With the recent amendments of the Illinois Prevailing Wage Act (IPWA) and the decision of the Third District of the Illinois Appellate Court in the case of Department of Labor v. Sackville Construction Inc., 402 Ill.App.3d 195 (3 rd District 2010), all companies who are receiving public funds, and not just those in the construction industry, need to be cognizant of how the Illinois Department of Labor (IDOL) is proceeding to enforce the IPWA.

The IPWA was initially enacted more than seventy (70) years ago and has mainly been applied in the construction trades to establish that no one working in the construction trades is paid less than the “general prevailing rate of wages” (including hourly cash wages and fringe benefits) for construction work in a designated county where that construction work is being performed for public bodies on public projects. In point of fact, the IPWA pay provisions are established by the IDOL on a county-by-county basis and on a monthly basis. The IDOL provides the “rates to be paid” that are primarily set based on “union contracts” in that county for similar work. This law has again primarily been applied for construction work done directly for public bodies on public projects. However, as a result of the various amendments to the IPWA and recent court decisions, the IDOL is significantly extending the reach of the IPWA in a way that can affect private companies working on private projects.

As previously stated, the IPWA requires that “public bodies” (such as the State of Illinois, city governments, school districts, county governments, etc.) pay the prevailing wage rate to all laborers, workers, and mechanics who are engaged in “public works.” The term “public body” is defined to include “any institution supported in whole or in part by public funds,” and the term “public works” is defined as “all projects financed in whole or in part through bonds, grants, loans, or other funds that may be made available by or through the state or any of its political subdivisions.” While many companies assume that the term “public bodies” and “public works” only applies to projects that are for the benefit of the public and performed only on behalf of a government entity, this is an incorrect assumption.

In the case of Department of Labor v. Sackville Construction Inc., 402 Ill.App.3d 195 (3 rd District 2010), the Appellate Court reversed a trial court decision in favor of the construction company, Sackville Construction Inc., and held that, when looking at the language of the statute, the phrase “an institution supported in whole or in part by public funds” was broad enough to cover a private developer as a “public body” under the statute. In that case, a private developer (Rock Island Industrial Partners) entered into a contract with a general contractor (Hy-Brand Contractors) to construct a 45,000 square foot industrial complex on a vacant lot in Rock Island, IL. After entering into the contract, the developer (Rock Island Industrial Partners) entered into an agreement with the City of Rock Island to construct the building. As part of that agreement, the developer (Rock Island Industrial Partners) agreed to invest $1.5 million into the project and the City of Rock Island conveyed the property via title to the developer for $1.00 and also agreed to contribute $150,000 for “use in the project” and also agreed to pay up to $57,000 for “site clearance and demolition.” The general contractor (Hy-Brand Contractors) entered into a contract with Sackville Construction Inc. to provide laborers on the project and the laborers were not paid the prevailing wage.

Also, Hy-Brand Contractors did not inform Sackville Construction Inc. that the City of Rock Island had contributed funds to the project or that the project was covered by the IWPA. After receiving a complaint, the IDOL filed suit against Sackville Construction Inc. for violations of the IPWA. Rock Island Industrial Partners was found to be a “public body” and the private development project was found to be a “public works” because the developer had, in fact, received public funds for the development from the City of Rock Island. Remember, the $150,000 contributed by the City of Rock Island for the site construction and the $57,000 for “site work”!

While the general contractor (Hy-Brand Contractors) was not sued by the IDOL for violations of the IPWA in the Sackville case, this does not mean that the general contractor would not potentially be liable as well. Under the IPWA, any contract that is issued on a public works project must state and inform the subcontractor that the provisions of the IPWA apply to the construction at hand. If this notice is not given, it is possible under the IPWA that the general contractor or, in fact, the public body issuing a contract, would be liable for any interest, penalties, or fines but not wage differential, that might be owed by the subcontractor to the employees if the notice that the project is subject to the IPWA was not in the contract. Simply stated, the subcontractor could “sue the general contractor” and potentially collect the “interest, fines, and penalties” but the subcontractor must pay the “wage differential.” How this would affect the “subcontractor” getting future work from the “general contractor” would be the subject of another article – probably a very short one!

Because of these developments and the new approach by the IDOL in aggressively pursuing matters arising under the IPWA, every contractor and/or subcontractor on a project must clearly ask the question, “Is this project funded in whole or in part by ‘public funds’? And if it is funded in part by ‘public funds,’ is it subject to the IPWA?”

Questions? Contact Walter J. Liszka in the Chicago office at waliszka@wesselssherman.com or by phone at (312) 629-9300.