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forgetfulness or the burden of the fact that the BLS survey for his area comes a month too late. .
Present Department of Labor regulations requires that contracting officers advise the Department of their intention to let a service contract. However, if they fail to do so, there is no effective way, remedy or recourse. Neither does anyone in Government know how many service contracts may be let in any given year without a predetermined wage rate. .
I have always believed that where this occurs the agency should be required to obtain a wage determination and then rebid the contract. I recognize this may be burdensome to certain agencies, but I see no other effective control over the forgetful or slow contracting officer,
I also believe that when wage determinations are issued based upon area wage surveys, they should be made retroactive to the date of the surveys and contracts which have been let in the meantime could be adjusted between the contracting agency and the contractor.
Under the present system only the service worker suffers from the fact that BLS surveys his area in June, and he is employed under a service contract let in July, and consequently always working a year behind even the BLS determined prevailing rate.
As the dominant union in the service industries, we are frequently called upon by the Department of Labor staff to provide contract wage data on which determinations of wages and fringes can be based for particular job titles and localities. We have cooperated completely with the Department in these efforts and are impressed by the efforts of the staff handling these matters, but they obviously need more staff to keep up and insure that determinations are made in timely fashion.
The last index of wage determinations issued by the Department showed that as of December 31, 1970, 4,181 wage determinations are in force. Of these, 1,037 or 25 percent were issued prior to 1970 and are more than 1 year old, while it would appear that the vast majority of service contracts are let annually and the determinations should be revised annually.
A second problem with the administration of the act, and in my view, a very important one, has been the refusal of the Department to issue prospective wage determinations even where they can be based on known future wage or fringe increases in the prevailing wage and fringes in the locality. .
During 1967 and 1968 the Department began issuing such determinations. To my mind it makes eminent good sense from an administrative standpoint to issue one determination covering 3 years rather than to have to issue three separate ones. More importantly, where mature collective bargaining has brought the parties to the kind of stability indicated by a longer term agreement, it is folly for governmental agencies to fail to recognize, accept and benefit from that stability.
Instead the Department accepted the Comptroller General's September 1969 opinion that it is improper for the Department to include what he called “escalation provisions” in their determinations.
It is my opinion that the Comptroller General is wrong, and that the Department should have as vigorously opposed his opinion, in this
matter as they have in others. Failing in that effort, if indeed they had, I think it was incumbent upon the Department to suggest the legislative remedy which would guarantee the protections of service workers intended by the framers of the McNamara-O'Hara Service Contract Act.
You have already heard extensive testimony of the “wage freeze” effect of the Comptroller General's opinion, wherever wage determinations rely upon "enclave” rates. Obviously I would offer a hearty second to those statements.
Let me also point out how that opinion hinders a sensible and effective wage determination program in a major city, and causes considerable consternation and confusion among contractors bound by collective bargaining agreements who are underbid by the kind of contractors we described in our 1964 testimony before this committee as "out of town, fly by night operators."
In New York City our union represents over 65,000 buildings maintenance employees in all types of commercial buildings and a partment houses. We represent 86 to 97 percent of the building maintenance employees of the city's commercial buildings.
The General Services Administration and other governmental departments own, lease, or operate a large amount of office space and contract out the cleaning of this space. The Department of Labor has recognized that the collective bargaining agreement between our Local 32B and the realty association as determinative of the prevailing wages and fringes in the locality and uses it as the basis for its determinations.
For the past 20 years, our contracts have been 3-year agreements, but since the Department does not use prospective prevailing wages a new determination must issue each year.
The first determination issued in May 1966, was amended in October. Subsequent determinations were issued in April 1967 and March 1968, March 1969, March 1970, and May 1970.
The prevailing rate changes, in accordance with our contract, on January 1 of each year, but it requires some months for determinations to issue. The result is that, each year, service contracts let any time in the first 3 or 4 months of the year are predicated on last year's rate.
Additionally those contracts which are let, for example, in July, are based on a wage rate which becomes outmoded in 6 months and the successful contractor, contending that he knew nothing of the next January 1 increase, either suffers the loss or attempts to cheat the workers.
Since we don't let him do that, he makes up the difference by working with a smaller crew and chisels the contracting agency in terms of his own performance. But he can afford to do that because he knows that in the last few months of the contract the agency expects it, and he has no expectation of even getting that job again the next year.
Allow me to suggest that this subcommittee give urgent consideration to the amendment of the Service Contract Act to overcome the serious effect that the Comptroller General's opinion has had on service workers.
It seems to me that a minor amendment of the language of paragraphs (1) and (2) of section 2(a) of the act would make clear the
Secretary's authority to set prospective prevailing wages and fringes wherever they exist.
I fear that in the present state of things such an amendment will be vigorously opposed by the Air Force and the other elements of the Defense Establishment which have been so energetic in filing amicus briefs opposing successorships theories, as they did in the Emerald Maintenance case, and doing everything possible to avoid the full and effective implementation of the act-all in the name of economy and in the full pursuit of the fight against inflationary increases for people earning as low as $64 a week. But I don't believe that the sponsor of this bill, or the committee or the subcommittee which developed it, will shrink from the challenge, and I urge your recommendation of such an amendment of the statute.
Others have commented on these hearings on the high turnover rates among service contractors, which the Air Force, I understand claims runs at a 95-percent rate.
No responsible business manager, could long tolerate this kind of condition and get there are no significant government voices being raised in complaint. It seems to me obvious that the agencies have concluded that, like the sweatshop owners of old they profit by the turmoil and confusion, by the constant turnover of contractors and employees, and they are, therefore, willing to continue the system.
It is also obvious that the responsible contracting firms which work in the private sector are completely unwilling to enter into this maelstrom and be sucked down into its lowest level.
I have discussed this question with a number of the largest and most efficient maintenance contractors and the attitude is almost universal. The result is that the field is totally occupied by firms which do nothing but government contract work, and go in or out of business as the circumstances warrant and/or as the small business set asides dictate.
One of the terrible consequences which flows from this kind of system is the outright cheating of workers of wages to which they are entitled under the act. In fiscal 1970, the Department of Labor made 1,874 investigations under the Service Contract Act and found that 13,570 workers had been underpaid $1,463,872.
I do not know how much of that money might have been recovered by the Department but I would estimate the amount would be relatively small. In one instance, I know that the recovery was less than 10 percent of the amount due.
In this situation a contractor came up from Atlanta and low bid the contract at the Aberdeen Proving Ground in Maryland. After a short time he could not even meet the payroll and defaulted, leaving the workers short by $44,000.
The contracting agency had withheld only $4,000 and that was the total amount available for distribution to the cheated workers—less than 10 cents on the dollar.
The company was debarred for 3 years by the Secretary and according to the Solicitor of Labor the firm is no longer actively engaged in business and has no assets which could be attached to satisfy the remaining back wage liability.
Mr. THOMPSON. What might happen, according to the GAO evidence, then, in a case like this is that a settlement might be arranged.
The contractor settles for let's say 40 cents on the dollar and notifies the Department, which in turn notifies GAO and the company gets off the list and goes back into business again.
Mr. DONAHUE. In this case the contractor will be eligible again in August of this year.
Mr. THOMPSON. His 3 years will be over?
Mr. DONAHUE. I have been told that no name list of contractors found to be in violation is available from the Department of Labor. It appears that in fiscal 1970 only five contractors were debarred because of violations. There is obviously a timelag because of hearings and so forth but that seems to be a small number in relation to the 13,570 employees who were cheated out of nearly one and a half million dollars and seems to indicate that a number of violators must have escaped the blacklist.
Obviously, if the underpayments are only repaid at the rate of 10 or 20 cents on the dollar, the procedure for debarring a contractor becomes the only real deterrent to unlawful conduct and ought to be mandatory.
Consequently, we fully support the proposed amendment and urge your consideration of the further amendment which we have suggested to make clear the authority of the Department of Labor to set prospective prevailing wages and fringes.
Thank you, Mr. Chairman, for this opportunity to appear and state our views on these matters which so vitally affect the thousands of our members employed by service contractors.
Mr. THOMPSON. Thank you. I want to emphasize that I think that there is no room for doubt about the original intention of the Congress in the enactment of this act. You recommend some specific amendments and others have recommended some specific amendments. The fact is that had the act been interpreted and administered in accordance with the congressional intent, we wouldn't be hearing these kinds of stories today.
I think there is no excuse at all for the Secretary not having debarred a great many firms found to have cheated their employees. We had a recital only yesterday of the case of one company with 17 or 18 violations, and settlements in almost every instance at less than 100 cents on the dollar, which means, of course, that although the company admits violations of the law, it is doing so with almost complete impunity. We are going to ask the Secretary some very hard questions on this matter.
I note in your testimony with respect to New York, where you do represent so many people, that it is apparent there is a turnover of con. tractors there on an almost annual basis.
Mr. DONAHUE. Yes, sir. These are not our normal private industry contractors. Private service contractors won't bid on the Government work because they won't get caught in that system.
Mr. THOMPSON. In many instances the Air Force, as an example, has in a sense condoned these illegal activities by filling in when one contractor leaves by temporarily putting the predecessor contractor's people to work as part time Federal employees until a new contractor comes in.
I have nothing more to say except to commend you for a very fine statement. I still feel that, although some amendments to the act are indicated, they would not be necessary if the act were to be administered as it should have been, and we are going to make our views known in the strongest possible way to the Secretary of Labor.
Mr. O'HARA. Mr. Chairman, I want to second that. It seems to me that the intent is so obvious that what we wanted to do was to achieve wage equality, that it should have been evident that any procedures adopted under the act should be procedures that would have brought about that results, and that certainly it would have militated against the use of procedures that distort the result and prevent that result from being achieved.
Mr. Donahue's statement is an excellent one. I would like to make two points. First I want to state my complete agreement with his remarks on page 5 with respect to the quality and dedication of the staff that has been handling wage determinations under this act. I have had something to do with that staff on a number of occasions and I have found them to be completely honest and capable and above board and very dedicated and in fact overworked people. I want to make it clear that I have no quarrel with the way in which they perform their duties but I do have some very definite quarrels with some of the policy decisions that have been made that thwart our intention in the original legislation. The next thing, Mr. Chairman, I would like to do is remind the Chair that Mr. Donahue was one of the real true believers in this legislation, that is, as he indicated, he started working on it before we did, he and Dave Sullivan, and for awhile we were working down the same path and we did not know it and then we finally managed to get together and work for this legislation.
I don't think anyone did any more to help obtain the enactment of legislation of this sort than did Tom Donahue and Dave Sullivan and the Service Employees International Union, unless possibly it is the next witness that were are going to have, who is well known to Tom, Jim McGahey, from the Plant Guard Workers.
It was really those two organizations, and there were a lot of others. Mr. THOMPSON. I notice that you pick out those with Celtic names particularly
Mr. O'HARA. It is only that we have a very strong sense of justice and it is easily offended.
Mr. THOMPSON. Yes, we do.
Mr. O'HARA. And I know that he shares my distress and your distress at the way in which we have not completely achieved our objectives. I want to thank him for his help then and now.
Mr. THOMPSON. Let the record show at this point that the new counsel to the subcommittee is named Hugh Duffy and he is from Massachusetts.
I have one comment, Tom. It is that Mr. O'Hara's recollection of your activities and tribute for your help is certainly well deserved. I remember it very well.
I can't help but be amused as I think about the GAC) and the Denartment of Labor and the manner in which the departments treat GAO recommendations, at the buck passing with respect to that “recommendation" or "suggestion” by the GAO. The fact is there is every indication that had it been a formal recommendation, GA would have