ISPs have been complaining that the BEAD grant rules are adding a lot of cost to building broadband networks. There are requirements like needing letters of credit and environmental studies that will add cost compared to projects funded with other grant projects.
One of the issues that is adding the most cost to BEAD-funded networks is the requirement that all construction must be done using prevailing wages. That means wages that are paid at Davis-Bacon wage levels – to include benefits. The Davis-Bacon Act was passed in 1931 and requires that workers used for federal public work projects must be paid a prevailing wage rate. Some states also require Davis-Bacon labor rates for projects constructed using State grant funding.
Davis-Bacon wages are calculated by the U.S. Department of Labor. The DOL surveys existing wages regionally for a long list of job titles and publishes the results. Since the calculations are done regionally, and since most federal projects are done in or near cities, the prevailing wages tend to reflect the wages and benefits paid in urban areas.
Davis-Bacon prevailing wages are almost always higher than the labor rates paid by the contractors that construct rural fiber networks. The contractors that build fiber in rural areas typically specialize in rural work. Since the cost of living is lower in most rural areas, the wages tend to be lower than the Davis-Bacon prevailing wages.
This is somewhat of a regional issue. I’ve worked with projects in a few parts of the country where contractors are already paying prevailing wages or higher. But I’ve also seen cases where fiber construction contractors were paying at rates as much as 30% below the prevailing wage.
Following is an example of an actual fiber construction project priced at market rates (what contractors are paying today) and Davis-Bacon wages. The two network components most affected by the prevailing wage issue are fiber and fiber drops.
|Labor Rates||Labor Rates||Difference|
|At 75% Grant|
|BEAD Grant||$16,050,000||$17,775,000||$ 1,725,000|
|Matching||$ 5,350,000||$ 5,925,000||$ 575,000|
If this project was funded by a BEAD grant, the cost of the network would be 11% higher than funding with a grant that doesn’t require prevailing wages. This not only increases the amount of BEAD grant that will be requested, but it also adds to the matching funding that must be provided by the ISP. In this case, if this project was funded by a BEAD grant, the prevailing wage would add $1,725,000 to the size of the requested grant – if the request was for 75% grant funding. This also adds $575,000 to the matching funds that must be provided by the ISP.
One of the problems with driving up the cost of the project is that it might make the project unfeasible. There is not much margin in rural grant projects even if paying market wage rates, and the extra matching funds might be enough to make an ISP decide not to pursue the grant or the project.
ISPs are clearly unhappy about this requirement because they feel like they are paying more for a project than what they could contract for without this rule. They have willing contractors willing to build the project at market labor rates. Having to come up with an additional $575,000 out of pocket feels like a penalty.
Another issue that might compound problems is that some rural contractors aren’t interested in projects at the prevailing wages. They are uncomfortable having some crews being prevailing wages and others making market wages. That is an uncomfortable position for an employer.
To make matters more confusing, a lot of ISPs build the fiber drops using existing staff. They are leery about paying more for the staff building grant-funded drops than for other drops. This is both an accounting nightmare and an HR problem with staff.
It’s easy to understand why the Davis-Bacon wage rules are in place. The IIJA project that funded the BEAD program is basically a jobs bill, and the whole point of the program is to get more money into the pocket of workers. But the real-life consequence of the policy is higher costs and the possibility that grant projects will be too expensive to pursue.
I respectfully disagree with your assessment of the prevailing wage impact on large projects(these are in reality all large projects if they are BEAD funded).
The last three municipal projects that we did (that’s what we do) were performed by two different contractors, one was a union contractor who basically by definition pays prevailing wage, and the other non-union who pays his workers by the piece but doesn’t have a single worker that makes less than the Davis-Bacon wage rate.
In a previous career life I was involved in commercial construction and had numerous contractors facing the same question every day, to be union or not was often the case, but the changes in the workforce over the past 10 years and especially since the pandemic have driven the cost of labor up fast enough that contractors not paying the prevailing wage rate are losing their labor force to those who do… We have not by extension seen an increase in the cost of our projects since they were indeed built by the low bidders…
Several of my contractor clients in the past would also use public oriented prevailing wage work as a de facto reward or bonus for their employees as well…food for thought!
I enjoy your blog…
Hi Mike: I don’t fundamentally disagree with you and an awful of the construction techs in the country are already making at or above prevailing wage. In some parts of the country you can’t find any construction companies that don’t pay at that level. However, I’m now seeing bids in a number rural areas where this is making a big difference. The example I used in the blog is a real-life example and this is not the only case of the issue. I’m seeing this in parts of the Midwest and South – and for the ISPs involved this is a big issue.
Thanks for the good article on the impact of Davis Bacon on construction costs. It is a big source of complaints in one state where I am working and with BEAD, will be an issue going forward. I can see where the biggest impact will fall on those who are the most profit-oriented companies that have high short-term ROI hurdles. Co-operatives that are more patient will see much less effect.
For ease of math, I assumed a $9000 per passing cost without DB and $10,000 per passing with DB which results in approximately 2300 passings for your project. The difference in the required match is $575,000 or $250 per passing. Recovering that cost over two years is about $10 per month per passing. Extending that over ten years like a co-op might would be a $1 per month impact. A public sector network builder might extend that even longer. To be fair, I do not include interest costs in this analysis.
Just one more reason to give the bulk of these dollars to co-ops and public entities. If the for-profit sector can’t make it work with a 75% subsidy, they are clearly the wrong folks to be accepting this money.