Private Entities Beware: Accepting State Issued Bonds Triggers Application of the Illinois Prevailing Wage Act

Contributed by Jonathon Hoag

The Illinois Prevailing Wage Act plainly states that it applies to fixed works constructed by a public body. The act goes on to define “public body” as the state, local governments, or any institution supported in whole or in part by public funds. At first glance, the act seems to make it clear that the prevailing wage rate is not required on construction projects initiated by private entities that are not supported by public funds. This is not the case, according to a recent Illinois appellate court ruling.

In McKinley Foundation v. Illinois Department of Labor, the court decided that a private entity becomes a “public body” under the act when it accepts certain state issued bonds. The case involved a not-for-profit Presbyterian ministry for college students that contracted to construct student housing and parking on its property. The McKinley Foundation is funded entirely through private donations. However, for purposes of the housing project, part of the funding stemmed from tax-free bonds issued through the Illinois Finance Authority.

The Illinois Department of Labor audited the project, asserting that it was governed by the Prevailing Wage Act. McKinley argued that it was not a “public body” as defined by the act because it was not supported in whole or in part by public funds. The court acknowledged that McKinley was not supported by public funds, but pointed out that it had accepted funding through one of the statutes (The Illinois Finance Authority Act) that was specifically enumerated in the act, which arguably triggers application of the Prevailing Wage Act.

The court relied on the legislative debates that occurred when the act was amended to incorporate specific funding sources that would prompt application of the act. According to the court, the legislative debates made it clear that the intent was to expand coverage of the act to projects constructed by entities benefitting from financing under an enumerated public-financing mechanism, even if the entity itself was not a traditional public body.

As a result of the court’s ruling, contractors and subcontractors must proactively seek out the funding source of construction projects. If public funding can be ruled out, the contractor or subcontractor should confirm in writing that the project is not covered by the Prevailing Wage Act. Lastly, if financing through a state-issued bond or statute is necessary or otherwise unavoidable, the parties should identify the scope of the project being constructed with the financing and narrow the project to the extent possible. The court’s ruling states that a private entity is only considered a “public body” for purposes of the project that is financed by the enumerated public-financing mechanism.