HUD issued a Notice in the March 9, 2015 Federal Register providing further guidance on when Davis-Bacon wage requirements may apply to existing housing developments. This guidance relates to the final rule published by HUD on June 25, 2014 amending the regulations governing the Section 8 Project-Based Voucher (PBV) program, largely due to changes made in the PBV program by HERA 2008.
The final rule published in 2014 conformed the regulations of the Section 8 Tenant-Based Voucher (TBV) and PBV programs to the statutory program changes made by HERA.
One of the changes made by the 2014 final rule pertained to labor standards. HUD clarified that Davis-Bacon requirements may apply to existing housing (which is not subject to an Agreement to Enter into Housing Assistance Payments [HAP] Contract) when the nature of any work planned to be performed prior to execution of a HAP contract, or after HAP contract execution, constitutes development of the project. Repair work on a project selected as an existing project may constitute a development activity. If the repair work is determined to be development activity, the repair work must comply with the Davis-Bacon Wage Act requirements.
The March 9 HUD Notice provides a clearer definition of the term “development.” The term is defined in the PBV program as construction or rehabilitation of any PBV housing after the proposal selection date. HUD has found that given the current, broad definition of “existing housing,” the potential for circumvention of rehab program requirements exists. This potential circumvention stems from the fact that PHAs may classify a project as “existing housing” and this classification does not preclude owners and developers from performing work that may fall within the scope of Davis-Bacon. This Notice makes it clear that Davis-Bacon requirements cannot be avoided simply by classifying a project as an existing housing project under the PBV regulation.
The scope and timing of the contemplated development work are important measures in determining whether Davis-Bacon requirements apply to existing housing under the PBV program.
The Notice also defines “scope” as the elements of the proposed work, that is, the specific activities that are involved. Work that constitutes remodeling that alters the nature or type of housing units in a PBV project, reconstruction, or a substantial improvement in the quality or kind of original equipment and materials, falls within the purview of “development.” Development activity on a PBV project does not include replacement of equipment and materials rendered unsatisfactory because of normal wear and tear by items of substantially the same quality.
Timing
HUD has determined that any development initiated on existing units within 18 months after the effective date of the HAP contract on projects consisting of nine or more units assisted under a PBV HAP contract is considered development for purposes of Davis-Bacon wage rate applicability and such wages must be paid to laborers and mechanics employed to perform development work.
PBV Existing Housing & the (Rental Assistance Demonstration) RAD Program
The Notice makes clear that rehabilitation constitutes “development” of a Section 8 project including projects where the rehab is contemplated as part of the conversion of an existing project to a PBV contract under RAD. Such rehab is subject to Davis-Bacon requirements, regardless of whether the housing would qualify as “existing housing.”
Owners contemplating participation with local PHAs in a PBV project or in the RAD program should be aware of the requirements of HUD relative to conformance with Davis-Bacon wage rates. Depending on the area, these rates can have a significant impact on the total development cost of a project.