Construction Law: Inflation Reduction Act
How This Law Impacts Workforce Woes & Clean Energy
by Trent Cotney, partner, Adams & Reese, LLP
(Editor’s Note: Trent Cotney, partner at Adams & Reese, LLP, is dedicated to representing the roofing and construction industries. Cotney is General Counsel for the Western States Roofing Contractors Association and several other industry associations. For more information, contact the author at (866) 303-5868 or go to www.adamsandreese.com.)
These days, staffing shortages and climate change are among our most challenging issues, right up there with supply chain problems and rising prices. When the Inflation Reduction Act (IRA) became law recently, many complained that it really would not combat inflation. But, it is interesting to see that it does take steps to address those staffing and climate questions.
Incentives for Employers
Luring good workers to construction, manufacturing, and other industries has been problematic for years. However, that goal recently got a boost from the IRA, which includes provisions related to workforce development, apprenticeships, and prevailing wage. Together, these stipulations could lead to a larger skilled labor pool with expertise in clean energy.
The law includes incentives for clean energy construction and manufacturing projects by providing an Investment Tax Credit (ITC). Projects include those related to solar, fuel cells, waste energy recovery, geothermal, biogas, combined heat and power, small wind property, and microturbine and microgrid properties and apply to those beginning construction before January 1, 2025. The base credit can increase from 6%-30% for projects equal to or greater than one megawatt. However, employers receive the full tax credit only if they satisfy certain apprenticeship and prevailing wage requirements. An important detail to note is that for projects less than one megawatt, and starting construction prior to 60 days after wage and apprenticeship guidance is published by the Treasury Secretary, the 30% ITC applies, even if they do not meet the prevailing wage and apprenticeships requirements.
Understanding the Requirements
Prevailing wage requirements can seem controlling, but many argue they are critical for retaining a skilled workforce. Essentially, the prevailing wage represents typical hourly wages and benefits in a specific geographic region. In the case of the IRA, setting standards for a prevailing wage will ensure that federal projects do not drive wages down as contractors try to submit the lowest bids. This requirement can protect workers and support employers who pay their workers fairly. Employers who do not maintain the prevailing wage requirement will have to repay 5/6 of the ITC.
As you know, apprenticeships can often serve as a training and employment pathway for good-paying construction jobs. The IRA set requirements through which employers must use registered apprentices for a certain percentage of hours on their projects. Registered apprentices are those who participate in on-the-job and classroom training. Specifically, to qualify for the ITC, construction projects must utilize registered apprentices for at least 10% of total hours, as of 2022. By 2024, the requirement will grow to 15%. While the provision will require attention and record-keeping, it also helps ensure a steady supply of well-trained workers will be entering the industry.
How You Can Benefit from the IRA
Whether you support all the IRA provisions or not, your company may be able to benefit from the law. If your upcoming clean energy projects meet the requirements, you could earn substantial ITCs. Along the way, you can take steps to support the workforce pipeline, ensuring that workers receive the necessary training and experience to move into a well-paying, in-demand career. Taken together, the tax incentives and apprenticeship/wage requirements have the potential to increase clean energy, reduce the effects of climate change, and support an up-and-coming workforce.