Duty To Investigate Created Under Prevailing Wage Act

Do you know who’s funding your current project?  If not, you had best find out.  If your current project is even loosely connected to a public body or public funding, you will be subject to the Prevailing Wage Act, 820 ILCS 130/.01-12 (2010).  The Illinois Appellate Court recently held that, although the Act contains a notice requirement, the Act does not state that notice is a condition precedent to paying prevailing wages.  Dept. of Labor v. Sackville Construction, Inc., 402 Ill. App. 3d 195, 930 N.E.2d 1063 (3d Dist. 2010).  Simply put, as contractor, subcontractor, owner, and/or developer, you must now take active steps to protect your interests by finding out every source of funding for your next project.

In February 2006, private developer Rock Island Industrial Partners (RIIP) entered into a contract with Hy-Brand Contractors to build an industrial complex on a vacant lot in downtown Rock Island.  RIIP subsequently signed a contract with the City of Rock Island to construct the project, wherein RIIP agreed to invest $1.5 million to the project and the City conveyed the land to RIIP for $1, contributed $150,000 “for use in the project,” and further pledged $57,000 for the cost of site clearance and demolition.  The next month, Hy-Brand entered into an oral subcontract with Sackville Construction (Sackville) to provide laborers.  Hy-Brand did not inform Sackville that the City had contributed any funds to the project or that the project was covered by the Act.

While construction was ongoing, the Illinois Department of Labor received a complaint that Sackville was not paying the laborers their correct wage.  Through its investigation, the Department determined that the project constituted a public works project due to its location and City contributions, and the laborers had not been paid the prevailing wage.  The Department calculated an underpayment of $19,189.39 and demanded immediate payment.  Sackville refused.

The Department filed a complaint against Sackville in December 2007, alleging violations of the Act, and sought back wages, plus penalties.  Sackville filed a motion for summary judgment, arguing that the Act did not apply to the project because RIIP was not a public body; thus, it was not required to pay the prevailing wage.  Sackville also argued that the City served only as a “financing conduit” and that the project was not actually funded by the City.

Though the trial court held that the project was subject to the Act, it also found that because Sackville did not have any notice of the agreement between RIIP and the City, it would be “unfair” to require Sackville to pay prevailing wage.  The trial court found in favor of Sackville.  The Department appealed.

In reversing the trial court, the appellate court made three major decisions which may affect any contractor, subcontractor, owner, and/or developer in Illinois.  First, the court held that, despite being a private firm, RIIP was a “public body” under the Act because it was “supported in part” by public funds.

Second, the court held that the project constituted a “public works” project within the meaning of the Act, specifically holding that the Act “applies to all fixed works constructed by any public body paid for in whole or in part by public funds” “regardless of the nature or statutory source of those funds.”

Finally, the court held that actual notice to Sackville of the prevailing wage contract was not required in order for it to be held liable under the Act.  The court found that the Act dictates that a subcontractor, like Sackville, is obligated to pay the prevailing wage to its workers, and that the Department is not required to notify subcontractors that the Act applies to their project.  Because the court found that Sackville did not pay the prevailing wage as required, it ordered Sackville to pay the underpayment, plus 20% of such underpayments payable to the Department.

In order to protect your interests, take proactive steps to discover all sources of funding, regardless of how small, of your projects.  Failure to do so could result in hefty penalties under the Illinois Prevailing Wage Act.