they are going to bring out even some other aspects of this that I think need a public airing very badly. Mr. Connerton, let me tell you what disturbs me the most. It is bad enough now that a differential between the labor rates paid wage board employees and service contract employees has been permitted to develop-it is bad enough for a Federal agency to sit there in cold calculation and say, "Now, let us see, shall we contract out this service or shall we do it with Federal wage board employees? Let us contract it out. We can pay those people $0.25 or $0.55 an hour less if we contract it out and we might save a couple of bucks. It is bad enough that the law permits them to be in that situation where they can make that kind of determination based on the wages paid the employees. But it is much worse-from your testimony, it does not appear that the Air Force even strives for a neutral appearance in these matters. I would gather that they actively intervene in wage determination questions to try to keep the wages down or to drive them down. Is that right? Mr. CONNERTON. That is right, Mr. Chairman. They not only intervened before the Department of Labor and with the Comptroller General but you will notice that the decision upon which the Department of Labor applied was in response to requests from the Secretary of the Air Force. They also filed an extensive brief before the National Labor Relations Board asking the Labor Board to set aside a ruling by the Trial Examiner that a successor employer was bound by a contract negotiated by his predecessor on the grounds that such a ruling by the Labor Board attaching the protection to service employees the same as it did to other employees under the statute was contrary to public policy. The Air Force is not a neutral. Mr. Jacobs indicated how in Texas, again and again they have intervened on the side of the employers. It seems to me that the Air Force feels that by this system they can substantially save money and the money only comes from one place, it comes out of the hide of the working employee. In the one instance you mentioned, Mr. Chairman, the difference in wage rates, that is only half of the story because as you know the federal employees have many prevailing fringe benefits such as pension, welfare, large annual leave and so forth. These are all cost items. So, you at least have to increase the figures that Mr. Jacobs gave you by 50 percent. He calculated conservatively in Laredo it cost those former Federal employees who were discharged, to make way for the service contract employees, over a period of 15 years, at least $20,000 each. These are the poor people who need it the most. We are not talking about the situation where a man is making $8,000, $9,000, $10,000 a year. We are talking about people who are living on the margin, who could very easily be on relief but who care to spend their lives working for their daily bread and it is taken out of them. Mr. O'HARA. Mr. Connerton, I don't think I can add to that statement. That expresses my uneasiness very well. The subcommittee will now stand in recess until Thursday morning at 10 a.m., when we will resume hearings on the Service Contract Act. Thank you very much, gentlemen. (Whereupon, at 12 noon, the subcommittee adjourned, to reconvene on Thursday, April 1, 1971, at 10 a.m.) TO AMEND THE SERVICE CONTRACT ACT OF 1965 THURSDAY, APRIL 1, 1971 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON LABOR Washington, D.C. The special subcommittee met at 10 a.m., in room 2175, Rayburn House Office Building, Hon. Frank Thompson, Jr. (chairman of the special subcommittee) presiding. Present: Representatives Thompson, O'Hara, Hicks, and Dellenback. Staff members present: Hugh G. Duffy, counsel, Jeunesse M. Beaumont, clerk, and Michael J. Bernstein, minority counsel for labor. Mr. THOMPSON. The subcommittee will be in order to continue public hearings relating to the Service Contract Act of 1965. Our first witness this morning is Mr. Happy Franklin, president, ABC Food Service, Inc., of El Paso, Tex., who is accompanied by Mrs. Frances Franklin. Mr. Franklin, good morning. STATEMENT OF HAPPY FRANKLIN, PRESIDENT, ABC FOOD SERVICE, INC., EL PASO, TEX., ACCOMPANIED BY MRS. FRANCES FRANKLIN, ALSO OF ABC FOOD SERVICE, INC. Mr. FRANKLIN. Mr. Chairman and members of the subcommittee, my name is Happy I. Franklin. I am President of ABC Food Service, Inc., of El Paso, Tex., and a member of the Government Services Contractors Association, the Texas Restaurant and National Restaurant Associations. On my right is Mrs. Frances Franklin, a Vice President of ABC Food Service. I would like to add that Mrs. Franklin is very active in our business and with your permission may assist me in answering any questions you may have. Mr. THOMPSON. She will be most welcome. Mr. FRANKLIN. Thank you. ABC Food Service, its wholly-owned subsidiary, Military Base Management and their franchises are engaged in the operation of food service and mess attendant contracts for the Department of Defense at various locations throughout the country. These companies employ approximately 2,000 persons. We employ both union and non-union employees. Present unions with whom we have collective bargaining agreements are the National Maritime Union and National Service Workers Union. (29) ABC Food Service has been continuously engaged in service-type government contracting since 1952 and operated two of the first food service contracts awarded by the U.S. Air Force. We, therefore, feel we are fully knowledgeable of the problems encountered with the implementation of laws applicable to the service industry, the most recent being the Service Contract Act of 1965 about which we address ourselves today, pursuant to an invitation of your Subcommittee transmitted to us on March 22, 1971 by Mr. Duffy. While we are members of the above-referenced associations, we do not speak for these associations at this hearing. Our company was most gratified by the enactment of the Service Contract Act in that we felt it would assist in competitive bidding and at the same time give a better standard of living, better working conditions, and a higher morale to the service workers who are long overdue for adequate compensation for their efforts, as well as a better end product to the Department of Defense. We have comments to make on several aspects of the Service Contract Act, examples of problems encountered by our company, and some suggestions of our own for further amendment of the Act. I would like to treat these separately as topics which follow. We appreciate, Mr. Chairman, the opportunity you have given us to talk to your Subcommittee today. During the first years of military contract food service, the best protection for the workers was that of responsible contractors who attempted to pay a living wage. Due to highly competitive bidding, fly-by-night contractors, and a policy of low-bidder procurement, each year the service workers received less and less. Every effort was exhausted by this contractor to get the Labor Department to include service contracts under the existing Minimum Wage protection. At such time as the majority of the service workers became clearly covered by the Minimum Wage provisions of the Fair Labor Standards Act, some contractors soon discovered that they could pay less than the applicable minimum wage and if caught the worst that appeared to result was payment of a "portion" of those wages they had not paid their employees, which resulted in profit made by these contractors at the expense of their employees. Failure by the Labor Department, for whatever reasons, to enforce the applicable laws and insert penalties placed a responsible contractor in an almost disadvantaged competitive position since lowbid procurement still prevailed and workers remained unprotected by reason of such non-enforcement. While we are sure the Service Contract Act of 1965 was meant to correct the before-mentioned problems, we respectfully submit that we and other responsible contractors now find ourselves in an even worse situation in that more areas of wages and benefits are covered and enforcement is not being accomplished by the Department of Labor. As an example, we have attached to this statement a copy of the United States of America Department of Labor Hearing No. SCA50 in the matter of Dynamic Enterprises, Inc., dated 24 September 1970. (The document referred to appears at the end of the witness' prepared remarks.) You will note that this contractor has been found in violation of the provisions of the Act repeatedly in various parts of the country and over a period of four years. You will further note that the Examiner, without exception, recommends that Dynamic Enterprises, Inc., be debarred from any and all government procurement for a period of three years. As of this date, over six months later, to our knowledge, the Secretary of Labor has not acted on this recommendation. We and other contractors are now in the process of submitting bids on numerous solicitations. How are we expected to be competitive with contractors who violate the Act with impunity? Why were punitive damages not imposed against this contract? What justification is there for paying a worker only a portion of wages due him? Many problems are being encountered in the following areas: 1. Some type of system must be made to insure successor contractors are made aware of and recognize the length of service by workers for the purpose of vacation pay, and I also may add, their sick leave. In many cases, incumbent contractors will not make dates of employment of workers available to successor contractors. Under the present system, all too often the best service workers are not only not receiving entitled vacation pay but are also being fired because they are due a vacation. Of course, other reasons are given the workers as a cause of this termination. 2. Cases exist where workers are dismissed for 1 or 2 weeks, then rehired as a new employee in order not to pay workers vacation and sick leave. What period of time constitutes a break in service for the purpose of vacation pay and sick leave? 3. Wage determinations are not in many cases representative of the local prevailing wage rate. Example: Mather Air Force Base, Sacramento, Calif. Wage determination calls for $1.69 per hour, 8 cents health and welfare, with 1 week vacation after 1 vear. 2 weeks after 3 years, and six paid holidays At this same base, the previous wage determination was issued for $1.60 per hour and any investigation would have shown that the State minimum wage was $1.65. In comparison, at Pensacola Naval Air Station in Florida, which is a lower cost of living area, the wage determination calls for $1.98 an hour, 8 cents health and welfare, with 1 week vacation after 1 year, 2 weeks after 3 years, and eight paid holidays. At Naval Construction Battalion, Mississippi, which is still a lower cost of living area, the wage determination is $2.04 per hour, 8 cents health and welfare, 2 weeks after 1 year, and eight paid holidays. 4. Inconsistency of wage determination and union contracts. The incumbent contractor is totally noncompetitive in this case. In addition to the difference in hourly wages, the wage determination does not include fringe benefits such as sick leave and bereavement leave and will not recognize current cost-of-living increases. Warner Robins Air Force Base, Ga., has issued an invitation for bid opening April 6, 1971, which carries no wage determination. Last week we discussed the matter with the Department of Labor. They advised us that no wage determination would be issued as the prevailing rate was less than the minimum wage and no fringe benefits were applicable in that area. Yet we received notice from the Retail, Wholesale and Department Store Union AFL-CIO of a union contract at this installation which provided for wages effective 1 July 1971 ranging in accordance with classification from $2.07 to $3.50. We recommend that the Service Contract Act of 1965 be amended as follows: 1. Incumbent contractors be required to furnish a written record of dates of employment of employees to both the successor contractor and the procurement officer after award of this contract is made. 2. Clarification be made as to what period of time constitutes a break in service for purposes of vacation pay and sick leave pay. 3. Current prevailing wages be used in wage determinations rather than outdated Bureau of Labor Statistics. 4. All fringe benefits in an existing union contract be included in the wage determination. 5. All fringe benefits be accrued on an hourly basis with cash payout provisions (a) At the time of termination of a worker or; (b) On the worker's anniversary date, or; (c) At the end of a contractor's contract at the military installation, whichever date comes first. 6. All factors in an area be taken into consideration when making a wage determination. In the interest of the nation's economy and as taxpayers, we are certainly not advocating exorbitant and unnecessary increases. However, we do feel that realistic current cost-of-living increases derived at by management and labor who have both bargained in good faith and at arms length on behalf of their employees and members, respectively, should and must be recognized by the Department of Labor when making wage determinations. For information we might point out that the National Restaurant Association has advised that only 10 percent of the Nation's food service workers are covered by union contracts. I would like to add here, sir, that this is not true in government contracts. In government contracting 80 to 90 percent of all contracts are covered by a union contract which is quite different than it is in the commercial area. 7. That procurement officers be directed to cancel any and all service contracts presently held by a company debarred for failure to comply with the provisions of this Act. We urge this Committee to act to amend those provisions of the Service Contract Act of 1965 which we have discussed here in order to protect the employee, the Government, and the responsible contractor from the fly-by-night operator who is eager to profit from the uncompensated toil of his workers. We further submit that if those provisions discussed are properly amended the Department of Labor can better police and enforce all provisions of the Service Contract Act as intended by Mr. Me |