Prevailing Wage and Apprenticeship (PW&A) requirements are complex and can be easily misinterpreted, with violations potentially leading to extensive penalties for the credit seeker. Baker Tilly’s PW&A Compliance Program has a dedicated team of subject matter experts to guide you along the path to maximizing your credit. The program allows for proactive monitoring of any non-compliance, providing users with the most efficient path to cure before penalties are incurred, and fulfillment of record-keeping requirements.
A major investor-owned utility company has engaged Baker Tilly to provide PW&A compliance services for a portfolio of energy investment projects. The two projects below began similarly – with the engineering, procurement and construction (EPC) contractor accepting responsibility for PW&A compliance, but they concluded with significantly different outcomes. Both cases demonstrate why it is critical to have a trusted tax credit advisor to identify non-compliance, which may impact your ability to claim the enhanced credits.
When Baker Tilly was hired to assist with compliance through evaluation of the labor costs incurred to date, the project was 9 months into a 10 month schedule. The utility company trusted their EPC and their stated understanding of PW&A. The EPC even accepted responsibility for penalties, however, too much money was at stake to risk the credit. The utility company also did not want to ruin its relationship with the EPC due to commercial disagreements over liability for PW&A penalties.
The first step to compliance with PW&A is establishing the correct Department of Labor (DOL) wage determination(s) for the type of project and project location(s). Baker Tilly reviewed the project facts with the credit seeker to identify the correct DOL wage determination required for prevailing wage compliance. Once the required determination was provided to the contractors, it became clear the EPC provided an out of date and incorrect state wage determination (not DOL as required) to its subcontractors. This resulted in a contractor underpaying their employees by a rate of $2/hr causing over $8,000 in backpay plus interest. All restitution to the workers must be paid before the credit can be claimed.
The more significant issue is the number of penalties the innocent error caused. While seemingly a small error with only $8000 in backpay, the credit seeker incurred penalties of roughly $250,000 from one contractor alone. These penalties were from both calendar years 2023 and 2024 (reminder that the underpayment penalty is calculated per worker per calendar year). Penalties of $120,000 were related to work performed in 2023 and could no longer be cured. The 2024 prevailing wage penalties might be cured if the penalty waivers can be achieved within 30 days of the credit seeking to be aware of the underpayment. The Baker Tilly team guided the credit seeker on the best approach to ensure they were compliant with the PW&A provisions for their enhanced credit while minimizing these projected penalties. The contractor also did not realize their training program was not registered; thus their “trainees” were not qualified apprentices. This may result in apprentice related penalties of an additional $15,000 ($50 per unmet apprentice hour).
Project two has similar facts as project one, but the project began construction after Baker Tilly was hired to provide compliance services and had a different EPC. As with project one, the EPC was trusted with compliance but unfortunately referenced incorrect prevailing wages when bidding out the work to contractors. Baker Tilly quickly identified this and issued the correct wage determination to the contractors before work began on-site. The early involvement of Baker Tilly as a trusted tax credit advisor has so far allowed the credit seeker to avoid the same outcome as project one. The changes in labor costs were immaterial, but so far, each contractor has complied with the provisions of PW&A due to Baker Tilly’s education on the contractor-level requirements under the Inflation Reduction Act (IRA) and the training provided by Baker Tilly for the use of its PW&A compliance portal.
In summary, engaging Baker Tilly for tax credit compliance before the start of construction allows for non-compliance to be identified early, saving a credit seeker time and money. Oftentimes the errors we find are innocent, but they can create serious exposure for the credit seekers. However, it is never too late to assess compliance. Penalties can be prevented or minimized with the involvement of PW&A compliance experts.
