Page images


This definition is generally referred to as the “30 percent rule.”

The GAO report 35 discussed above noted cases where the use of the 30 percent rule resulted in the determination of minimum wage rates significantly higher or lower than the rates actually paid to the majority of the workers in a classification. An example in the GAO report involved a determination of $4.25 an hour as prevailing for carpenters in an area based on a survey of 102 carpenters—31 were paid an hourly rate of $4.25 and 71 were paid hourly wage rates between $2.50 and $4.00.


In Report B-146842 the Comptroller General also summarized findings on 29 selected projects and estimated that costs were increased 5 to 15 percent, or about $9 million of the total $88 million involved, because wage rates were established at levels higher than those that actually prevailed in the area of the project. GAO's review of the Department's wage determination program disclosed many examples of "improper" wage determinations.

GAO attributed the issuance of improper wage determinations to insufficient wage and fringe benefit information.36 Improved data collection was recommended in each of the seven reports (dating back to 1962) preceding Report B-146842. This finding was corroborated by representatives of the Department of Labor, who stated that the collection of basic hourly rate of pay and fringe benefit data was the most difficult problem in the administration of the act, particularly in the area of residential housing, where a survey is almost always necessary due to the unavailability of wage data.

The accuracy of wage determinations was one of the chief concerns of contractors and contractor associations interviewed during our study.

A Department of Labor regulation 37 requires that any contract subject to the labor standard provisions of the Davis-Bacon and related acts must contain a stipulation that the contractor will submit weekly a copy of all payrolls to the contracting agency. These copies must be preserved for a period of three years from date of contract completion.

Verification of the weekly payrolls by Government personnel is a time-consuming and costly activity. Resident engineers and other contracting personnel directly responsible for the maintenance and inspection of such records were almost unanimous in their conclusion that few, if any, violations of significance were ever disclosed as a result of their review and verification of the weekly payrolls. The requirement is also costly to contractors and contributes to the cost of construction. Contractors interviewed in our studies identified as a major item in their overhead the preparation of reports such as the weekly payroll records under the Davis-Bacon Act and Standard Form 100, "Employer Information Report EE0–1” required jointly by the Office of Federal Contract Compliance and the Equal Employment Opportunity Commission. With respect to weekly payroll records, they stated that although computer payroll sheets could be submitted in lieu of a standard payroll form, the requirements were sufficiently different so as to require separate programming and extra computer time. The Associated General Contractors of America has recently estimated the annual cost to contractors only of compliance to be $190 million.38

The submission of weekly payroll records is not required under other laws containing labor standard provisions. Although it may be desirable to retain a payroll requirement for Davis-Bacon Act purposes, both costs and administrative burdens would be reduced by providing for the submission of a notarized statement at the beginning and end of each contract, with appropriate penalties for falsification, that the wages and fringes to be paid

* Note 6, supra, pp. 22–23. » Note 6, supra, pp. 9, 10, 28.

97 29 CFR, part 5, section 5.5(a). Based on 40 U.S.C. 276(c).

* Letter from The Associated General Contractors of America to the Commission, Sept. 1972.


(and paid) on the project would (did) meet the requirements of the Davis-Bacon Act.


The Miller Act 39 is the Federal construction bond statute. It was enacted in 1935 and requires, in general, performance and payment bonds under any Federal contract in excess of $2,000 for the construction, alteration, or repair of any public building or public work of the United States. The act's application is coextensive with that of the Davis-Bacon Act. It was designed to replace and correct the shortcomings of the Heard Act of 1894, a law that required prime contractors to provide a single penal bond which served as both the performance and the payment bond.

Under the Miller Act, two separate bonds are required—a performance bond and a payment bond.40 The requirement for a performance bond is intended to protect the Government against failure of the contractor to complete construction work, while the payment bond is, in effect, a substitute for the protection afforded on private construction projects by a mechanics lien, a remedy not available against the Government because of the doctrine of sovereign immunity.

In practical effect, requiring performance and payment bonds for contracts in excess of $2,000 means requiring bonds for all construction contracts—for the same reasons discussed above in connection with the Davis-Bacon Act. Our study indicates that the $2,000 threshold for bonds is expensive to the Government and limits competition on small construction jobs; either because potential construction contractors will not go through the paperwork and expense of getting bonds or are unable to do so.

The number of construction contracts under $25,000 is substantial although it represents only a fraction of the total construction expenditures; for example, in fiscal 1972 the number of actions representing military prime contract awards for construction between $10,000 and $24,999 numbered 6,095 (over 44 percent of the reported construction contracts),41 for a value of about $94 million.“ The types of work involved included small projects for repair and alteration, work in remote areas such as fences and cattleguards, and rehabilitation of housing in preparation for sale.


Problem Areas

Although the Miller Act bonding requirements are beneficial to Federal construction procurement, the act presents a number of problems which impact the procurement process and construction costs.

The Miller Act, as currently written, authorizes DOD to waive the bonding requirements for cost-type contracts. Other agencies who do not have that authority must obtain such bonds or resort to other legal grounds for omitting this requirement.

DOD has exercised its waiver authority under the act with respect to cost-type contracts and has required that cost-type contractors obtain Miller Act "equivalent” bonds from their fixed-price subcontractors. Although these bonds are intended to provide protection equal to that under the Miller Act, they are “private bonds” and must be enforced under State law rather than the Miller Act.

Lacking the DOD waiver authority, AEC and NASA apply the bond requirements of the act to fixed-price subcontractors under their cost-type prime contractors. Although the Comptroller General has held that the bonds obtained from such subcontractors are Miller Act bonds, representatives of the surety industry continue to have concerns about the status of such bonds.

39 40 U.S.C. 270a-270d (1970).

40 Bidders are also customarily required to post security or bid bonds. (See ASPR 10-102 and FPR 1-19.103–3 and -4.) However, there is no general statute requiring bid security. The purpose of the bid bond is to demonstrate the good faith of the bidder and to guarantee that he will enter into the contract, if awarded, and will furnish the required payment and performance bonds.

Also, there is no general statute requiring suretyship in connection with procurement of supplies or services on behalf of the Government. Bonds are sometimes required in connection with such procurements, but purely on the basis of administrative discretion. (See ASPR 10-104 and FPR 1-19.104.2 and 1-19.105.2.)

41 Calculated by the Commission.

« Letter from the Office of Assistant Secretary of Defense (Installations and Logistics) to the Commission, Aug. 25, 1972. U.S. Comptroller General, Report B-168106, Survey of the Application of the Government's Policy on Self-Insurance, June 14, 1972.


GAO in a recent report 43 on the desirability of expanding the Government's self-insurer role in numerous phases of its activities, devoted considerable attention to the Miller Act requirements for payment and performance bonds on Government construction contracts.

The survey by GAO disclosed that the cost of the bonds was substantial and the number of defaults few.44 It was indicated that the deletion of the bond requirements and the acceptance of the occasional inconveniences, disruption, and expense of an uninsured default might result in a net benefit to the Government. Agency officials and industry representatives, from whom views were solicited by GAO, expressed the belief that the value of performance and payment bonds lies not so much in the indemnification of Government losses as in the other functions performed by the sureties. The construction industry's chief concerns appear to be the screening out of unqualified contractors and the protection of suppliers and laborers. Government agencies share these concerns and want the assistance of the surety to help to avoid a default and in taking over and completing the construction project when a default does occur.

It was concluded by GAO, however, that further consideration as to the appropriateness of repeal of the Miller Act bond requirements is needed prior to any proposal to Congress for repeal.

superseded a series of confusing and overlapping work-standard statutes which were enacted between 1892 and 1940 and, among other things, requires the payment of time and onehalf for work in excess of 8 hours a day or 40 hours a week. Nearly all of the construction contractors queried in the Commission's study reported that this requirement increases costs, as it requires the payment of overtime costs for working over 40 hours in one week to make up for time lost due to bad weather in another week. It is also asserted to bar the adoption of a 4-day, 40-hour work week.

The Secretary of Labor is authorized to provide reasonable limitations and allow variations from the overtime requirements of the act. Recently a variation from the overtime provisions was granted to the Veterans Administration for contracts to provide nursing home care for veterans. Under this variation employees of nursing homes are permitted to work up to 48 hours in a work week without overtime compensation.

The Department of Labor held a public hearing on September 7-10, 1971, concerning adoption of a 4-day, 40-hour work week without payment of time and one-half overtime compensation for workdays exceeding 8 hours but has taken no action with respect to this matter.

The Legislative Research Department of the AFL-CIO and representatives of several AFLCIO unions testified at the Department of Labor hearing that they opposed any variance from the established standards.



The Contract Work Hours Standards Act 46

The most critical problems affecting Government construction pertain to labor laws and their administration. The confusion and divergent views with respect to responsibilities and authorities under the Davis-Bacon Act, uncertainty as to the coverage of that act, and practices used in determining "prevailing" wage rates result in increased costs and delays. The dollar thresholds at which the labor and bonding statutes apply increase contract and administrative costs and restrict competition. The work hours provisions apply the same requirements to both supply and construction contracts, although construction work is very different in character. The requirement for submission of weekly payrolls contributes significantly to the cost of construction.

* Estimated at between $16.5 million and $20.5 million in fiscal 1970, between $20 million and $24.4 million in fiscal 1971, and between $23 million and $28 million in fiscal 1972, Ibid., pp. 51, 54,


4 Public Law 87-581, 40 U.S.C. 327 et seq.

In Part A we recommend a complete reexamination of the many social and economic objectives implemented through the procurement process. Although we make no recommendations on the approach to solving the problems existing under the labor standards provisions and laws applicable to Government construction projects, we believe their impor

tance means that their review should be given a high priority. In recommending this reexamination we again emphasize our endorsement of the objectives underlying the statutes discussed above. We do not suggest the dilution of any substantive benefits they now provide. However, it would seem that through clarifying the statutes and the responsibilities for their implementation, or perhaps by the adoption of other approaches, real gains in the economy and efficiency of construction procurement could be realized without degrading the protection afforded by the labor laws.

[blocks in formation]

“DEFINITIONS “Sec. 901. As used in this title

“(1) The term 'firm' means any individual, firm, partnership, corporation, association, or other legal entity permitted by law to practice the professions of architecture or engineering.

“(2) The term 'agency head' means the Secretary, Administrator, or head of a department, agency, or bureau of the Federal Government.

"(3) The term 'architectural and engineering services' includes those professional services of an architectural or engineering nature as well 86 STAT. 1278 as incidental services that members of these professions and those in 86 STAT. 1279 their employ may logically or justifiably perform.

“Sec. 902. The Congress hereby declares it to be the policy of the
Federal Government to publicly announce all requirements for archi-
tectural and engineering services, and to negotiate contracts for
architectural and engineering services on the basis of demonstrated
competence and qualification for the type of professional services
required and at fair and reasonable prices.


“Sec. 903. In the procurement of architectural and engineering services, the agency head shall encourage firms engaged in the lawful practice of their profession to submit annually a statement of qualifications and performance data. The agency head, for each proposed project, shall evaluate current statements of qualifications and performance data on file with the agency, together with those that may be submitted by other firms regarding the proposed project, and shall conduct discussions with no less than three firms regarding anticipated concepts and the relative utility of alternative methods of approach for furnishing the required services and then shall select therefrom, in order of preference, based upon criteria established and published by him, no less than three of the firms deemed to be the most highly qualified to provide the services required.

83-081 0

« PreviousContinue »