Davis-Bacon prevailing wages apply to 221(d)(4) new construction and substantial rehabilitation. That much is well known. What is less well understood is which wage determination applies, and what triggers the expensive one.
The threshold is eight families, not twelve
The statutory hook is Section 212 of the National Housing Act, 12 U.S.C. § 1715c. It applies the labor standards to insurance of any mortgage under Section 221(d)(3) or (d)(4) covering property with a dwelling or dwellings “designed principally for residential use for more than eight families.”
The implementing regulation is 24 CFR § 200.33, which requires compliance with 29 CFR parts 1, 3 and 5, requires the provisions to be inserted into project commitments, contracts, construction contracts and subcontracts, and bars insurance of advances absent the contractor’s certificate that laborers and mechanics have been paid the required rates.
Residential or building — the four-story test
This is the part that moves money. HUD Handbook 1344.1 REV-3 draws the line by height:
- Residential covers construction, alteration or repair of single-family houses or apartment buildings of no more than four stories.
- Building covers structures exceeding four stories that have housing units, and buildings of four stories or less that do not have housing units.
Building rates are typically materially higher than residential rates for the same trades in the same county. On a large project the difference is not a rounding item.
How stories are counted
The counting rules are specific, and they are where the design conversation actually happens:
- The first story must be primarily above exterior grade on one or more sides and contain at least 50% living accommodations.
- Stories below grade used for storage, parking or mechanical systems are not counted.
- An unfinished attic immediately below the roof is not counted.
- But a half-story over the fourth story classifies the project as “building.”
The authority is Department of Labor All Agency Memoranda 130, 131 and 236. Note what is not in the test: the handbook chapter setting it out does not treat elevators or ground-floor commercial space as independent determinants. Height controls.
The practical implication is that a five-story wood-frame or podium design and a four-story design of the same unit count can carry meaningfully different labor budgets. That is worth pricing before the architect is far along, not after.
Exemptions
Section 200.33 excepts projects insured under Sections 207 or 232 pursuant to Section 223(f) — the acquisition and refinance route. Section 241 supplemental loans follow the labor standards of the original mortgage’s section. Part 70 provides a volunteer waiver where statutorily permitted.
There is no exemption for a 221(d)(4) new construction or substantial rehabilitation deal. If you are reading about a HUD loan without Davis-Bacon, you are reading about a 223(f).
What compliance looks like during construction
This is ongoing administrative work, not a one-time filing, and it needs to be staffed.
- Form HUD-4010, Federal Labor Standards Provisions, is the mandatory rider inserted into the construction contract and every subcontract.
- Each employer submits weekly certified payrolls, beginning the first week it performs work on site and promptly after the close of each pay week. HUD’s Electronic Payroll System is the expected route; any other format must include everything on DOL Form WH-347.
- Each payroll carries a Statement of Compliance with an original ink signature of the owner, a corporate officer or a designee. Signature stamps, photocopies and facsimiles are not acceptable.
- Payrolls go to HUD Labor Relations staff at least monthly, and the contractor certifies compliance with each request for advances — the draw-by-draw operation of the § 200.33 certificate.
- The HUD inspector interviews a sample of workers on site during working hours, recorded on Form HUD-11.
- At the pre-construction conference the wage decision and Form WH-1321, Notice to Employees, must be conspicuously posted on the job site.
- Records are retained three years. HUD has withholding authority over contractor payments, with priority over sureties and other creditors.
What to do about it
Get the wage determination early and price the trades against it, rather than against the local open-shop market. Settle the story count before the design is fixed. And make sure your general contractor has run federal prevailing wage jobs before — the administrative burden of certified payrolls across every subcontractor is where inexperienced GCs generate delays, withheld draws and, occasionally, restitution findings.