Federal Labor Standards to Home Projects
August 21, 1996
of Federal labor standards to HOME projects
I. Statutory and regulatory provisions.
contract for the construction of affordable housing with 12 or more
units assisted with funds made available under this subtitle shall
contain a provision requiring that not less than the wages prevailing
in the locality, as predetermined by the Secretary of Labor pursuant
to the Davis-Bacon Act..., shall be paid to all laborers and mechanics
employed in the development of affordable housing involved,...."
II. Determining applicability.
III. Scope of coverage.
IV. Homeownership projects.
V. Case studies.
The National Affordable Housing Act of 1990 (NAHA) created
the HOME Investment Partnerships Program (HOME), a housing development
program with new language in the provision concerning Federal (Davis-Bacon)
labor standards applicability. Guidance for HUD field staff and
clients on the application of Davis-Bacon requirements to HOME projects
was provided on a case-by-case basis until general policy decisions
could be made and those policies could be tested against actual
project proposals. We believe that sufficient experience has been
gained to enable us to compile general guidance in this area for
HUD staff and client use.
The following is provided with the cooperation and advice of the
Community Planning and Development's Office of Affordable Housing
and the Office of General Counsel.
I. Statutory and regulatory provisions.
Federal (Davis-Bacon) wage requirements are made applicable
to the HOME program by Section 286 of the NAHA which
provides, in part, as follows:
HUD regulations (24 CFR 92.354) paraphrase the statutory
provision and clarify that the contract for construction must contain
these wage provisions if HOME funds are used for any project costs,
including construction or nonconstruction costs, for housing with
12 or more HOME-assisted units.
The regulations further explain that a construction contract that
includes a total of 12 or more HOME-assisted units is covered by Davis-Bacon
requirements even if the contract covers more than one HOME "project"
and prohibits arranging multiple construction contracts within a single
project for the purpose of avoiding Davis-Bacon coverage. Once triggered,
the wage provisions apply to the construction of the entire project
- HOME-assisted and non-assisted portions, alike.
The NAHA and program regulations also provide for the exclusion of
certain sweat equity labor from Davis-Bacon coverage. Members
of an eligible family who provide labor in exchange for acquisition
of a property for homeownership or toward rental payments are not
subject to Davis-Bacon wage requirements. Additionally, volunteers
may be employed in accordance with 24 CFR Part 70.
The HOME labor standards provision is unlike labor standards
clauses in other HUD programs. For example, the labor standards for
Community Development Block Grants (CDBG) apply to construction
work financed in whole or in part with the assistance received
through CDBG and cover residential property only if the property
contains not less than 8 units. For HOME, we are directed to "construction
contracts" (not construction work or properties) where the
standard is whether 12 or more of "units" covered by the
contract are "assisted" (not whether construction
work is directly financed). These differences serve both to focus
the unit threshold window on the "contract" and to broaden
the scope of coverage to construction and non-construction costs and
assisted and non-assisted portions.
II. Unit Threshold.
The Davis-Bacon "trigger" relates to the number
of HOME-assisted units contained in a construction contract. It
is important to recognize that the two (2) factors are: 1) the number
of HOME units - there may be units which are not HOME-assisted
in the contract; and 2) the scope of the construction contract - not
The number of HOME-assisted units is determined in accordance with
guidance provided by the program office in Notice CPD 94-12
(April 26, 1994). This determination is made by the participating
jurisdiction (PJ), insular area or Indian tribe (referred to collectively
as recipients) primarily for purposes other than labor standards
applicability. The Offices of Labor Relations, General Counsel and
CPD have agreed that the number of HOME-assisted units identified
pursuant to this Notice is acceptable for Davis-Bacon unit threshold
purposes. The number of assisted units within a specific project should
be available from the recipient and is also reflected on HUD Form
40094, Homeownership Assistance/Rental Housing Project Set-Up Report.
(Note that the recipient determines the number of assisted units
in a project, not a construction contract.)
Once the number of HOME-assisted units is determined, the construction
contract(s) must be identified. Each contract must then be considered
for coverage based upon the number of HOME units contained in the
contract: contracts with 12 or more HOME units are covered; contracts
with 11 or less HOME units are not. Two important factors must be
weighed in this determination:
1) A HOME project can not be divided into multiple contracts
to avoid Davis-Bacon coverage. There may be other, legitimate
reasons that a single project would be constructed with separate
contracts that would each contain 11 or less HOME units and the
contracts would not be covered. But it is not permissible to arrange
multiple contracts solely to circumvent labor standards requirements.
2) A construction contract with 12 or more HOME-assisted units
is covered even if the contract involves more than one HOME project.
For example, if, for whatever reason, four projects each containing
4 HOME-assisted units are "pooled" into one construction
contract, the contract would be covered.
note on Group Home and Single Room Occupancy (SRO) projects:
CPD 94-01 (January 4, 1994) defines group homes and SROs for HOME
assistance purposes. A group home is usually a large single
family residence consisting of common space such as kitchens, dining
areas, living rooms and bathrooms, along with separate private or
semi-private space (i.e., bedroom) for each occupant. An SRO
consists of single room dwelling units that are the primary residences
of its occupants, and may have shared common dining, sanitary and/or
recreation facilities. Depending upon certain parameters established
by the program office (See Notice CPD 94-01), PJs may choose
to consider group homes as a single unit for HOME assistance purposes
or may classify them as single room occupancy units. In the latter
case, if the number of HOME-assisted SRO dwelling units covered by
a contract for construction equals 12 or more, Davis-Bacon labor standards
III. Scope of coverage.
It has been determined that applicability of Federal wage requirements
is not affected by the specific use of HOME funding. That is, it does
not matter whether HOME funds are used for construction or non-construction
project costs; if the threshold is met then the labor standards provision
is triggered. (See also CPD Notice 92-19, dated June 9, 1992.)
This determination hinges in part on the difference between "assisted"
and "financed" - "assisted" is a much broader
term. In addition, under the statute Federal wage rates apply whenever
a construction contract contains 12 or more units that are
assisted, whether the contract is assisted or not. Housing
units in a HOME project that are constructed with private funds may
still be "assisted" by HOME even though the construction
of the units is not directly "financed" by HOME.
It has also been determined that once triggered, the labor standards
apply to the construction of the entire project. For example, if it
were practical to funnel all of the HOME funds to the construction
costs for a portion of a project it would not limit labor standards
applicability to that HOME-funded portion. (See also CPD Notice
IV. Homeownership projects.
Some HOME projects are designed to provide homeownership opportunities
to low-income families. These projects may not involve the use of
HOME funds for the construction of the housing in any way but, for
example, involve only down payment or mortgage assistance to the homebuyers.
Construction work for projects in which HOME funds are used only to
assist homebuyers to acquire single family housing is not covered
UNLESS there is an agreement with the owner or developer of the housing
in advance of the construction work that HOME funds will be used to
assist homebuyers to buy the housing and the construction contract
covers 12 or more HOME-assisted units.
V. Case Studies
Many of the following examples are based on actual projects that
were presented for labor standards coverage determinations. A description
of the project is followed by the coverage decision and rationale.
Remember that in most cases the key to applicability is not the use
or targeting of the HOME funds but the number of HOME-assisted units
that are in a contract for construction.
1) a. Proposal The project involves the construction
of a 59-unit single family residence subdivision. HOME funds will
provide project construction financing and secondary permanent financing
to prospective low-income homebuyers. The PJ, as the lender and
with concern about the overall viability of the project, is willing
to commit to the development of the subdivision only in phases of
10 or 11 units at a time. Funding for subsequent phases will be
contingent on the successful completion and marketing of the preceding
phase(s). Separate construction contracts will be awarded for each
b. Decision The proposed construction work
will not be covered. None of the contracts for construction will
contain 12 or more HOME-assisted units and it appears that the division
of the project into multiple contracts is a precautionary measure
to protect the lender and is not for the purpose of avoiding Davis-Bacon
2. a. Proposal The project involves
the construction of a 60-unit multifamily property (all 60 units
will be HOME-assisted) and a 100-unit single family development
(of the 100 single family units, 33 units will be HOME-assisted).
The construction work will be accomplished in four separate contracts:
one for the 60-unit multifamily property; and 3 contracts for the
single family homes each contract containing no more than 11 HOME-assisted
units. HOME funds will be used for land acquisition and site development
for the construction of all of the housing units. The developer
and PJ have entered into an agreement in advance of construction
that HOME assistance will be provided for homebuyers to purchase
33 of the single family units. The PJ and developer assume that
the multifamily building will be covered but ask for confirmation
that structuring the single family portion in the manner described
will avoid Davis-Bacon coverage.
b. Decision The construction of the entire development
is covered. The assumption that the multifamily building is covered
is correct. As to the single family units, there is no reasoning
presented that explains why this portion has been divided into 3
separate contracts other than to avoid prevailing wage requirements.
In fact, the inquiry so much as states that avoiding Davis-Bacon
is the reason for the multiple contract strategy.
notes on this Case Study:
This scenario, modified only slightly, could result in a very different
coverage decision relative to the single family units: What if the
PJ established the single family units as three separate projects
each containing 11 HOME-assisted units and the developer awarded a
separate construction contract for each project?
While the regulations prohibit creating multiple contracts within
a single project to avoid Davis-Bacon coverage, there is no prohibition
against arranging multiple projects within a development
proposal. In other words, the regulations would not prohibit a PJ
- which considers a developer's proposal to build a 100-unit single
family HOME project - from establishing multiple "projects"
(each with 11 or less HOME-assisted units) and the developer awarding
a separate construction contract for each project. This arrangement
would result in no Davis-Bacon coverage. However, if
the developer grouped these "projects" under one construction
contract so that the total number of HOME-assisted units contained
in the contract is 12 or more, the work would be covered. The key
is the number of HOME-assisted units contained in a contract for construction.
3. a. Proposal A developer, with a commitment
from the PJ for HOME assistance, proposes to develop 40 single family
units for homeownership. HOME funds combined with private funds
will be used for site acquisition and to finance the construction
of the units, which will be performed under one contract. Prospective
homebuyers will execute real property sales contracts, presumably
conveying ownership of the land, prior to the construction of the
single family units. Each unit will be entered as a single project
in the HUD cash management system (CM/I). The PJ asks for confirmation
that executing sales contracts prior to construction and entering
the units as separate "projects" in the CM/I database
would not trigger Davis-Bacon requirements.
b. Decision The construction work will be covered.
The two factors presented, ownership of the land and separate entry
into the CM/I database, have no significant bearing on labor standards
applicability. Davis-Bacon coverage will be triggered because the
construction contract will contain 12 or more (40) HOME-assisted
4. a. Proposal A PJ requests guidance in relation
to six (6) HOME projects totalling 22 units which will be owned
and operated by one community based non-profit organization. All
6 projects, ranging from 2 to 4 units each, are in varying stages
of processing and are being handled independent of each other with
separate applications, loans and construction contracts. However,
due to an approaching financing commitment deadline, all six projects
were entered into the CM/I system on the same date.
b. Decision Davis-Bacon wage requirements would not
apply to these projects. None of the contracts for construction
will contain 12 or more HOME units. The date of entry into the CM/I
system has no bearing on Davis-Bacon applicability.
5. a. Proposal The project involves the construction
of 15 units in two buildings (9 units in one building; 6 in the
other) on contiguous lots. A combination of HOME funds, low-income
tax credits and developer equity are financing the project. Construction
of both buildings was begun under one contract using Davis-Bacon
wage rates. Disputes between the owner/developer and the contractor
led to work stoppage and ultimately the contractor was dismissed.
With both buildings only partially completed, the tax credit contributions
were in jeopardy unless completed and occupied units were delivered
quickly. In order to secure the tax credits, the PJ and developer
propose to contract for completion of one building and then contract
for the completion of the second building. The same contractor would
be used for both buildings but the contract for the second building
would be executed only after successful completion of the first.
b. Decision Davis-Bacon wage requirements would not
apply to the construction of these buildings. Neither of the contracts
for construction will contain 12 or more HOME-assisted units and
it appears that the division of the project into multiple contracts
is intended to expedite progress for tax credit benefits and not
to avoid Davis-Bacon coverage.
6. a. Proposal A developer proposes to construct a
multifamily project with 2 buildings of 8 HOME-assisted units each.
HOME funds will be used for site acquisition and certain "soft
costs" such as site surveys and architectural drawings. The
construction work will be performed under one contract. No HOME
funds will be used for the construction of the units.
b. Decision The construction of the project
is covered. Unlike the CDBG program, the HOME labor standards provision
is triggered whether HOME funds are used for construction or non-construction
project costs. Since the construction contract will contain 12 or
more HOME-assisted units, Davis-Bacon rates will apply.
7. a. Proposal The project involves the new construction
of a 14-unit HOME (single family homeowner) subdivision. CDBG and
HOME funds will finance site improvements for the subdivision. The
improvements will be performed under one contract and constructed
only within the boundaries of the subdivision site. The improved
site/housing lots will be turned over to three (3) community housing
development organizations (CHODOs). The CHODOs will contract for
the construction of the individual housing units separately and
will have no more than two lots in their control at any time. The
remaining lots will be made available to the CHODOs as construction
of the units is completed.
b. Decision The site improvements contract
will be covered and the contracts for the housing construction will
not. The question here is not so much coverage but what kind of
wage decision is applicable. For Davis-Bacon purposes we can view
the site improvements and housing construction as a single development
since the purpose of the site improvements is solely to support
the construction of single family residences. In this case the site
improvements are "incidental" to the housing construction
and therefore would be subject to a residential wage schedule.
Any questions concerning this Letter may be directed to the
Office of Labor Relations at (202)708-0370 or, in the case of HUD
program participants, to the HUD Field Labor Relations Staff with
jurisdiction for your area.
Visit the Office of Labor Relations
to OLR letters