Competitive Bidding on Prevailing Wage Projects
by Mark A. Rysberg
Contractors can reduce-wage related costs and gain a competitive edge in the bidding process by developing creative compensation methods. The Davis-Bacon Act requires contractors on federally-funded projects to pay laborers and mechanics prevailing wage and fringe benefits. Michigan has a similar law that applies to state funded projects. MCL 408.551. Traditionally, fringe benefits have been paid as cash wages. However, for every dollar spent on cash wages employers incur additional payroll taxes (FICA, FUTA, SUTA) and insurance-based expenses such as worker’s compensation and liability insurance. The bottom line is that every dollar spent on wage-based compensation can cost employers 25% more.
Although prevailing wage laws eliminate the competitive advantage from the labor rate aspect of the project cost, employers can choose how to fund the fringe benefits. By providing employees with fringe benefits as a bona fide benefits package rather than paying them wages to purchase or contribute to the same benefits, employers can eliminate some of the unnecessary payroll taxes and insurance costs. By getting creative, contractors can become more competitive in an ever-tightening bid process.