical in nature. Specifically, although the Congress directed that Labor
               use a random sample in selecting wage data to verify, and Labor describes
               its sample as being “random,” the selection method used does not meet the
               criteria for randomness. Randomness would require that each WD-10 have
               an equal opportunity for being selected. However, while Labor uses a
               systematic sample that does not target any specific wage data for
               verification, it fails to meet the criteria for randomness because not all
               wage submissions have an opportunity of being selected. Labor uses a
               systematic sample, organizing WD-10s by project and by contractor prior
               to selection and then selecting them based on a fixed interval. Labor does
               not require that the first WD-10 selected be based on a number chosen
               purely by chance. For example, to select a sample for telephone
               verification of data submitted by contractors, Labor procedures direct the
               wage analyst to select the 50th, then the 100th. However, because the data
               are organized prior to selection, the first 49 WD-10s are predetermined on
               the basis of the specific project and contractor involved. Therefore, the
               WD-10s for those projects and contractors do not have any chance of
               being selected for verification.

               Labor officials in the national office told us that because of this, they do
               not know whether they have selected enough data for telephone and
               on-site verification to ensure the accuracy of the data used, or whether
               they have selected more data than needed and are wasting resources. As a
               result, they do not know the extent to which data used to calculate wage
               rates have been verified, if at all. For example, using the hypothetical wage
               data forms in figure 2, Labor would know the number of wage forms it had
               selected but would not know whether it was verifying wages for
               drywallers, electricians, or painters. If Labor had selected only one of the
               two wage data forms for verification, it would disregard the fact that one
               form reported wages for 80 drywallers and the other form reported wages
               for 2; it would merely report that it had verified 50 percent of the WD-10s.
               In one of the on-site audit reports we examined, although Labor sampled
               42 percent of WD-10s, the on-site auditor reviewed 28 percent of workers’
               wages and fringe benefits out of all wage data submitted for workers
               employed in that geographic area (390 out of 1,369).38 This resulted in a
               review of 100 percent of data used in calculating prevailing wage
               determinations for job classes such as stone masons, and no verification of
               data used in other job classes, such as painters.

               38
                 To obtain these figures, for one area survey we calculated the number of workers with wages
               reported that were verified as a percentage of the total number of workers with wages reported that
               were used to calculate wage determinations.



               Page 49                                                         GAO/HEHS-99-21 Davis-Bacon Act
                                       Appendix IV
                                       Methodological Issues in Labor’s Sampling
                                       Procedures




                                       To select a random sample that would ensure the accuracy of the data
                                       used to determine prevailing wage rates, Labor would have to sample
                                       workers within each job classification rather than sample wage data forms
                                       as it does now, and it would have to select a sufficient number of workers
                                       within each classification. We calculated the sample size required for a
                                       statistically representative sample in order to be within 50 cents per hour
                                       of the correct wage for one area survey (see table IV.1). The table shows
                                       that Labor would need to select a sample size equal or close to the total
                                       number of workers, because data reported on the number of workers by
                                       job classification can be small.

Table IV.1: Sampling Sizes, by Job
Classification, Required to Ensure a                                                                              Number of
                                                                          Number of workers                       additional
Representative Sample for Selected
Area Survey                                                                                      Required for    workers for
                                                                               Selected for    representative    whom data
                                       Job                  Listed on form           on-site         random       need to be
                                       classification               WD-22       verification         samplea        verified
                                       Accoustical
                                       Ceiling Mechanic                  6                2                6               4
                                       Backhoe Operator                  3                0                3               3
                                       Boilermaker                     140               26               30               4
                                       Brick Mason                      11                5               11               6
                                       Carpenter                        37                6               30              24
                                       Carpenter - Form                  8                0                8               8
                                       Carpenter Helper                 12                5               12               7
                                       Case and
                                       Cabinet Installer                 3                0                3               3
                                       Cement Mason                      1                0                1               1
                                       Crane Operator                    1                0                1               1
                                       Dozer                             2                0                2               2
                                       Drywall Finisher                  5                0                5               5
                                       Drywall Finisher
                                       Helper                            1                0                1               1
                                       Drywall Mechanic                  9                0                9               9
                                       Drywall Mechanic
                                       Helper                            3                0                3               3
                                       Electrician                      33                3               30              27
                                       Electrician Helper               25                3               25              22
                                       Exterminator                      2                0                2               2
                                       Fence Erector                     2                0                2               2
                                       Front End Loader                  2                0                2               2
                                       Glazier                           7                0                7               7
                                                                                                                  (continued)


                                       Page 50                                                 GAO/HEHS-99-21 Davis-Bacon Act
Appendix IV
Methodological Issues in Labor’s Sampling
Procedures




                                                                                       Number of
                                      Number of workers                                additional
                                                                Required for          workers for
                                             Selected for     representative          whom data
Job                  Listed on form                on-site          random             need to be
classification               WD-22            verification          samplea              verified
Glazier Helper                       5                    0                   5                5
HVAC Helper                         16                    0                 16                16
HVAC Mechanic                       38                    0                 30                30
Ironworker,
Structural                          13                    1                 13                12
Laborer, Unskilled                 127                  22                  30                 8
Landscaper                           4                    0                   4                4
Lather                               2                    0                   2                2
Mason Tender                         8                    0                   8                8
Metal Stud Framer                    4                    0                   4                4
Millwright                           2                    0                   2                2
Painter                             20                    0                 20                20
Plasterer                           13                    0                 13                13
Plumber                             19                    0                 19                19
Plumber Helper                      15                    0                 15                15
Roofer                               9                    0                   9                9
Sheetmetal
Worker                               9                    0                   9                9
Sheetmetal
Worker - Metal
Bldg.                               18                    0                 18                18
Sign Installer                       2                    0                   2                2
Softfloor Layer                     10                    0                 10                10
Softfloor Layer
Helper                               3                    0                   3                3
Sprinkler Fitter                     4                    4                   4                0
Sprinkler Fitter
Helper                               2                    1                   2                1
Tile Setter                          3                    0                   3                3
Truckdriver -
Tri-Axle                             5                    0                   5                5
                                   664                  78                 439               361

a
Calculations are based on a confidence interval of plus or minus 50 cents per hour.




Page 51                                                       GAO/HEHS-99-21 Davis-Bacon Act
Appendix V

Comments From the Department of Labor




             Page 52          GAO/HEHS-99-21 Davis-Bacon Act
Appendix V
Comments From the Department of Labor




Page 53                                 GAO/HEHS-99-21 Davis-Bacon Act
Appendix V
Comments From the Department of Labor




Page 54                                 GAO/HEHS-99-21 Davis-Bacon Act
Appendix V
Comments From the Department of Labor




Page 55                                 GAO/HEHS-99-21 Davis-Bacon Act
Appendix V
Comments From the Department of Labor




Page 56                                 GAO/HEHS-99-21 Davis-Bacon Act
Appendix V
Comments From the Department of Labor




Page 57                                 GAO/HEHS-99-21 Davis-Bacon Act
Page 58   GAO/HEHS-99-21 Davis-Bacon Act
Page 59   GAO/HEHS-99-21 Davis-Bacon Act
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(205376)      Page 60                                            GAO/HEHS-99-21 Davis-Bacon Act
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