Real-World Execution Costs of PWA Compliance

Real-World Execution Costs of PWA Compliance

Prevailing Wage and Apprenticeship (PWA) obligations can result in unpredictable expenses, including labor, back-office, and execution costs. Misestimating these expenses can have a substantial impact on project budgets and profitability.

Overall, PWA compliance costs typically range from 0.5% to 5% of the project value. These costs encompass auditors, software, back-office support, and other resources required to ensure proper compliance.

Labor Costs: Understanding Prevailing Wage Discrepancies

Prevailing Wage rates vary significantly between states/counties and relying on standard cost estimates can lead to budgeting errors. Wage Determinations are updated every six months, but even then, they are neither predictable nor comprehensive.

For example, a Clean Energy States Alliance (CESA) study revealed that common Job Classifications across states show significant variability in Prevailing Wage rates:

• An Electrician might earn between $48,713 and $114,940 annually, depending on the state/county.

• An Installer could make as little as $21,673 or as much as $94,608 per year, depending on the state/county.

The key takeaway is that standard job costing, labor rates, and budget models may be woefully inaccurate when using local Prevailing Wage Rate (pre DOL-clarity). Moreover, pull-through requirements around Fringe Benefits, holiday pay, nature of work, and footnotes can impact total project labor costs.

Taxpayers and developers often find themselves scrambling to meet unexpected wage obligations, especially when project timelines overlap with updated determinations. Without proper planning, these discrepancies can rapidly inflate labor costs beyond initial projections.  

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Back-Office Costs: The Hidden Compliance Burden

Back-office compliance costs are often overlooked during project planning, but they can add up quickly. These costs include items such as payroll system upgrades, compliance software licenses, and ongoing audit fees.

Recurring costs can be even more significant. Common recurring costs include:

• Incremental Payroll License Costs

• Contractor Prevailing Wage Verification Software

• Incremental Payroll Support (annual escalation to reflect IRA exposure)

• Additional Benefits Specialist

• Additional Headcount (support for payroll auditing and union reporting)

• Support for Subcontractor PWA Compliance

• Compliance support for FLSA, State, and Apprenticeship Program(s)

• Reporting and HR Analyst

• FLSA Third Party Audit

• Handbook and Policy Audits/Third-party Review

• Incremental Costs of Additional Bona-Fide Fringe Benefits (i.e., unused vacation payout)

Even when contractors invest heavily in back-office support, they may still face challenges due to inconsistent documentation requirements and unpredictable audit standards. These factors make it crucial to budget for ongoing compliance costs rather than treating them as one-time expenses.

Check out the full field guide (linked below) for a detailed breakdown with actual dollar values of back-office costs for a hypothetical mid-size developer.  

Execution Costs: Audit and Verification Challenges

Third-party audits can become a significant financial and logistical burden. Companies often start with boutique audit firms at $10,000 per month, but costs can escalate as audit requirements expand. Large accounting firms may charge $30,000 to $50,000 per month, with additional billable hours for documentation verification.

In practice, companies frequently see actual fees that are 3-12 times higher than the original estimates provided above.  

Common issues with third-party audit firms include:

• Imposing unnecessary requirements on subcontractors, increasing project complexity.

• Using DBRA-specific software that doesn’t fully align with IRA requirements.

• Lack of experience with Prevailing Wage compliance, leading to incomplete audits and the need to bring in additional firms to cover gaps related to apprenticeship requirements, tax credit documentation, and financial risk management.

• Slow response times from auditors, sometimes taking 2-12 weeks to review submitted documentation.

• Inconsistent audit standards, where requirements change based on the auditor or specific project.

In our experience, large public accounting firms have the least rigorous and highest-cost PWA compliance solutions on the market. In fact, more than a third of the items on DSPTCH’s documentation checklist have never been requested by a Big Four firm from any of our clients. Plainly, we cannot deduce how they are able to verify PWA compliance. The gaps are widest around Apprentices, Wage Progression Schedules, Bona-fide Fringe, and Journeyworkers.

One taxpayer reported starting with a $10,000/month audit cost, which ballooned to $90,000+ per month as audit complexity increased. In contrast, using DSPTCH to automate wage calculations and compliance tracking reduced overall costs significantly, while also cutting down on administrative workload.

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Want to Stay Ahead of Compliance Costs?

Download the comprehensive DSPTCH IRA Field Guide to learn more about budgeting for labor, back-office, and execution costs. Inside, you’ll find:

• Labor Costs (pages 80 to 85): A breakdown of wage discrepancies between states for common Job Classifications.

• Back-Office Costs (pages 85 to 87): An analysis of the upfront and recurring costs of maintaining compliance, including insights into audit verification fees.

• Execution Costs (page 88): Practical observations on common issues caused by third-party audit firms.

[Download the Full Guide]

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