U.S. DEPARTMENT OF LABOR, Hon. FRANK THOMPSON, Jr., Chairman, Committee on Education and Labor, Special Subcommittee on Labor, Rayburn House Office Building, Washington, D.C. DEAR MR. CHAIRMAN: When I testified before your Subcommittee on June 1, 1972 on the administration of the Service Contract Act, we were asked to furnish several items of additional information. The points at which the information is to be inserted are on pages 50, 57, 58 and 66 of the draft transcript of my testimony, which was forwarded by Ms. J. M. Beaumont's letter of June 5, 1972. Upon consideration of the transcript and the data requested by the Subcommittee, it was decided to make a full and careful examination of the handling of the service contract notices of intention for FY 1971. This work has now been completed. Members of my staff were in contact with staff members of the Subcommittee and advised them of the work being done and that the information would be submitted as soon as possible. The first item of information requested was an analysis of the handling of all notices received during 1971. This information is contained in Enclosure A. You I will note that we located all of the 1971 notices. The second item of information requested concerned the estimated number of service workers affected by wage determinations in fiscal years other than 1971. Our estimate of coverage of 75 percent of the covered service workers performing on service contracts as being affected by a wage determination was based on a sample of notices which was made a number of years ago. The precise data on which the estimate was made are not now available. However, I believe the estimate of 75 percent is not unreasonable. To track down application of wage determinations to every covered service employee with any degree of accuracy would require an enormous amount of time, much more than you would want us to devote to this, I am sure. We did look at total employment on the service contracts for FY 1971 and for FY 1972. However this does not give us any precise conclusion as to total numbers of covered service employees affected by wage determinations. Considering total employment for all potential contracts for FY 1971, employment on contracts affected by wage determinations was 38.8 percent. It should again be emphasized that this is in terms of total employment and not in terms of covered service employees working on a covered contract and would include (1) employees not covered because they did not perform on the contract; (2) employees who were employed in executive, administrative, or professional capacity and therefore not service employees; and (3) in some cases employees not covered because their work was performed outside the geographic limits of the United States. The third item of information requested actions on notices in years prior to 1971. The task force reviewed activity beginning with the effective date of the Act-January 20, 1966-through the end of FY 1972. Action taken on notices under the Service Contract Act for these seven fiscal years is set forth in Enclosure B. The fourth item of information requested was recapitulated by Congressman O'Hara as follows: "So, to recapitulate, then, what I would like to have, Mr. Grunewald, is your suggestion about how we cover with wage determinations those employees who are not now covered and how we prevent the kind of wage loss I have just described in the contracts, on the occasions where one contract succeeds another, where we mitigate the damage to the worker in those instances." I believe we can reply to the question about covering employees with a wage determination who are not now covered. With additional personnel and expenditures of money, wage determinations could be issued which would apply to a number of thousands of additional employees and additional contracts not now covered by wage determinations. As long as the Act prescribes the approach of the "prevailing rate in the locality" (and as I have testified before the Subcommittee. I think this is an equitable approach), there will be a point of diminishing returns finally reached where under any type of consideration it would have to be agreed that expenditure of Government funds to "find" a prevailing rate for a particular job classification in a particular locality would not be appropriate. There are many instances where contracts involve only a very few emplovees in particular localities and the cost of accurately determining the prevailing rate could far outweigh in terms of public interest, any net benefit to employees that might be affected. Also, in many localities remote from metropolitan areas, prevailing rates for service employee classifications with which we would be concerned would not be substantially at variance with the minimum wage set forth in Section 6(a) of the Fair Labor Standards Act. I think there are approaches we can take in localities where we do obtain wage data which will cover additional employees. For contracts not now covered in other localities, it would be necessary to gather the wage data to determine what wage rates and fringe benefits are in fact prevailing. These would be localities where we do not now gather wage data because resources available are now spent in other localities where we will affect more service workers covered by the Act. The wording of the proposed amendment to the Act that we "give due consideration" to Wage Board schedules in the locality is of no assistance in this regard. I trust the Subcomittee will find this information helpful. Let me say again that it was a pleasure to appear before your Subcommittee and if we can provide additional information or otherwise be of assistance in our mutual interest in the proper administration of the Service Contract Act, we will be glad to do so. Sincerely, (Enclosures.) R. J. GRUNEWALD, BASIC DATA ON SERVICE CONTRACT ACT ACTIVITIES, FISCAL YEAR 1971 Item BASIC DATA ON SERVICE CONTRACT ACT ACTIVITIES, FISCAL YEAR 1971 1 No data available as to number of service workers actually covered by the Service Contract Act. Note: Total number of notices of intention to make a service contract was 21,031. In order to provide a better picture of contracts,all covered this total was filled out to include all covered 4-year mail-haul contracts (which total about 4,000); approximately 4 of these are noticed each year). WAGE DETERMINATION PROGRAM UNDER THE SERVICE CONTRACT ACT, FISCAL YEAR 1966 THROUGH 1972 Mr. O'HARA. I am sure the chairman will instruct the staff to cooperate. Mr. THOMPSON. The staff will be glad to, and in the course of it we can find out precisely what you are driving at as well. Mr. Carlson? Mr. CARLSON. Mr. Grunewald, I enjoyed hearing the position of the Department of Labor and the statement that you have given. There are a couple of questions I would like to ask you. Referring to Mr. O'Hara's question on incumbent contractors, wouldn't you say a contractor who ties himself to a labor agreement for 2 or 3 years with wage increases, although a contract bid is coming up, does so at his own peril? Isn't the answer that he shouldn't contract the pay wages for a period when he isn't sure he will have a contract award? Mr. GRUNEWALD. I am not sure I got your question, Mr. Carlson. Mr. CARLSON. There are two things he is doing. Say he makes an agreement with his employees for 2 or 3 years to subsequently raise their wage rates and he is bidding on a Government contract and he gets it or doesn't get it. In the future he is stuck with some wage increases. Mr. GRUNEWALD. I think the point we were making is that an outgoing contractor could do something knowing he is not going to have the contract, could up the rates and the succeeding contractor would have the higher rates automatically. Mr. CARLSON. We have had testimony from Mr. Ahart that 90 percent of the contracts covered by wage determinations cover employers with less than 25 employees. In view of this, would you conclude a major purpose of one of the proposed amendments to cover employers with 25 or more employees is substantially accomplished under existing law and existing determination procedures? Mr. LANDIS. Mr. Carlson, I would say that the answer is yes, because the number of contracts with 25 or more employees that were not covered, I think, would bear looking at to see in fact just how many employees might be involved. We did take a look at a number of these contracts which GAO pulled out of the records and we estimate that about two-thirds of these contracts not covered by wage determinations were contracts for nursing homes for veterans care. While the nursing home itself may have had 25 or 50 or 60 employees, all of those employees would not have been covered by the Service Contract Act, because the Veterans' Administration contracts for nursing home care typically on the average would tie up an average of, say, three beds in a 60-bed nursing home. So that all of the people would not be covered. Mr. CARLSON. One other short question. On page 14, Mr. Grunewald, you say: Finally, as I am sure the subcommittee knows, the Commission on Government Procurement is, among other things, investigating contracting procedures under the Service Contract Act. The Commission's report is due at the end of December 1972, and we believe it would be appropriate to consider that report in formulating amendments to the act. Does this mean there is duplication of effort here? In other words, if there is a determination by this subcommittee and by the Congress before this report that is due in December 1972 that we might avail ourselves of, isn't there a duplication? Mr. GRUNEWALD. That is what we are suggesting. There might be some good data that might be available to you and to us that might be an excellent basis for considering changes. Mr. CARLSON. Thank you. Mr. THOMPSON. Mr. Secretary and gentlemen, thank you very much. The subcommittee is adjourned. (Whereupon, at 12:10 p.m. the subcommittee recessed, to reconvene subject to the call of the Chair.) о |