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When is a Prevailing Wage Not Prevailing?

by Donald S. Krueger & D. Martin Stanberry

New York state courts appear primed to resolve important questions about competitive bidding for public contracts in New York City and the ability of contractors to successfully challenge city officials’ actions that directly affect the wage and benefit components of their bids.

Under New York law, a contractor awarded a public contract by the state or a municipality must pay the “prevailing rate” for wages and fringe benefits to their workers performing services under that contract. These prevailing rates are established by the fiscal officer of the municipality awarding the contract.  In New York City, that responsibility falls to the Comptroller.

New York has two laws that guide the fiscal officer’s prevailing wage determinations. New York Labor Law § 220, et. seq., (“Article 8”) controls the prevailing wage rates for “laborers, workmen and mechanics” and New York Labor Law § 230, et. seq., (“Article 9”) governs the prevailing wage rates for “building service employees” such as movers, watchmen, porters, groundskeepers and others. Notably, the standards governing the establishment of prevailing wage rates under Articles 8 and 9 are different. Article 8 expressly permits the prevailing wage rates to be set based upon the wages established in a collective bargaining agreement covering 30% or more of the relevant labor pool. Article 9 however, does not contain that same explicit language, thereby suggesting something more is required.

This very issue was addressed last year by New York Supreme Court Judge Alice Schlesinger, who found that New York City Comptroller John C. Liu’s decision to establish “abnormally high” prevailing wages for movers based solely on the wage rates in a single union contract was arbitrary, capricious and void. Metropolitan Movers Assoc. v. Liu, as Comptroller of the City of New York, 32 Misc.3d 175 (2011).  Specifically, Judge Schlesinger found that New York City Comptroller John C. Liu abused his discretion under Article 9 by relying solely on Teamsters local rates (ranging from $30.63-38.90 per hour) while ignoring the much lower average rate ($19.19 per hour) found in a survey conducted by his office.  Although the court found Comptroller Liu had violated Article 9’s statutory mandate, Judge Schlesinger expressly noted that the Comptroller is free to rely on collectively bargained rates so long as those rates are consistent with other rates examined; in other words, so long as those collectively bargained rates truly are the prevailing wages for that type of worker.

Dissatisfied with Judge Schlesinger’s ruling, the City of New York has appealed the decision. Significantly, the appellate court’s findings will influence not only the fiscal officers’ future wage determinations, but also the merits of challenging such determinations through legal recourse. A decision is pending.

In the interim, at least one business is not waiting for the appellate court’s decision.  Because of the brief period in which a business may challenge such determinations, and seizing upon the Metropolitan Movers Association’s initial success, on October 31, 2011, Mega Protective Services Inc., brought an action challenging the Comptroller’s prevailing wage rate established for security guards pursuant to Article 9.  See Mega Protective Services Inc. and Alante Security Group v. John C. Liu, Index No. 11112411 (October 31, 2011).

Looking at the matter from a broader policy perspective, it is undeniable that the Comptroller’s prevailing wage rate is a significant factor influencing a business’ likelihood to participate in the bidding process for public contracts. Therefore, ensuring the prevailing wage rate is set at the appropriate level guarantees that all qualified bidders, large and small, can compete for public contracts. If the prevailing wage is too burdensome, otherwise qualified businesses may choose to forego bidding altogether, a result which undercuts the competitiveness of the bidding process as well as the City’s fiscal integrity.

Similarly, arbitrary wage rates may undermine strategic efforts by the City to encourage small businesses to bid on public contracts.  Initiatives such as the Minority and Women-Owned Business Enterprise Program (“M/WBEs”), created specifically “to promote fairness and equity in City procurement processes by providing services designed to strengthen the ability of certified M/WBEs to increase their capacity and effectively contribute to the City’s economy”, are undermined by arbitrarily determined prevailing wage rates because they end up pricing the contract out of the business owners reach.