Davis-Bacon must be applied in a reasonable way to avoid unnecessary disruption to FHA-financed new construction and rehabilitation projects

Overview: The manner in which wage rates under Davis-Bacon are applied is critical to the viability of FHA financing for new construction or substantial rehabilitation of multifamily and residential healthcare properties. Split-wage determinations for residential housing projects create significant administrative burden and complexity. In some cases, the resulting administrative burden and disruption can make a project infeasible after a developer has expended significant amounts of time, effort and funds. 

On January 15, 2021, in consultation and with the advice of DOL, HUD issued Labor Letter No. LR 21-01, clarifying that HUD would select a single general wage determination for DBA and DBRA covered projects when functionally incidental constructions items in any secondary category were less than $2.5 million and 20% of the projects total cost, and when consistent with local area practice. These changes fell in line with MBA's recommendations to prevent unwarranted split-wage rate decisions. MBA will continue to advocate for consistent wage rate determination for residential projects, and we will also work to ensure that only residential wage determinations shall be applied to housing projects that are four stories or less. 

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