The Prevailing Wage and Apprenticeship (PWA) provisions in the Inflation Reduction Act (IRA) offer increased tax credits for qualified projects. As part of the IRA’s goal to invest in clean energy solutions, these PWA provisions(Opens a new window)(Opens a new window)(Opens a new window) aim to improve the quality of jobs in clean energy fields and encourage those industries to expand workforce training opportunities.

If fully compliant with PWA requirements, taxpayers can see a fivefold increase in their tax credits. These PWA requirements are especially relevant to the construction industry, but there is still some uncertainty regarding compliance and recordkeeping requirements. In this Q&A, we address some common questions about PWA compliance.

Why is PWA compliance important in construction projects?

A: PWA compliance is a crucial step in claiming tax-related benefits through the IRA. Additionally, failure to pay workers “wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character” will result in being required to pay those workers the difference (plus interest), as well as a potential fine for each underpaid worker.

With so much at stake, it is essential to understand the PWA requirements and put an efficient compliance system in place at the beginning of your project.

What proactive measures should be taken to confirm compliance?

A: It's important to educate your contractors, including second and third tier subcontractors. Providing basic PWA training helps them understand what to look out for and how to avoid prevailing wage and apprenticeship compliance issues. Well-educated contractors increase the likelihood of project success from a PWA compliance standpoint.

How should the compliance process be organized?

A: Compliance needs can be broadly categorized in terms of what must be done for yesterday, today, and tomorrow.

1. Yesterday: Review past actions for compliance and address any backlog or non-compliance issues.
2. Today: Implement current compliance measures to keep the project moving forward efficiently. Consider bringing in a compliance consultant at the earliest possible stage – if not yesterday, then today.
3. Tomorrow: Plan for future contracts and change orders, and be sure to account for administrative fees for compliance support. Continue refining your compliance system to make it more efficient and scalable for future projects.

How can technology help in managing PWA compliance?

A: Technology is a vitally important tool when it comes to compliance. Using purpose-built software (such as a wage compliance program) to collect and analyze your data reduces both human workload and human error. Consolidating your compliance information can streamline the compliance process, simplify your reporting, and give you real-time updates for ongoing compliance management.

When should a consultant be brought in for PWA compliance?

A: Ideally, a consultant should be brought in as early as possible, whether during pre-planning, execution, or construction. Waiting too long can introduce inefficiencies or errors that will need correction, which can cause delays and put the project at risk. Involving a consultant from the earliest possible stage helps reduce your risk and keep the project on track. It can also help increase lender and investor confidence in your project’s compliance.

Can you provide an example of a common compliance misunderstanding?

A: One common misconception is the idea that PWA requirements must be applied to all components of the project. In some cases, only certain parts of a project (for example, building energy property) require PWA compliance, while others (such as building base components) may not. Being aware of these differentiations can help avoid unnecessary compliance-related delays and costs.

Final takeaways

The key to PWA compliance is to be proactive: understanding what’s required and putting the necessary processes in place before work begins can save significant time and money. Make sure to leverage both the necessary compliance technology and compliance consultants as early as possible. Proper planning, continuous education for all parties, and timely consultant involvement are essential factors in successful PWA compliance.

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}