B-234896, Jul 19, 1989, 89-2 CPD ***

B-234896, Jul 19, 1989, 89-2 CPD ***

PROCUREMENT - Socio-Economic Policies - Labor standards - Construction contracts - Wage rates - Amount determination DIGEST: The Judiciary Office Building Development Act provides for construction by a private developer of a building on government-owned property, under contract with the Architect of the Capitol. The United States will lease the building, pay rent sufficient to amortize the developer's construction cost, and receive title to the building when the lease expires. This arrangement constitutes a contract with the United States for the construction of a public building, within the meaning of the Davis-Bacon Act requirement that workers under such contracts be paid the prevailing local wage. 40 U.S.C. Sec. 276a.

Honorable George M. White

Architect of the Capitol:

This is in response to your letter of March 17, 1989, requesting our opinion on whether the Davis-Bacon Act is applicable to construction of the building authorized by the Judiciary Office Building Development Act. As explained below, we conclude that construction of the building is subject to the requirement of the Davis-Bacon Act that workers be paid no less than the prevailing local wage.

The Judiciary Building Act authorizes the Architect to enter into a "development agreement" with a private party, for the design and construction of a building primarily for use of the judicial branch of the government, on a specific federally owned site. The act requires the development agreement to provide that construction of the building will be at no cost to the United States, and that title to the site will remain in the United States. Judiciary Building Act, Sec. 3(b)(2).

The Judiciary Building Act also directs the Architect, before entering into the development agreement, to enter into a lease for the building with the person selected as the developer. Id. Sec. 4(a). The lease must provide that title to the building will pass to the United States at the end of the lease term, which is to be no more than 30 years. The rent is to be set at an amount sufficient to amortize the development costs of the building over the term of the lease. Id. Sec. 4(b). During the lease term, the government will be responsible for care and maintenance of the building and grounds. Id. Sec. 5(a).

The Davis-Bacon Act provides that contracts in excess of $2,000, to which the United States is a party, for the construction of "public buildings or public works of the United States," must provide for minimum wages to workers based on prevailing local wages. 40 U.S.C. Sec. 276a(a) (1982). The question presented is whether the Davis-Bacon Act applies to the arrangement authorized by the Judiciary Building Act.

Of the three conditions that must be met in order to conclude that a contract is subject to the Davis-Bacon Act, two must be discussed here. (The third condition in the statute, clearly met in this case, is that the contract be for over $2000.) First, the contract must be for the construction of a public building or public work of the United States and, second, the United States must be a party to the contract. For the reasons set forth below, we believe that both conditions are met in this case.

With respect to the first condition, although the building will be built by a private entity and will temporarily be the property of that entity, we believe it is nevertheless a "public building or public work of the United States." The terms "public buildings" and "public works" are not defined in the Davis-Bacon Act. They are, however, defined in regulations issued by the Secretary of Labor. The definition promulgated by the Secretary is entitled to great weight, representing as it does the interpretation of the law by the official primarily charged with enforcement of the act.

The regulation provides as follows:

"The term 'public building' or 'public work' includes building or work, the construction, prosecution, completion, or repair of which ... is carried on directly by authority of or with funds of a Federal agency to serve the interest of the general public regardless of whether the title thereof is in a Federal agency."

29 C.F.R. Sec. 5.2(k) (1988).

We think that this project falls within the definition in the regulation of a public building or public work. The project is intended to serve the interest of the general public just as is any other building which will house government activities. The construction of the building will be carried on "directly by authority of a Federal agency," both in that the Architect is directed by the statute to arrange for construction of the building, and in that the private developer would not be putting up a building on federal land without the authority of a federal agency. /1/ Finally, as the regulatory definition makes clear ("regardless of whether the title thereof is in a Federal agency"), the fact that title will not be vested in the government until the end of the lease term does not place the building outside the definition. /2/

This conclusion is consistent with our decision in 34 Comp.Gen. 697 (1955), where we held that construction by a private party of a building for use by a federal department, under a "lease-purchase agreement" with the United States similar to the one authorized by the Judiciary Building Act, was covered under the Davis-Bacon Act. In that case, as here, we concluded that buildings constructed under such an arrangement were "public buildings" within the meaning of the act, even though title to the buildings would not pass to the United States until the end of the lease term.

We believe that the other condition for a contract to be subject to the Davis-Bacon Act-- that the United States be a party to the contract - is also met in this case.

Three separate contracts are involved here: the development agreement between the United States and a developer; the contract between the developer and a builder for the construction of the building; and the lease of the completed building from the developer by the United States. The United States is not a party to the contract for construction of the building. The United States is, however, a party to both the development agreement and the lease, and together these two contracts provide the basis for the construction contract between the developer and a contractor: the developer, it seems clear, would not agree to put up the building on government property and relinquish title to it at the end of the lease term without the kind of commitments made by the government in the other agreements.

Essentially the same circumstances were present in 34 Comp.Gen. 697. In that decision, we concluded that the condition that the United States be a party to the contract was met.

"A bidder agrees to execute a ground lease as lessee of Government owned land, erect certain buildings on the land for the use of a government department and, upon completion of the buildings, execute a lease-purchase agreement which will provide for the vesting of title in the Government at or before the expiration of the leasehold term. Considering these agreements together, it reasonably may be assumed that the contracts are agreements for construction of buildings to which the United States is a party and that the leasing of the buildings is only incidental to the construction."

34 Comp.Gen. at 701.

As with the buildings in 34 Comp.Gen. 697, the building constructed under the Judiciary Building Act is to be leased for a certain period of time, at the end of which title will vest in the United States. While the construction will be completed by a private builder with private funds, the cost of construction is eventually to be paid from appropriated funds, through rent paid to the developer, and all maintenance costs are to be paid by the government.

Taken together, the agreements form a unity in the sense that none would have existed without the others. That unity amounts in substance to the government causing and paying for the construction of a building for its use, even though its acquisition of title to the building will be delayed, and even though the construction will be performed through the agency of the developer.

The same thing we said in a later decision about the situation in 34 Comp.Gen. 697 may be said of this case:

"Due to a binding agreement to acquire the improvements with public funds (through lease payments), the construction actually was being purchased by the Government."

42 Comp.Gen. 48, 49 (1962).

We believe that these circumstances warrant the conclusion that the United States should be treated, for purposes of the Davis-Bacon Act, as a party to a contract for construction of a building. That conclusion recognizes the substance of the transactions.

Accordingly, in our judgment, the three conditions necessary for a contract to be subject to the Davis-Bacon Act are met and the act is applicable to the construction of the Judiciary Office Building. I hope this fully responds to your inquiry.

/1/ Indeed, one might argue that the work will in substance be carried on with funds of a federal agency. The Congressional Budget Office, in reporting on the cost of this plan, viewed the arrangement between the government and the developer as in substance a loan by the developer to the government for construction of the building, to be repaid in installments denominated as rent. S. Rep. No. 358, 100th Cong., 2nd Sess. 11 (1988). It seems clear that the developer assumes little if any of the financial risk which would be expected if the project were truly private: the developer is guaranteed to recover his construction costs, and is not responsible for maintenance costs.

/2/ The Supreme Court reached a conclusion in United States v. Irwin, 316 U.S. 23, 29 (1942), which supports this result. In discussing the meaning of "public work" in the Miller Act, a statute similar in many respects to the Davis-Bacon Act, the Court held, in language which seems equally applicable to the Davis-Bacon Act, that the term "public work" is not limited to buildings or works to which the United States has title.