Public-work contractors don’t usually lose margin because the crews under-performed. They lose it because the bid they submitted was built on a labor rate that was never real to begin with. Under Davis-Bacon and other prevailing-wage rules, the “rate” you think you’re paying is almost never the rate you actually carry once fringe shortfalls, PTO, payroll taxes, and ripple effects hit your books mid-project.
If you price off the wrong labor rate, you lose the job — or you win the job and lose the money.
Prevailing wage is not just a wage number. It forces a chain reaction:
When required fringe is higher than what you currently provide, you must add cash or benefits to close the gap
When you raise wages to meet the fringe requirement, retirement, payroll taxes, and workers’ comp increase automatically
That secondary increase — the Davis-Bacon Ripple — is the cost most bids never include
Contractors typically account for the first effect (add wages).
They rarely model the second one (ripple).
The second one is what blows up the close-out.
Most estimating sheets collapse labor into one blended hourly number. That hides:
Overtime and differential hours
Benefit premium vs. percentage fringe cost types
PTO that must be absorbed into productive hours
Surplus vs. shortfall conditions by craft or locality
The moment you average, you erase the very mechanics that make prevailing-wage compliance expensive.
A Davis-Bacon-competent rate build must be able to explain — in order — all of the following:
Direct wages (regular, OT, DT differentiated)
Fixed fringe premiums (health, dental, vision, life)
Wage-based fringes (retirement, PTO, payroll taxes, comp, GL)
Fringe compliance adjustment (shortfall or surplus vs. required rate)
Ripple impact created by the adjustment
Indirect allocation (what is OH, what is G&A, applied to what base, and why)
Resulting prime cost and break-even rate before markup
If you cannot narrate all seven, you are not pricing — you are guessing.
Compliance is about paying correctly.
Profit is about pricing correctly.
You can pay legally and still bankrupt the job because you under-bid the cost of your own compliance.
Prevailing wage does not protect your margin — it exposes it.
Contractors who treat break-even as a first calculation (not a forensic post-mortem) see three consistent changes:
Cleaner yes/no decisions — walk away from work that cannot clear margin
Faster negotiation — can prove cost instead of defend guesses
Less surprise at close-out — the math was honest on day one
Davis-Bacon is not the enemy.
Bidding without seeing the ripple is.
You cannot bid public work with private-work math.
If you build bids off a number that does not include fringe shortfall, does not ripple burdens correctly, and does not allocate indirects to a defensible base, the spreadsheet will eventually find a way to take your margin in the field.
The only competitive number in a Davis-Bacon environment is the one you can both pay and prove.