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Prevailing Wages and More: Developer and Contractor Obligations in CHIPS Act-Funded Construction Projects

In Short

The Situation: The CHIPS Act provides over $50 billion in the form of grants, loans, loan guarantees, and other programs to incentivize semiconductor manufacturing in the United States. The U.S. Department of Commerce recently began accepting applications for funding of projects covered by the CHIPS Act.

Background: A requirement of receiving CHIPS Act funding is compliance with the prevailing wage obligations of the Davis-Bacon Act ("DBA"). The Obama administration previously interpreted a nearly identical requirement in the American Recovery and Reinvestment Act of 2009 to require contractors and subcontractors to comply with all DBA obligations, not just the prevailing wage requirements, and the current administration appears to interpret the language of the CHIPS Act the same way. 

Looking Ahead: Developers and construction employers should be prepared to comply with all DBA obligations on CHIPS Act-funded projects, including in their construction contracts.

With the Commerce Department now accepting and entertaining funding requests for the construction, expansion, or modernization of semiconductor fabrication facilities in the United States, developers and construction employers must be prepared to adhere to a variety of DBA obligations in connection with such projects.

The CHIPS Act of 2022 authorized direct funding (via grants, cooperative agreements, or other transactions), loans, and loan guarantees for eligible projects. The Commerce Department will use approximately $28 billion in funding to stimulate expansion of domestic production of leading-edge logic and memory chips. Another $10 billion is available to fund the expansion of manufacturing capacity in the United States for mature and current-generation chips. 

On March 31, 2023, the CHIPS Program Office ("CPO"), which is a newly created entity within the Commerce Department's National Institute of Standards and Technology ("NIST"), began accepting funding applications for construction of leading-edge facility projects. On May 1, 2023, the CPO began accepting funding applications on a rolling basis for other projects involving current-generation, mature-node, and back-end production facilities.

On February 23, 2023, NIST issued its Initial Notice of Funding Opportunity, in which it required each applicant for CHIPS Incentive Program funding to submit a construction workforce plan. In the absence of a project labor agreement with the allied craft unions, an applicant must provide a "project workforce continuity plan" detailing how the project will have ready access to a sufficient supply of appropriately skilled and unskilled labor to ensure construction is completed in a timely and competent manner. As part of the workforce plan, applicants must provide "a description of the steps that will be taken to ensure that all contractors and subcontractors on the construction project have and will continue to have a strong track record of compliance with all Federal labor laws, including but not limited to all relevant provisions, rules, and regulations of the DavisBacon Act …."

The Davis-Bacon Act

The DBA directs the Department of Labor to determine locally prevailing wage rates, which set the minimum rates that contractors and subcontractors performing work on federal or District of Columbia contracts must pay to workers on DBA-covered projects. Over the years, Congress has added prevailing wage provisions to approximately 60 other statutes enacted to assist construction projects through grants, loans, loan guarantees, and insurance. These "related Acts" have involved construction in such areas as telecommunications, transportation, housing, air and water pollution reduction, and health. One recent example was the American Recovery and Reinvestment Act of 2009 ("ARRA"), which expressly required the payment of DBA prevailing wage rates to "all laborers and mechanics employed by contractors and subcontractors on projects funded directly or assisted in whole or in part by and through the Federal Government pursuant to this Act." That language closely tracked certain language in the DBA at 40 U.S.C. § 3141. 

One type of "construction" project to which the ARRA applied, and for which funding flowed from a Commerce Department agency, was broadband expansion. The Commerce Department agency that oversaw disbursement of that funding—the National Telecommunications and Information Administration ("NTIA")—interpreted ARRA to impose all traditional DBA requirements on construction employers, not just the prevailing wage requirements expressly referenced in the ARRA. That included, among other requirements:

  • Jobsite Postings. Every employer performing ARRA-covered broadband work was expected to post Davis-Bacon notices (including any applicable wage determination) at the site of the work in a prominent and accessible place where it may be easily seen by employees.
  • Weekly Pay. Every employer performing ARRA-covered broadband work was required to pay workers each week, as opposed to bi-weekly or twice per month.
  • Certified Payrolls. Every employer performing ARRA-covered broadband work was required to fill out and submit a "certified payroll" for each weekly payroll, stating the wages paid to each laborer or mechanic on the project during the applicable week. Certified payrolls must be maintained for three years and contain the required information and statement of compliance.
  • Subcontractor Compliance. Contracts with subcontractors were required to include specific clauses (found in 29 CFR §§ 5.5(a)(1) through (a)(10)), and prime contractors were "responsible for the compliance by any subcontractor or lower tier subcontractor" with such clauses. 
  • Apprenticeship Registration. If using apprentices, the employer was required to maintain evidence of registration of apprenticeship programs.

Developers and construction employers should expect that the Commerce Department's expectations in 2009 (under the Obama Administration) requiring compliance with all DBA requirements on ARRA-funded projects, detailed in a checklist, will carry forward for projects relying upon CHIPS Act funding now under the Biden Administration. Indeed, like the requirement for a workforce plan called for in NIST's Initial Notice of Funding Opportunity, a Workforce Development Planning Guide issued by the CHIPS Program Office on March 27, 2023, stated that "all CHIPS awardees will be subject to Federal labor and employment laws" and "applicants [for CHIPS funding] must also provide a description of the steps that will be taken to ensure that all contractors and subcontractors on the construction project have and will continue to have a strong track record of compliance with all Federal labor laws, including but not limited to all relevant Davis-Bacon Act" requirements.  

DBA Obligations in the CHIPS Act

When imposing DBA obligations via the CHIPS Act, Congress was not as direct as it was when drafting the ARRA, which expressly incorporated the prevailing wage requirements of the DBA. But just as the NTIA interpreted the ARRA to impose all traditional DBA requirements on construction employers, the current administration likely will impose the full scope of DBA obligations on employers involved in projects funded via the CHIPS Act. Specifically, Section 103 of the CHIPS Act, titled "Semiconductor Incentives," incorporates the prevailing wage requirements of the DBA indirectly. It states that "Section 602 of the Public Works and Economic Development Act of 1965 (42 U.S.C. § 3212) shall apply to a construction project that receives financial assistance under this section.'' That statutory section, 42 U.S.C. § 3212, incorporates the DBA's prevailing wage requirements, stating that "[a]ll laborers and mechanics employed by contractors or subcontractors on projects assisted by the Secretary [of Commerce] under this chapter shall be paid wages at rates not less than those prevailing on similar construction in the locality as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40 [which is the Davis-Bacon Act]. The Secretary shall not extend any financial assistance under this chapter for such a project without first obtaining adequate assurance that these labor standards will be maintained upon the construction work." Subchapter IV of Chapter 31 of Title 40 consists of eight sections (40 U.S.C. §§ 3141 through 3148) that—among other things—define terms, set minimum requirements, identify stipulations required in project contracts and subcontracts, provide for termination of work for noncompliance, and create a right of action for noncompliance.

If there is good news, it is that Congress, in Section 10242 of the CHIPS Act, granted the NIST what is known as other transactions authority "to enter into and perform such contracts, including cooperative research and development arrangements and grants and cooperative agreements or other transactions, as may be necessary in the conduct of its work and on such terms as it may determine appropriate." This would seem to expressly authorize the Commerce Department to enter into "other transactions" agreements via the CHIPS Program Office that are not subject to certain other comprehensive and cumbersome contract requirements, including those found in the Federal Acquisition Regulations.

However, developers and construction employers involved in CHIPS Act-funded projects should confirm they are paying prevailing wages and prepare to adhere to all other DBA obligations, including contractually obligating subcontractors to adhere to the requirements, in order to qualify for CHIPS Act funding and remain in compliance with accompanying obligations.

Three Key Takeaways

  1. The application period for CHIPS Act funding of projects is open.
  2. Developers seeking CHIPS Act funding likely will need to certify an intent to comply with DBA obligations and other federal labor and employment laws during the project and should plan and budget for the costs and burdens associated with doing so.
  3. Developers should confirm that certain mechanisms are in place to monitor contractor and subcontractor compliance with prevailing wage and other DBA obligations, including making sure agreements with project contractors and subcontractors contractually obligate them to satisfy DBA obligations.
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