Virtual Power Plants and the Davis Bacon Act

A virtual power plant (VPP) is a connected aggregation of distributed energy resources (DERs) such as rooftop solar with behind-the-meter batteries, EVs and chargers, electric water heaters, smart buildings and their controls, and flexible commercial and industrial loads. Through the use of a software platform provided by the VPP provider, the inputs and outputs of electricity supply and demand are networked in such a way as to provide utility-scale and utility-grade grid services similar to those of a traditional power plant. The Department of Energy’s (DOE) Loan Programs Office (LPO) is providing financing to eligible VPP projects in the United States for the advancement of equitable clean energy access and to support a stronger clean energy grid. 

Unlike other clean energy projects supported by LPO, VPPs have a distributed structure with multiple locations of DER deployment; most of the projects receiving loans from LPO are in a single, centralized location. Due to the nature of a VPP, under which demand-responsive technologies are integrated within a networked system, ownership and control of the DERs may not be the same. The DERs are typically installed onto or into existing infrastructure, and some of the equipment may be procured by channels more removed from the project’s control than is typical of the kinds of more traditional, centralized clean energy projects funded by LPO. Installation of the equipment at the various sites of the VPP is often performed by numerous different companies, many of which are small businesses local to the communities covered by the VPP.  

Even as VPPs represent a technical and business structure that diverges from the models supported by LPO in the past, VPP projects are still subject to the same eligibility requirements as all other projects funded through the corresponding program offered by LPO. One of the key requirements is compliance with laws administered by other federal agencies that are applicable to project execution, such as the applicable labor law administered and enforced by the U.S. Department of Labor (DOL): the Davis-Bacon Act (DBA). 

Davis-Bacon Act (DBA) regulations 

Enacted in 1931, the DBA applies to contractors and subcontractors on federally funded contracts greater than $2,000 for the construction, alteration, or repair of public buildings or public works. It establishes a minimum wage rate requirement, known as the “prevailing wage,” for laborers and mechanics performing work on such projects and requires that they be paid on a weekly basis. It also establishes some requirements for contractors and subcontractors that intend on utilizing apprentices on DBA covered buildings or works. All LPO financing programs, except for the Tribal Energy Financing Program, are subject to DBA labor standards and the DOL has the authority to enforce those standards. 

DBA requirements for VPPs 

While all applicants to LPO undergo a thorough application process, VPP projects have unique challenges associated with DBA requirements. VPP operators who receive LPO financing must prepare, certify, and submit to DOE weekly payroll reports for all the laborers and mechanics engaged in construction on all sites of work that are financed directly or indirectly with loan proceeds. Therefore, applicants should survey their installation contractor network early in the process of applying for support from LPO in order to determine which companies will be able to comply with DBA; this may require revision of the project geographic and hardware distribution strategies. Applicants approved to receive funding may also be required to submit DBA-related documentation in order to demonstrate compliance. DBA requirements apply to the construction phase of the project but not to the operations phase.   

How VPP applicants to LPO and their project contractors and subcontractors can comply with DBA regulations 

During the Due Diligence phase of the application process, VPP operators generally should submit the list of contractors and counties of site locations for laborers and mechanics who are anticipated to perform work on the sites of the VPP project. Certified payrolls must be submitted for any laborers and mechanics who perform construction activities on the VPP site of work subsequent to financial close, whether they are considered employees of the loan guarantee recipient or independent contractors. Applicants on projects for which work has begun prior to the close of a loan award will be responsible for ensuring that contracts with installers be modified to incorporate the relevant clauses relating to DBA retroactively to the date of the construction contract or start of construction (if there is no such contract). In some cases, this may also entail providing owed compensation to laborers and mechanics to comply with prevailing wage schedules. For projects that begin construction prior to financial close, prevailing wage rates should be set as of the execution date of the construction contract, or, in the absence of such a contract, the official date on which construction begins. 

VPP operators must ensure that all contractors are posting the applicable wage determinations at all sites on which construction work is being performed for the VPP project. At residential project sites, the van, truck or similar vehicle used for transporting workers and equipment is a suitable location for installers to use for posting purposes. 

Under DBA, DOE is required to provide a Semi-annual Labor Standard Enforcement Report to DOL. To support this effort, contractors are required to submit a report, in accordance with the official form by April 21^st and October 21^st following the end of the applicable semi-annual reporting period. A copy of the report can be submitted to DOE by email to [email protected]. 

How DBA categorizations for single and multiple work sites are determined  

The type of wage determination(s) applicable to the DBA-covered work site depends on the work site’s categorization. There are four types of wage determinations: heavy, building, highway, and residential. VPP projects generally fall under the “Residential” or “Building” categories. Projects that may involve construction work on a transmission system would likely need to incorporate a “Heavy” wage determination. In the event that a VPP might involve any work on roads, streets or highways, DOL provides a separate “Highway” category. LPO provides applicants with the descriptions of the applicable categorization by work site based on the details provided by the applicant of the prospective work and sites of the project. 

• The Building construction category is for buildings exceeding four stories in height that have housing units and buildings of four stories or less that do not have housing units. The construction generally takes place on sheltered enclosures with walk-in access for the purpose of housing persons, machinery, equipment, or supplies. DBA-covered work includes all construction of and on such structures, the installation of utilities and the installation of equipment, both above and below grade, and includes incidental items such as grading, sidewalks, and utilities as well. Distributed energy projects in the commercial and industrial market would fall under the Building category. 
• The Residential construction category is for the construction, alteration, or repair of only for single-family houses or apartment buildings of no more than four stories in height. This typically includes all incidental items, (such as site work, parking areas, utilities, streets, and sidewalks) unless there is an established area practice to the contrary. Many of the LPO distributed energy projects for VPP or residential energy systems will fall under this category.  

How DBA rules can affect employer payment practices, and what VPP applicants can do to achieve compliance for work performed on the project before the closing of the loan 

Borrowers receiving loans from LPO must ensure that their contractors or subcontractors pay all laborers and mechanics for direct work performance on the project at least once per week, in accordance with the appropriate work classifications. During the due diligence process, applicants must provide a list of subcontractors as well as the counties in which construction relating to the VPP will be performed. To ensure accuracy of reporting, applicants must procure and use an electronic certified payroll software system for the generation of weekly certified payroll reports and statements of compliance that must be submitted to DOE. For VPP applicants who are working with multiple contractors for the installation of the VPP components, there are electronic certified payroll systems that can accept uploads of payrolls from a variety of payroll applications, so that the applicant’s chosen payroll system would be able to work seamlessly with whatever payroll software their contractors are using. The certified payroll requirements are outlined in the DBA contract provisions in 29 CFR 5.5. DOL’s WH-347 report template also defines the details that must be included in a certified payroll report in order to be DBA-compliant. 

For any work that may have been executed prior to the loan application but is considered to be part of the project that LPO would support, the applicant must be able to certify the achievement of retroactive compliance before the loan can be closed. Accordingly, it is the responsibility of the loan applicant to ensure compliance, both ongoing and retroactive, with all subcontractors. Certified payrolls and related basic records shall be maintained by the contractor during the course of the work and for three years thereafter for all laborers and mechanics working at the site of the work.  

The following is a list of DBA labor classifications for employee types who may be involved in VPP projects: 

• Electrician 
• Laborer (construction) 
• Carpenter 
• Operator of Power Equipment 
• Roofers 
• HVAC 
• Plumber 
• Ironworkers 
• Welders 
• Concrete finishers 

How LPO supports VPP project compliance    

LPO works with applicants during the application as well as the construction phases of projects to assist them in understanding the DBA compliance requirements, and so that they can develop processes and tools to ensure that compliance. LPO works with applicants to determine the applicable wage determinations for the project. Ensuring DBA compliance for federally financed projects sometimes requires site visits and employee interviews by staff of DOE and DOL, but since the distributed nature of VPP projects makes it difficult to visit every site within the project, LPO coordinates applicants to ensure a verification process that is appropriate for the particular VPP project.  

Additional resources on DBA requirements

• Wage determinations: https://sam.gov  
• Wage determination/conformance request guide:   
  Wage and Hour Division Davis-Bacon Wage Determination Conformance Request Guide, September 2021 | U.S. Department of Labor (dol.gov)  
• Wage and Hour Division: 
  http://www.dol.gov/agencies/whd/government-contracts  
• Laws and related materials to Davis-Bacon and Related Acts:   
  Davis-Bacon and Related Acts | U.S. Department of Labor (dol.gov); final rule updates: Final Rule: Updating the Davis-Bacon and Related Acts Regulations | U.S. Department of Labor (dol.gov)  
• WHD Protections for Workers in Construction Under the Bipartisan Infrastructure Law: https://www.dol.gov/agencies/whd/government-contracts/protections-for-workers-in-construction  
• Resource book:   
  Prevailing Wage Resource Book May 2015 | U.S. Department of Labor (dol.gov)  
• Office of the Administrative Law Judges law library: https://www.dol.gov/agencies/oalj/topics/libraries/LIBDBA  
• Prevailing wage topic videos:   
  https://www.dol.gov/agencies/whd/government-contracts/construction/presentations