Federal contractors and subcontractors must be prepared to quickly re-evaluate their compensation, hiring and related structures in the coming months and years, write Cozen O’Connor attorneys.
By Eric Leonard and Rachel Schwartz
President Donald Trump speaks with reporters before signing two executive orders in the Oval Office of the White House on Feb. 4, 2025, in Washington, D.C. Attorneys point to a few themes in the executive actions taken to date with respect to government contracts labor and employment Anna Moneymaker / Staff via Getty Images
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Eric Leonard is co-chair of Cozen O’Connor’s government contracts practice. Rachel Schwartz is an associate at the firm. The authors would like to thank Alexandra Baez for her contributions to this article.
Recent litigation has significantly reshaped federal contractor responsibilities. The flux and uncertainty created by those changes has made planning for compliance with these requirements by federal contractors and subcontractors incredibly complex and challenging.
Couple this with the litany of changes in related areas — such as project labor agreements, the non-displacement rule, pay equity and Executive Order 11246 — and it is clear that contractors will need to quickly re-evaluate their compensation, hiring and related structures for employees working on federal contracts and subcontracts in the coming months and years.
Federal and state minimum wage
As President Donald Trump’s second term begins, we would not be surprised to see new developments in the ever-evolving saga surrounding the federal contractor minimum wage. Contractors could see a shift toward a state-focused approach, because of the possibility of courts rolling back executive orders and rules targeted at the federal contractor minimum wage and other possible executive action targeted at reining in this annually increasing minimum wage.
We have already seen the 9th U.S. Circuit Court of Appeals rule that the federal contractor minimum wage EO exceeds the president’s power, and pending litigation elsewhere may further jeopardize the current federal contractor minimum wage requirements.
The administration also may: do away with or alter the yearly incremental increases put in place by EO 14026; decrease the federal contractor minimum wage back to align with the more generally applicable federal minimum wage; or reinstate the Obama-era federal contractor minimum wage, currently $13.30 per hour.
Practically speaking, any shifts may mean very little to those in states or localities with relatively high minimum wage requirements. However, a shift toward a landscape ruled by state-level wage requirements may increase administrative burdens, requiring contractors to implement significantly different wages for employees located in different states or municipalities.
Additionally, increased wages for federal contractors have set the industry standard for wage payment for years, and contractors may find it difficult to reduce wages while retaining employees in jobs throughout their businesses. While contractors may decide not to increase wages in 2026, it is unlikely that wages in the federal contracting sector will take a sizable pay cut any time soon.
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To account for these varied state level considerations and the uncertainty of what the next few years will bring to federal contractor minimum wage requirements, contractors should factor these issues into pricing for bids for longer term contracts. By offering a sufficient buffer for required fluctuations (where permitted under law), contractors will hopefully be able to thread the needle of putting forth competitive proposals while also preserving future business interests.
Prevailing wages
The federal contractor minimum wage isn’t the only source of compensation obligations for federal contractors and subcontractors. Federal labor standards statutes setting federal contractor wages and fringe benefits like the Service Contract Act and Davis Bacon Act impose prevailing wage and fringe benefit payment obligations on federal contractors (and subcontractors) that perform services or construction work.
Over the past four years, President Joe Biden’s administration issued a number of EOs and rules that significantly impacted labor policy including in the area of prevailing wage practices. Most notably, the August 2023 changes to the U.S. Department of Labor’s DBA regulations significantly expanded the scope of coverage of the DBA and revised practices for developing Davis Bacon prevailing wage rates and incorporating Davis Bacon requirements into contracts.
A federal judge temporarily blocked portions of this rule. While we may not have an idea of whether this rule will ultimately move forward it is clear that the outcome of this and other pending judicial challenges will significantly impact federal construction contractors.
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