So, among the bidders with the highest payrolls, the lowest bidder wins?
Sounds yucky for the contractor.
Yes, it is. Everyone is on a level playing field when i comes to direct labor costs per man-hour with fringes and bennies. The prevailing wage rates are so high that it is unlikely anyone is going to bid "down to" the prevailing wage. The problem is that the certified payroll process is so onerous that there are a lot of "back office" costs that just sky-rocket. Lets say that you charge $100 per hour for your labor and direct labor costs (direct wages, fringes, medical, workmen's comp, SSI, SUI, SDI, etc) are $45/hr. The tech is getting paid somewhere in the neighborhood of $25. Other fixed and overhead costs run another $40-$45/hr. Well in Morris county NJ an electrical foreman (the rate I have to use for a single fire alarm tech on a job) is $70.86. You have to pop your rate $50 just to cover what the tech is paid. More to cover the direct labor costs such as SSI. So now you're looking at a labor rate north of $150 per hour
without increasing your profit as a percentage of cost. Previously you were seeing 10-15 cents on the dollar, now it's 6-10 cents. If you try to shave your labor estimate and you cut it too close and can't recover costs through change orders you'll take a terrible beating because that certified payroll will force you to pay the prevailing wage even as the job tanks. And don't think you can just jack up your material estimates either. Your bid will probably break out labor and material.
We had thought that prevailing wage jobs could be a nice revenue stream for us. The sales may look good, but the profit margins reek even when the job goes well.