Mr. ASHBROOK. You feel then that this is a reasonable standard to require businessmen employers to follow?

Mr. JACOBS. Yes. I believe it would be reasonable. However, this would probably not be a complete cure for the matter.

Mr. O'HARA. Would the gentleman yield? I would say to my friend from Ohio-and I certainly understand the spirit of his question-on the face of it, it would seem that I proposed here to institute an arbitrary standard for one that now permits some discretion. I am reluctant to do that and I am not really happy about the legislation I have introduced. I have introduced it, however, because I believe there has been an abuse of the discretion that has been granted the Secretary in a number of cases, which we hope to bring out before the hearings are completed. I am perfectly willing-I think, in fact, theoretically it is better that the Secretary have discretion, but if that discretion is going to be abused it is better that he does not have it.

Mr. ASHBROOK. I would agree with the gentleman but I am wondering if the witness and particularly the committee will go along, taking the same position as it relates to union leaders who are guilty of violating the law. I happen to think if we are going to do this with business and if you stand in front of us and say this is a standard we ought to have, then we ought to have legislation on the books to prevent a man like Hoffa going back in as international president of his union, or many union leaders convicted of crimes going back into responsible positions in their union.

If this is a standard we are going to apply to Palomar or R.B. Wright or other employers, we hope you would come before us with equal vigor to want to apply the same standard to union leaders who have violated the law. You mention on page 13, "It appears, however, that the other two contracts would be awarded to Emerald Maintenance in spite of demonstrated lack of integrity." I would assume you could come forward with the same vigor and make these statements when union officials get convicted of crimes and then want to go back into the same positions in their unions. Basically, is that a fair statement or do you think this is different?

Mr. JACOBS. Mr. Ashbrook, we are prepared to give up, even give up our union. If the system does not work, we don't want it. We would rather see the employees back under Civil Service.

Mr. ASHBROOK. I would say a lot of people think the system will not work if a man like Hoffa can get out of jail and be named as president of the international union.

Mr. JACOBS. I say, to answer your question if it applies to an employer who has violated certain regulations, it should apply to unions. Mr. THOMPSON. The Chair might observe that under the provisions of Landrum-Griffin, Mr. Hoffa won't be able to hold office for a period of, I believe, five years under the Act.

Mr. ASHBROOK. I think I would correct the Chair. Under LandrumGriffin the crime of which he was convicted does not apply. It is not one of those listed crimes.

Mr. THOMPSON. I am glad to see that my good friend from Ohio is in good form for the Spring season and that his curve ball is working. Mrs. Hicks, do you have some questions?

Mrs. HICKS. Thank you, Mr. Chairman. As a new member of the Congress, I am very much interested in whether you could tell me how wage determinations are made and whether or not in the wage determinations your members are consulted by the Labor Department when they are being made.

Mr. JACOBS. Yes. The Labor Department does conduct a survey in different manners. For one thing, they call employees at a federal installation and ask them what they are being paid. They check employers and they check to see whether this is true. They use other methods for determining wage rates. They take collective-bargaining agreements that are in effect in an area. They also conduct wage-area surveys. That is how they go about it. But they pick one system, whichever applies to the particular locality.

Mrs. HICKS. Another thing, in your testimony on page 10 you mentioned that the claims against Wright were never reimbursed. This rather shocked me. I was wondering, did the Air Force at that time require a performance contract bond?

Mr. JACOBS. No. They did not. To be exact, there was a little over $34,000 involved in violation. Only $25,000 was withheld by the Air Force before R. B. Wright was defaulted so there was not enough money to pay all of the monies owed by R. B. Wright. What really happened was that the striking worker who also had a legal claim on wages for a short period were never paid those wages.

In our opinion, we think the strikers had a claim of greater dignity than the strikebreakers. The strikebreaker got paid but it was not without a long wait. It was almost a year before they got three-weeks wages.

Mrs. HICKS. But strikebreakers were paid in preference to the employees?

Another thing, did you ever file any fair labor practices charges against Palomar for the unilateral wage reduction?

Mr. JACOBS. We did. It is pending a decision from the Trial Examiner at this time.

Mrs. HICKS. Your testimony revealed that the Labor Department on December 1, 1970 cut its first wage determination that they made back in October by $.30 per hour.

Now, can you tell me why this happened and go into that more. thoroughly?

Mr. JACOBS. Primarily because the Air Force and the contractor, Palomar, I presume, and others maybe, contacted the Department of Labor and said, "You have made a wrong determination. At the time that you made it maybe these wages were being paid but they are not any longer being paid so you have to come back in resurvey the area. You will find out they are getting paid $.30 less, so you must determine the prevailing rate. It is no longer what you said it was on October 12." Mrs. HICKS. This certainly would be to the detriment of the employees if this practice were allowed to go on, wouldn't it?

Mr. JACOBS. Certainly. We were paid the increases for half a year. This was not taken into consideration, at least after they resigned the first wage determination. For the second six months we were not paid the $.30. This was true, but where do you draw the line. Is the prevailing the first six months or the second six months?

Mrs. HICKS. It seems to be very arbitrary.
Thank you very much, Mr. Chairman.

Mr. THOMPSON. Mr. O'Hara?

Mr. O'HARA. Thank you, Mr. Chairman. Now, Mr. Jacobs, gentlemen, I would like to sort of review the history of the Act and I would like to have you help me with some explanation of your relationships at Laredo as exemplary of this history.

This business of service contracting did not begin really until the 1950's; until then the Government did very little contracting-out of services on Federal installations. Then that practice began in 1950 and it came to my attention in the late 1950's. What disturbed me at that time was that it appeared to me that almost invariably when a function that had been performed by Federal blue-collar wage board employees was shifted over to a service contractor, the people that ended up doing the work would be getting less than the blue-collar wage board employees they replaced. The savings to the Government was due almost entirely to the fact that they were paying the people who worked there less than they used to pay the wage board bluecollar employees.

Now, when they began this service contracting at Laredo, I recall from your statement, you found that the shift in jobs from wage board blue-collar Federal employees to service contractors' employees resulted in a reduction in the wages of the people doing that work. Isn't that correct?

Mr. JACOBS. That is correct, yes, sir.

Mr. O'HARA. Was it a substantial reduction?

Mr. JACOBS. Very substantial. In some cases it was half, 50 percent reduction.

Mr. O'HARA. 50 percent reduction in wages. In some cases was it the same people that were doing the work?

Mr. JACOBS. Very much so. Mr. Castillo and Mr. Bermea are the two people I mentioned and others.

Mr. O'HARA. So in some cases the same individuals did the same job for the same Federal agencies, to wit the Air Force but by inserting a contractor in between they got substantial wage cuts, some of them 50 percent wage cuts, right?

Mr. JACOBS. That is correct.

Mr. O'HARA. That is the atmosphere in which I introduced what later became the Service Contracts Act. I wanted to make sure that the Federal Government did not play a major role in cutting established wage standards in any areas, by taking work from wage board employees, who are paid in accordance with prevailing rates, and giving it to underpaid private employees.

A wage board employee's wage is determined by the Labor Department and Federal wage boards, such as Air Force wage boards with the help of the Labor Department, that go out and decide what is the prevailing rate for this kind of work. They make that determination and then obviously if someone is paying less than the wage board rate they are paying less than the prevailing rate. It is the same thing. So that is what we were trying to do. We were trying to eliminate that differential between wage board prevailing rates and what was paid to employees under service contracts.

Now, I notice on page 8 of your testimony you say that in 1966 when the contract was let, conditions were entirely changed because the Act on which we are conducting this oversight today had been enacted and, as you say, "The wages found to be prevailing by the Secretary of Labor under the Service Contract Act were by and large the same as those paid to Federal employees at Laredo Air Force Base" had the desired effect.

Mr. JACOBS. Yes, sir..

Mr. O'HARA. We now had prevailing rate determination for both of them and they were substantially the same. And that was the clear intention of the United States Congress. The clear objective of the Act. We would not have bothered enacting the legislation if that had not been our intention. And it was accomplished. You were paying the same thing to the Federal wage board blue-collar employee and to the Service contractors' employee. But then erosion set in, didn't it? Mr. JACOBS. Yes, sir. Very much so.

Mr. O'HARA. And now according to the chart that you attached to your statement, the final attachment, you have differences between wage board rates and service contract prevailing wage rates that range from 20 an hour to $1.03 an hour.

Mr. JACOBS. That figure does not include the 30¢ unilateral reduction in pay. Just add 30¢ to each of those.

Mr. O'HARA. So the differentials now run from 32¢ to $1.33. And in not one single instance is the prevailing rate determined by the Labor Department under the Service Contracts Act as great or as large as the prevailing rate determined under the old wage board law. Isn't that right?

Mr. JACOBS. That is correct.

Mr. O'HARA. So I think your testimony sets the problem very well. We are getting through the maladministration of this legislation. We are getting right back to the situation that caused us to legislate in the first place. We have not gotten anywhere.

We worked on it. I introduced that bill in 1959 or 1960. It took us about 6 years of work to get it enacted. I remember the innumerable hours spent by the gentleman from New Jersey, Mr. Thompson, who was chairing this Subcommittee back in those days. He kept nursing this along. One year we got it as far as the Rules Committee and could not get it any further. We came back in the next Congress and worked and worked and we finally accomplished what we were after and now we are sliding back into the same problem.

Mr. Jacobs, I think you brought out other serious problems too. This business of the annual contract is really very harmful, it seems to me. You establish a relationship with the contractor finally and his employees establish some sort of relationship with him and perhaps you get a collective bargaining agreement and you get some understanding about wages and hours and working conditions and fringe benefits and no sooner do you do it than out the guy goes and you have to start all over again with someone else and because of the Air Force's position and the Labor Department's position, now the NLRB is holding that even the successor doctrine does not bring along with it the collective bargaining agreement.

In other words, you are recognized as being the representative, the collective bargaining agent of those employees under the successor doctrine but all the stuff you have bargained for is out the window. What good does it do? Then you have to start all over again. All they have done is to short circuit the one step, the representation step. But you could have gone out and in 15 minutes gotten all the signatures you needed to call for an election, but that is not what you were after. Mr. JACOBS. In fact, what they say is we can have all the collective bargaining we want except we cannot have any money.

Mr. O'HARA. I suppose, if there would have been a no-strike provision in the contract they would have preserved that.

Mr. THOMPSON. The effect of this is really that, at the most, they can count on 10 or 11 months a year of working at the old rate. Then they are out a month on strike; they negotiate a month and there is absolutely no continuity. I think as we go along in the exercise of our oversight responsibilities, we are going to learn a lot about these service contractors, who they are, why the turnover rate is 90 percent or more, whether by some remote possibility there is any collusion in bidding, why they move from place to place so rapidly, and whether any real effort is made to prevent offending contractors from getting contracts elsewhere.

It would seem to me that the military establishment would find it most uncomfortable to have to get their service contract work done by taking over in these interim periods and as this recital shows us use the union employees as temporary civil servants.

Now it would be nice, I suppose, if all of the members of this local could be made civil servants with all of the attendant fringe benefits. Mr. ASHBROOK. I think the gentleman from Michigan made a good point. If there is anything we should do, it should be to legislatively make sure that whether it be local 1057 or any one in the same position does not have to go through the same traumatic position each time with each employee to make sure there is continuity. I wish we could come forward with legislation to make this mandatory. I would hope even if the power of subpena is necessary that we could bring some of these employees in that float around the country and let them tell their story on the record.

Mr. THOMPSON. We may well do that, and of course, we will have the Secretary of Labor and his people before us to tell us something about their interpretation of this Act and their administration of it. As we go along we are going to hear some really remarkable stories. This is really, in fact, just the beginning.

Mr. Connerton, do you want to proceed?

Mr. CONNERTON. Yes, sir; but first I want to introduce the gentleman on my left. He is Mr. James Sheets, Research Director of Laborers International Union.

Mr. Chairman, as Congressman O'Hara indicated, the Service Contracts Act was enacted by Congress in 1965 to provide a measure of wage and fringe benefit protection for over 1,500,000 casual workers employed on Federal installations by service contracts.

Since the Service Contracts Act emanated from the mind of this Committee, it would come with poor grace for me to dwell here at length on its background of the legislative history. Suffice it to say