The Importance of Flowing Down Required Contract Clauses to Subcontractors

Tishman Interiors was the prime contractor on a renovation project at the Federal Reserve Bank in New York. It subcontracted electrical and cable installation work to three different subcontractors. In came the auditors - auditors from the Labor Department's Wage and Hour Division (WHD). You know this story isn't going to go well for the contractor. We don't know what instigated WHD's investigation. It could have been random or it could have been based on a call to WHD's hotline. WHD's press release did not say.

WHD found that the Federal Reserve Bank did not include DBRA (Davis-Bacon and Related Acts) in its contract with Tishman. Tishman, in turn, did not include DBRA provisions in its subcontracts. This omission led to Tishman and the three subcontractors to pay its employees at hourly rates lower than the prevailing wages for the work they performed (a DBRA violaion). WHD also found that the prime and subs violated CHWSSA (Contract Work Hours and Safety Standards Act) when they failed to pay required prevailing wages for overtime. The groups failure to prepare and maintain certified payroll records and sign compliance statements in the payrolls resulted in violations of the Copeland Act.

Was this Tishman's fault? After all, the Federal Reserve Bank did not include these provisions in its solicitation or the resulting contract. How was Tishman to otherwise know that the contract was subject to DBRA provisions?  According to the Labor Department, Tishman was at least partly at fault. The Labor Department stated that "Contractors also bear a responsibility to exercise due diligence when bidding and working on federal contracts." Presumably this means that Tishman should have known that it was bidding on a Federal contract subject to DBRA.

As a result of the WHD investigation, Tishman was required to pay $420 thousand in back wages to its own employees and subcontractor employees. Wonder whether Tishman plans to submit an equitable adjustment proposal to the Federal Reserve Bank.