Tom Hardiman, MBI’s Executive Director recently opened a discussion on the specter of prevailing wages being applied to offsite fabrication. Needless to say, this posses a serious threat to the commercial modular building industry. If the states of California, Ohio, New York, and Washington are successful in forcing prevailing wages on the modular industry it would not only be very detrimental to the industry, but also to the industries that the modular industry serves.
The commercial modular construction industry is a very complex industry. The modular industry provides temporary, relocatable buildings classified as personal property that can be leased or purchased, as well as modular sections that become part of a permanent building classified as real property upon completion. This distinction is important as some modular building contracts are identified as supply contracts (normally associated with the lease of a relocatable building) while other contracts are full construction contracts covering construction services associated with a permanent building. And to complicate matters even more, some modular manufacturers merely fabricate a portion of the finished building in their manufacturing plant selling the modules to a general contractor or modular dealer responsible for the installation, finish-out, and site work, while other modular manufacturers also act as a contractor that installs the building onsite.
If the definition of prevailing wages is expanded to include all modular manufacturing, where does this go next? Do air conditioning manufacturers become subject to prevailing wages? How about steel fabricators, precast concrete companies, window and door manufacturers? Some of these companies are unionized while others are not, but the prevailing wages associated with the job’s location (often in another state) are not relevant to the place of manufacture.
If the courts determine that prevailing wages are only applicable to manufacturers that also install and finish-out the building onsite, then most direct sale manufacturers will likely reorganize to form two totally separate companies: a modular manufacturing company that sells to dealers and contractors, and a construction company that supervises site activities.
The point is that there is absolutely no need for prevailing wages to apply to any building system manufactured offsite; not modular, not pre-engineered steel, not precast concrete, not any. Not only do modular manufacturers have to compete with both residential and commercial modular companies for their workers, they also compete every day with onsite construction companies. America, since its founding, has worked under the principle that supply and demand controls the price of finished products, materials, and labor. Good companies pay their employees fair wages based on the pricing structure they need to be competitive while making a reasonable profit. By keeping this philosophy, we can continue to grow America’s manufacturing sector.