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TO AMEND THE SERVICE CONTRACT ACT OF 1965

TUESDAY, APRIL 6, 1971

HOUSE OF REPRESENTATIVES,
SPECIAL SUBCOMMITTEE ON LABOR OF THE
COMMITTEE ON EDUCATION AND LABOR,

Washington, D.C. The Special Subcommittee met at 10 a.m., pursuant to recess, in room 2175, Rayburn House Office Building, Hon. James G. O'Hara, presiding.

Present: Representatives O'Hara, Badillo, Ashbrook and Reid.

Staff Members President: Hugh G. Duffy, Counsel; Jeunesse M. Beaumont, subcommittee clerk; Donald M. Baker, chief clerk, full committee, and Michael J. Bernstein, minority counsel for labor.

Mr. O'HARA. The Special Subcommittee on Labor of the House Education and Labor Committee will come to order. Today's meeting is to continue the hearings on H.R. 6244 and H.R. 6215, bills to amend the Service Contract Act of 1965, and at the same time and in the process of consideration of these bills, to exercise the committee's legislative oversight functions with respect to the administration of the Service Contract Act, which was a product of this committee and of the subcommittee that is sitting today.

Our first witness is Mr. Laurence H. Silberman, Under Secretary of Labor, U.S. Department of Labor, who is accompanied by Mr. Peter Nash, Solicitor of Labor, U.S. Department of Labor and Mr. Robert D. Moran, Workplace Standards Administrator, U.S. Department of Labor and Mr. John A. McCart, Operations Director, AFL-CIO Government Employees Council will be our second witness.

Mr. Silberman, the committee would be very pleased to hear from you with respect to the matters before the committee.

STATEMENT OF HON. LAURENCE H. SILBERMAN, UNDERSECRE

TARY OF LABOR, U.S. DEPARTMENT OF LABOR, ACCOMPANIED BY ROBERT D. MORAN, WORKPLACE STANDARDS ADMINISTRATOR, U.S. DEPARTMENT OF LABOR, AND PETER NASH, SOLICITOR OF LABOR, U.S. DEPARTMENT OF LABOR, WASHINGTON, D.C.

Mr. SILBERMAN. Thank you, Mr. Chairman. I appreciate this opportunity to present the views of the Department of Labor on H.R. 6244 and H.R. 6245. Mr. Moran, the Administrator of the Wage and Hour Division, Workplace Standards Administration, and also the nominee for the Chairman of the New Occupational Safety and Health Review Commission, is to my right, and as you point out, Mr. Peter Nash, Solicitor of Labor, is to my left, and both will, along with myself, be happy to answer your questions concerning the ad. ministration of the McNamara-O'Hara Service Contract Acts.

First to the Department's position on the bills before you. H.R. 6244 and 6245 would amend the Service Contract Act to eliminate the Secretary of Labor's authority to remove debarred contractors from the list of ineligible bidders. The Department is strongly opposed to this proposal.

The authority of the Secretary to relieve contractors from the debarment provisions of the act is not only a potent enforcement tool under the Service Contract Act but has been time tested for over 30 years under the Walsh-Healey Act, Public Contracts Act.

Similar relief is also authorized under the Davis-Bacon Act. Relief from the debarment provisions of the Service Contract Act has proven to be an effective trade-off in recovering back wages and gaining assurance of future compliance which is, after all, one of the main objectives of the act.

In addition, there should be some administrative remedy in the law to enable the Secretary to mitigate the economic sanctions imposed by debarment in extenuating circumstances. There are instances when debarment does not serve the best interests of the affected employees or the Government.

I will now direct my attention to answering the specific questions raised by Congressman Thompson, the distinguished chairman of this subcommittee, concerning the following administrative actions taken under the Service Contract Act.

THE DYNAMIC ENTERPRISE MATTER

Chairman Thompson's letter refers to the matter of Dynamic Enterprises, which is now pending consideration in the Office of the Secretary. Because this matter is currently pending final decision in the Department, and is subjudice, it would be inappropriate for me to discuss it at this time. I will inform you of any decision in this matter.

THE DEPARTMENT'S DECISION REGARDING PROSPECTIVE WAGE INCREASES

AND WAGE DETERMINATIONS

The Department's policy until late 1969 permitted issuance of wage determinations which were based on currently prevailing wage agreements providing for deferred application of negotiated wage increases in known amounts.

Such increases were included in the wage determination, to be effective on definite future dates during the life of the contract. A wage determination for a particular classification of service employee in a locality is based on a collective bargaining agreement where all available evidence shows that that agreement in fact determines the wage rates and fringe benefits for at least half the employees in that classification in that locality. The policy of recognizing deferred wage increases was limited to those scheduled to take effect during the next 12 months.

In August, 1969, the Department of the Air Force requested a decision from the Comptroller General as to the propriety of wage deter

minations issued under the Service Contract Act which provide for escalation on definite future dates at specified rates.

In a letter to the Secretary of the Air Force on September 19, 1969, a copy of which was sent to the Secretary, the Comptroller General stated his opinion that:

... the Service Contract Act does not authorize the Department of Labor to issue wage rate determinations which, in addition to establishing currently prevailing wage rates, also purport to provide for escalation at definite future dates at specified rates. Therefore, such escalation provisions are of no legal effect, and should not be included in contracts subject to the Act ...

In a letter of the same date to the Secretary of Labor, the Comptroller General forwarded a copy of his letter to the Secretary of Labor, the Comptroller General forwarded a copy of his letter to the Secretary of the Air Force and said that in his opinion:

... such determinations are improper, and therefore that the practice should be discontinued promptly.

I don't know, Mr. Chairman, whether you have a copy of the Comptroller General's opinion in the record or whether you have asked someone or whether the Comptroller General has come to testify on his opinion, but in any event, I would think you would want a copy of that opinion in the record and I would like to submit it.

Mr. O'HARA. Mr. Silberman, I believe as a matter of fact that I submitted that for the record at the last hearing, but the Chair will nevertheless ask unanimous consent that it be made a part of the record in the event that it is not already.

(The document was made a part of the record on April 2).

Mr. SILBERMAN. While the interpretation of how the Service Contract Act applies is clearly a function of the Department of Labor, careful consideration was given to the Comptroller General's opinion. After careful consideration of all factors, including the Department's many years of practice in the issuance of wage determinations under the Davis-Bacon Act which had never incorporated fixed future increases as part of the prevailing rate, it was decided to discontinue including prospective rates in Service Contract Act wage determinations,

At the time of this decision in December 1969, it was estimated that wage determinations containing prospective rates affected about 500 service contracts. With this change in policy, the Department achieved consistent application of the two acts by basing wage determinations under both acts only on current prevailing rates already in effect. Of course the decision in no way affected collective bargaining contract obligations.

RECENT CHANGES IN THE METHODS OF DETERMINING THE APPROPRIATE

GEOGRAPHICAL AREA FOR MAKING DETERMINATIONS OF PREVAILING WAGES

With respect to the geographical area used in making wage determinations, I believe that it would be helpful to review some of the background before getting down to the particular matter of interest to this special subcommittee.

The act provides that service contracts in excess of $2,500 shall contain a stipulation specifying the minimum monetary wages and

fringe benefits to be paid to the various classes of service employees employed on the contract, as determined by the Secretary of Labor or his authorized representative to be prevailing for such service employees in the locality. * The act does not define the term in the locality. Quite properly the meaning of this term is left to the discretion of the Secretary so that changes can be taken into account.

For example, cities and metropolitan areas grow. Industries move or expand into new geographical areas. Government facilities are opened up or closed down. Accordingly, 29 CFR, Regulation 4.163, provides that the term "in the locality” has an elastic and variable meaning to be viewed in the light of existing wage structures pertinent to the employment by potential contractors of particular classes of service employees on the kinds of varied service contracts which must be considered.

It is not possible to devise any precise single formula which would define the exact geographic limits of a locality which would be relevant and appropriate for determination of prevailing wage rates and fringe benefits in all situations.

The "locality” within which a particular determination applies is therefore defined in each determination on the basis of all the facts and circumstances pertaining to that determination. Each determination applies only to contracts for the locality which it includes.

The recent changes in the methods of determining the appropriate geographical area of interest to this subcommittee relate to what may be called "enclave rates” or “facility rates." These terms require explanation.

Early in the administration of the Service Contract Act, it was found necessary to limit the "locality" for purposes of wage data information and the application of the resulting wage determination to the geographic confines of some, but not all, Government facilities and installations.

In day-to-day operations certain inconsistencies and problems developed. For example, in some instances where an "enclave" had been carved out of a larger metropolitan area, employees within the "enclave” had a higher predetermined wage rate than employees performing the same work at a nearby installation outside the "enclave".

It became evident that a general review of these procedures was necessary. This was done in 1969. As a result it was decided that "enclave rates” and “facility rates” should be continued. Written guidelines were subsequently issued and are set out in Section 303 of the Manual of Policies and Procedures for Administration of the Service Contract Act. This manual is included in the appendix of my testimony.

(The document referred to appears in the appendix.) Boiled down, here is what happened :

No change at all was made in cases where the Government facility or installation is situated in an isolated locality and the only available wage rate and fringe benefit data is that actually being paid by the contractor, either in accordance with a collective bargaining agreement or company policy, to the employees involved.

In such cases we have continued as in the past to issue wage determinations based on the wage rates and fringe benefits actually being paid at the time the determination is issued.

A modification was made in the procedures in those cases where wage rate and fringe benefit data are available for a larger “locality" within which a particular Government facility or installation is situated. Such facilities or installations will not be considered as separate and apart from the larger area if they are situated in the central metropolitan area or business district and are indistinguishable from the surrounding area.

On the other hand, a facility or installation situated within a larger metropolitan area but somewhat removed from the center of business and with an employment identity of its own may-upon full consideration of all the facts involved—be treated as a separate locality.

This is more fully discussed in the Manual.

As a result of this modification of procedures we withdrew 20 wage determinations. We now have 94 currently effective wage determinations based on the "enclave rate” or “facility rate” principle and we plan to continue issuance of such determinations within the guidelines contained in the Manual.

We believe that our present procedures are sufficiently flexible to take care of problem areas and avoid abuses.

THE DEPARTMENT'S RECENT DECISION TO CHANGE THE METHOD OF DETER

MINING PREVAILING WAGES FOR MAIL HAUL CONTRACT EMPLOYEES

Let me now turn to the question of mail haul contracts. A change is being made in the procedure for determining the prevailing wage rates and fringe benefits for mail haul contracts. I would like to explain the background for this change.

Under present procedures, long-haul rates (i.e., over 40 miles distance from head-out point to terminus) are derived from the Master Freight Agreement of the Teamsters. Short-haul rates are based on Bureau of Labor Statistics wage surveys for truck drivers generallynot just mail-haul drivers.

A team from the General Accounting Office has been (since September 1969) making a management survey of our service contract wage determination program. On August 13, 1970, this team submitted a preliminary report dealing only with determinations issued for mail-haul contracts.

In this preliminary report, the GAO took issue with our present procedure for determining prevailing rates for such contracts. It was their position in this report that we should treat mail-haul drivers as a separate and distinct class of employees and base our wage determinations on the rates paid to such employees without regard to rates paid to other truck drivers in the locality”.

Again, Mr. Chairman, if you do not have a copy of the opinion from the General Accounting Office to Mr. Fletcher, I would ask that it be submitted for the record. Do you have such an opinion?

Mr. O'HARA. I have been advised by counsel that he has checked and both opinions are now part of the record. ?

Mr. SILBERMAN. Incidentally, again on the opinion on wage escalation, the opinion went to the Secretary of the Air Force but there was a covering letter to the Secretary of Labor.

I wonder if you have a copy of that covering letter to the Secretary of Labor.

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