HUD’s Office of Public and Indian Housing published a notice in the Federal Register on March 9 providing additional guidance regarding situations when Davis-Bacon wage requirements apply to rehabilitation of existing housing to be assisted with Project-Based Vouchers (PBVs).
The U.S. Housing Act of 1937, as amended, states that prevailing wage rates under the Davis-Bacon Act apply to the development of Section 8 projects with nine or more assisted units when a public housing agency (PHA) or HUD and a builder or sponsor enter into a Section 8 agreement before construction or rehabilitation begins.
On June 25, 2014, HUD issued a final rule implementing changes to the PBV program, most of which were due to amendments made in the Housing and Economic Recovery Act of 2008 (see Memo, 6/27/14). One of the changes made by the final rule sought to clarify that Davis-Bacon may apply to “existing” housing, as defined in PBV regulations, not subject to an Agreement to Enter into Housing Assistance Payment (HAP) contract if the work to be carried out before or after execution of a HAP contract constitutes “development.”
The intent of the March 9 notice is to reinforce the PBV final rule provision that Davis-Bacon requirements cannot be avoided simply by classifying a project as an existing housing project under the PBV regulation. The notice states that the scope and timing of rehabilitation at existing housing are important measures in determining whether Davis-Bacon applies.
Scope of work refers to specific activities. A PHA is responsible for determining whether activities constitute “development.” The PBV program defines “development” as construction or rehabilitation after a property has received approval to use PBV assistance. In addition, the 1937 Housing Act states that “construction activity” may be reconstruction, remodeling, or repair of existing buildings. Consequently, the notice declares that in the context of existing housing, “development” includes reconstruction, remodeling that alters the nature or type of housing, or substantial improvement in the quality or kind of original equipment and materials. Development activity in a PBV project does not include the cost of equipment and materials that need to be replaced because of normal wear and tear.
Regarding timing, an important factor in analyzing whether rehabilitation requires payment of Davis-Bacon wages after a property is approved for PBV assistance is if rehabilitation will be carried out within a period reasonably viewed as one in which the housing is being “developed,” as opposed to being maintained, repaired, or updated years later. The notice says that HUD has long held the position that once a Section 8 project has been developed and placed under a HAP contract, a decision by an owner to repair or rehabilitate housing as it ages is not “development” and therefore not subject to Davis-Bacon.
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 rates.
The March 9, 2015 notice is at http://www.gpo.gov/fdsys/pkg/FR-2015-03-09/pdf/2015-05462.pdf
More information about PBVs is on page 4-47 of NLIHC’s 2015 Advocates’ Guide, http://nlihc.org/library/guides