B-242728, Jan 2, 1992

B-242728: Jan 2, 1992

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A contractor is charged with constructive knowledge of the Davis Bacon Act and regulations and with actual knowledge of the contract. contractor cannot claim to be unaware of the requirement. " which are intentional as demonstrated by bad faith or gross carelessness in observing obligations to employees. Debarment begins only when a name is published on the list of parties ineligible to bid on federal contracts. 5. Culpability is a necessary element in finding a disregard of the obligation to employees under the Davis-Bacon Act. Is not the applicable standard under the Davis-Bacon Act. The Comptroller General is required by the Act to place on the list the names of individuals and companies found to have "disregarded their obligations to employees" under the Act. 40 U.S.C.

B-242728, Jan 2, 1992

DIGEST: 1. A contractor is charged with constructive knowledge of the Davis Bacon Act and regulations and with actual knowledge of the contract. contractor cannot claim to be unaware of the requirement, explicit in the law, regulations, and contract, that all workers on the site must receive the prevailing wage, regardless of any contractual relationship which may exist between the contractor and workers. 2. A contractor in doubt as to its obligations to employees under the Davis-Bacon Act should consult the Department of Labor to resolve the issue, as provided in applicable regulations. 29 C.F.R. Sec. 5.13 (1991). 3. In deciding whether to debar a contractor, we distinguish "technical violations,"which result from inadvertence or legitimate disagreement, from "substantial violations," which are intentional as demonstrated by bad faith or gross carelessness in observing obligations to employees. Failure to pay prevailing wages coupled with falsification of certified payroll records constitute a substantial violation and call for debarment. 4. A contractor that has refrained voluntarily from bidding on government contracts has not been "effectively debarred." Debarment begins only when a name is published on the list of parties ineligible to bid on federal contracts. 5. Culpability is a necessary element in finding a disregard of the obligation to employees under the Davis-Bacon Act. However, willfulness as defined in McLaughlin v. Richland Shoe Co., 486 U.S. 129, 133 (1987), is not the applicable standard under the Davis-Bacon Act.

Recommendation for Debarment - Phoenix Paint Co:

The Department of Labor (DOL) has recommended that Phoenix Paint Company and Lorene Truman Kuimelis (referred to collectively as the contractor) be placed on the so-called ineligible bidders list, a list of parties to whom federal contracts may not be awarded, for violations of the Davis-Bacon Act (the Act). The Comptroller General is required by the Act to place on the list the names of individuals and companies found to have "disregarded their obligations to employees" under the Act. 40 U.S.C. Sec. 276a-2(a) (1988). The contractor has asked that we reject DOL's recommendation. For the reasons stated below, we agree with DOL and, concurrently with issuance of this opinion, we are taking action to place this contractor on the list.

The Davis-Bacon Act requires that all workers "employed directly upon the site of the work" under a contract "for construction, alteration, and/or repair, including painting," of public buildings be paid prevailing wages, "regardless of any contractual relationship which may be alleged to exist" between the contractor and the workers. 40 U.S.C. Sec. 276a(a) (1988). Thus, by its terms, the Act requires that the prevailing wage be paid to workers at the site even though they may be considered by the contractor and by themselves to be subcontractors, rather than employees. T.W.P. Company, 59 Comp.Gen. 422, 424 (1980).

During 1982 and 1983, Phoenix Paint Company, owned and operated by Lorene Truman Kuimelis, performed a government contract for painting of public buildings. The contract required that painters working at the site be paid $24.15 per hour, the rate that the Department of Labor, in accordance with the Act, determined to be prevailing in the area for that kind of work.

The painters who worked on this contract were subcontractors rather than employees of the contractor. Reports submitted by the contractor disclosed that the amounts paid to the subcontractors, when converted to an hourly basis, were less per hour than the $24.15 required by the contract. However, Ms. Kuimelis falsely certified in required reports that she had paid prevailing wages. It is now undisputed that the subcontractors should have been paid the prevailing wage.

DOL found that, as a result of paying the subcontractors at a rate that yielded less than the required prevailing hourly rate, the contractor owed 14 employees almost $33,000. The contractor made full restitution after being notified of the findings.

DOL instituted debarment proceedings and the contractor asked for a hearing before an administrative law judge (ALJ). Ms. Kuimelis testified that, during the term of the contract, she believed that she did not have to pay the individuals in question prevailing wages because they were independent contractors.

Ms. Kuimelis said that she falsified the reports as a result of conflicting and confusing advice from her business partner, other contractors and subcontractors, and government agencies and contracting officers. According to her testimony, a government contracting officer (not, however, the contracting officer on this contract) had advised her that she could employ painters as independent contractors and pay them less than the prevailing wage rates, and that she did not have to show any specific wage rate on the certified payroll records. On the other hand, she said that she was advised that she had to show full wage rates for all people working on the job, including independent contractors. Ms. Kuimelis said she decided to "compromise," paying the painters the wage rate that they bid as independent contractors, but falsely certifying the payroll records as if prevailing wages were being paid. In a January 1987 decision, the ALJ recommended that the contractor not be debarred. The ALJ found that the falsification of payroll records did not support a finding of disregard of obligations to employees because Ms. Kuimelis was "honestly confused and mistaken as to the meaning of the act's provisions and its application," and that she had not "willfully, intentionally or knowingly disregarded her obligation to employees" under the Act. The ALJ found that the contractor's failure to pay prevailing wages was the result of a "good faith, although mistaken belief" that persons she employed as subcontractors were not employees within the meaning of the Act, and therefore did not have to be paid at the prevailing local wage.

In support of this decision, the ALJ pointed out that, although the contractor's certification that prevailing wage rates were being paid was false, the data provided by the contractor on hours worked and total wages paid for those hours were not falsified to support the false certification. The ALJ took that as evidence that there was no fraudulent intent. Had the intent been to hide something, the ALJ reasoned, the contractor would not have presented such an obvious inconsistency on the face of the payroll records.

The ALJ also noted that the contractor had voluntarily made restitution and had reorganized its procedures to avoid future violations, and that a substantial period of time had passed since the violations. (The contractor argues in this respect that it has not bid on any federal contracts since being informed in December 1984 that there might be cause for debarment and that as a consequence it has "already been effectively debarred for more than six years.") The ALJ agreed with the contractor that debarment "would appear to serve no worthwhile purpose from the standpoint of the aims and objectives of the relevant law," and noted that debarment would have a detrimental impact on the contractor's ability to conduct business with state and city governments as a minority business enterprise.

DOL appealed the ALJ's decision to the Department's Wage Appeals Board. The Board reversed the ALJ's decision and recommended debarment. /1/ The Board found that the facts were not in dispute and explained that its task was to determine "whether they the facts added up to the kind of disregard of an employer's obligations to its employees as to require imposition of the debarment penalty."

In concluding that the facts supported such a finding, the Board relied on the following: the contractor paid workers less than Davis Bacon prevailing wage rates; and the contractor kept two sets of records, one indicating actual wages paid, and the second used to certify Davis-Bacon wages to DOL. The Board said that these facts established at the least a "very strong, compelling prima facie case." The Board concluded that the contractor failed to overcome DOL's case and convince the Board that its actions did not constitute a disregard of the obligation to employees.

The contractor now asserts that the Board applied the wrong test for determining whether the contractor had disregarded its obligation. The contractor argues that the Board incorrectly required no showing of culpability (i.e. intent, willfulness, or recklessness), but based its decision solely on a showing of payment of wages below the prevailing wage rate and the submission of false certified payrolls. The contractor also says that the Board's decision incorrectly equated disregard of the obligation to employees with violation of the Act, and contends that applying the correct standard would result in a finding that the obligation to employees had not been disregarded.

We agree that culpability is a necessary element in finding that there has been a disregard of the obligation to employees under the Davis-Bacon Act. See Mashburn Electric Company, Inc., B-189471, Apr. 10, 1978, where we applied a standard of willfulness. We do not agree, however, that this contractor was free from culpability. Although the basis for the Board's decision is not altogether clear, it is clear that in relying largely on the intentional false certification of payroll records, something the contractor knew to be untrue, the Board has implicitly considered culpability.

We also agree with the contractor that the common meaning of "disregard" ought to be the standard for determining whether debarment is warranted. /2/ Unless otherwise defined, words of a statute take their ordinary, common meanings. Perrin v. United States, 444 U.S. 37, 42 (1979). "Disregard" means "to pay no attention to: treat as unworthy of regard or notice." Webster's Ninth New Collegiate Dictionary (1988). In failing to pay prevailing wages and then falsely certifying that prevailing wage rates had been paid, the contractor may fairly be said to have disregarded its obligation.

Ms. Kuimelis now says in essence on the one hand that she believed in good faith that it was lawful to pay the painters who worked on this contract less than the prevailing wage for laborers that was explicitly set in the contract, but on the other that she nevertheless thought it proper to falsify the required report in order to conceal the underpayment. We find it difficult to reconcile the contention that this was an honest mistake with the conscious falsification of the amount paid.

It is even more difficult to reconcile Ms. Kuimelis' contention that she believed in good faith that she was not obligated to pay the prevailing wage to subcontractors with a reading of the contract, the Davis-Bacon regulations, and the law. The contractor must of course be charged with constructive knowledge of the law and regulations, and with actual knowledge of the contract.

The law, the regulations, and the contract are all explicit that a contractual relationship with a worker does not excuse the contractor from paying the prevailing wage to the worker. As noted above, the Act says that workers on the site are to receive the prevailing wage regardless of any contractual relationship they may have with the contractor. 40 U.S.C. Sec. 276a(a). The Davis-Bacon regulation reiterates this requirement. 29 C.F.R. Sec. 5.2(o) (1991).

This requirement was also explicit in the contract in language that does not seem to us to permit any confusion about its meaning. The required Davis-Bacon clause says:

"All laborers and mechanics employed or working upon the site of the work ... will be paid ... the full amount of wages ... computed at rates not less than those contained in the wage determination of the Secretary of Labor ... regardless of any contractual relationship which may be alleged to exist between the contractor and such laborers and mechanics."

Finally, a mechanism is provided in the contract to resolve any confusion that might exist about the contractor's obligations to employees. The contract recites, as do the Davis-Bacon regulations, that contractors can get interpretations by asking DOL. 29 C.F.R. Sec. 5.13 (1991). Although Ms. Kuimelis says that she consulted various sources in an attempt to ascertain whether she was required to pay prevailing wages, she failed to consult with the one authoritative source, DOL.

Ms. Kuimelis argues essence that she should not be held to have disregarded her obligations to employees under the law because she mistakenly, but in good faith, misunderstood her legal obligation to pay the prevailing wage to subcontractors. Assuming that Ms. Kuimelis was in fact confused about her obligations, we nevertheless believe that the contractor's actions constitute a disregard of those obligations. The contractor did not avail itself of the advice of DOL, as provided in the contract, to clear up the confusion. In the face of a clear requirement in the contract (and in the law and regulations as well), the contractor failed to pay the prevailing wage, and falsified reports that would have disclosed that failure.

In deciding whether to debar, we distinguish "technical violations," which result from inadvertence or legitimate disagreement, from "substantial violations" which are intentional as demonstrated by bad faith or gross carelessness in observing obligations to employees. Circular Letter B-3368, March 19, 1957. We have found that failure to pay prevailing wages, coupled with falsification of certified payroll records, constitute a substantial violation of the act and call for debarment. See, e.g., All Seasons Plumbing, B-219723, Apr. 7, 1986, and Steel Erectors, Inc., 64 Comp.Gen. 591 (1985). What the contractor has done in this case constitutes a substantial violation under this standard.

The contractor notes that it cooperated in the investigation and, after having been notified of the possible violations, made restitution voluntarily to the underpaid employees. Cooperation and restitution after a violation has been established are not a defense to debarment. Mashburn Electric Co., Inc., supra.

Finally, the contractor's argument that it has "already been effectively debarred for more than six years" is also without merit. There may be circumstances in which delay that is not attributable to the contractor's exercise of its right to due process is so egregious that we would decline to debar. However, while this has been a lengthy proceeding, we do not find evidence in the record or the allegations of the contractor that the delay warrants not debarring the contractor.

The contractor has been free to bid on and receive government contracts during the entire period since the issue of Davis-Bacon violation was first raised. That it has voluntarily refrained from doing so does not equate, as it suggests, to a "de facto debarment." We find no indication that the contractor's rights have been abridged or that it has otherwise suffered any adverse consequence attributable to the delay in this proceeding.

/1/ Two of the Board members voted to overturn the ALJ's determination. The third member dissented vigorously.

/2/ However, we reject the contractor's notion that willfulness as defined by the Supreme Court in McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133 (1988), should also be considered. The McLaughlin decision defines willful as referring to conduct that is not merely negligent; as knowing or showing reckless disregard for the matter of whether one's conduct is prohibited by statute. 486 U.S. at 133. We find the McLaughlin decision inapplicable here because it deals specifically with the definition of the word "willful" in a given statute (the Fair Labor Standards Act). Adopting this definition of disregard would have the effect of changing "disregard" in the Davis Bacon Act to "reckless disregard."