Further reform of the Davis-Bacon Act is one of the legislative priorities of small business this year.

The law, vigorously criticized and defended ever since being enacted in 1931, basically requires private firms holding federal construction contracts to pay workers the "prevailing wage rates" in their area. "Prevailing" wages, at least in metropolitan areas, usually means the union wage.Davis-Bacon rules adopted within the last year were amended to define "prevailing wages" as those paid to at least 50 percent of workers performing particular jobs.

Davis-Bacon covers contracts worth $2,000 or more - meaning it covers virtually all federal construction. Small business trade organizations want that threshold, which has been in effect since 1935, raised to $250,000.

Small business also wants a reduction in Davis-Bacon paperwork requirements. As things stand, private contractors doing federal construction work must file weekly payroll reports with the Labor Department. Small businesses contend the department rarely looks at the reports and that the requirement puts an undue burden on smaller contractors. The small business leaders say the reports should be filed only quarterly.

The National Federation of Independent Business, the largest small business trade group, says, "Small- business owners believe Congress should encourage more competition for government contracts. The current threshold for coverage is a barrier to small firms interested in federal contracts."

If the $250,000 threshold were in effect, the federation says, small firms would be (better) able to compete for smaller federal contracts. And the government would realize savings of at least $700 million a year by allowing the firms to pay lesser wages to workers.

Raising the threshold would exempt only between 5 percent and 15 percent of federal contracts from Davis-Bacon, according to small business analysts.

Organized labor, as might be expected, is opposed to this reform. But federation officials claim the support of the National League of Cities, the National Association of Counties and the National Taxpayers Union.