“Prevailing Wages”

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“Prevailing Wages”

By Nathan Mintz | February 21, 2010

I had a long chat yesterday with a friend of mine who is in the construction/manufacturing business and has been for close to thirty years. His company builds many of the facades and pillars you’ve probably seen at the major hotels in Las Vegas. Recently, he received a bid request from the city of Burbank to install a 3 foot diameter covered pillar (a standard product for him) for a parking lot in the Burbank airport. He completed the bid and submitted an estimate of $37,000 total for the manufacture and installation of the pillar.

The next day, the contract manager with the city calls him back to inform him he had underbid the other bidders by more than 50%. The contracts manager asked him if he had taken the prevailing wages required to comply with government rules into account when bidding the job, along with other provisions such as mandatory overtime. Because he had only done commercial construction up to this point and was unfamiliar with “prevailing wage” rules, he hadn’t. He was asked to recalculate his estimate using the prevailing wage rules and resubmit his bid.

My friend recalculated the bid as requested and its cost went from $37,000 to $75,000. His installer, who he had paid $18 per hour previously, was now required to receive a “prevailing wage” rate of $49 per hour. The assistant, who had received $10 per hour before, was now required to make $35 per hour. In other words, the labor rates under the government rules were almost three times what he was paying competitively for the same job in the private sector.

To make matters even worse for him, it created problems for him down the road when he moved the same team back to a commercial contract: the workers were upset that they were making a third of the ludicrous wage they had received on the previous job. The profit margin on the contract was no greater for him, despite the higher cost. My friend decided to never pursue such a job again, because it was no more profitable for him and created numerous labor problems for him on the more profitable commercial contracts. As he put it to me: “I get these emails every day for prevailing wage contracts– and I just delete them. I feel bad overcharging the government that ludicrously and I don’t make any more money on them.”

Putting this in perspective, as a highly trained radar systems engineer with two college degrees and five years of experience, I receive a lower hourly wage rate (based on my salary) than the “prevailing wage” rate of $49 per hour that is mandated to be paid to arguably a semi-skilled laborer as “prevailing wages”. Why on earth did I go to college?

Now imagine these same rules being applied across the board and you suddenly understand why every construction contract in the state is overrun, which costs us billions each year. These contracts are known as Project Labor Agreements or PLAs, and as a state we must re-evaluate whether or not it makes sense to pay semi-skilled labor close to a six figure annual income when we have a double digit unemployment rate. By the way, one of the provisions in the Federal Stimulus states that these contracts must be in place for any construction contract of $25 million or more.

Post script- if you believe that this is too outlandish to be true, check out some of the regulations off of the state website: http://www.dir.ca.gov/dlsr/PWD/Determinations/Southern/SC-023-102-2.pdf . The prevailing wage rate for a General Construction Laborer according to PLA rules: $26.33 per hour plus another $15.09 per hour in benefits for a total cost of $41.42 per hour.