Mr. SWEENEY. The National Freight Agreement provides that anything under 30 mile radius is considered local pick up and delivery and anything over this is considered as over the road.

Mr. O'HARA. In other words, it is your recollection that under 30 miles is local pick up and delivery and over 30 is over the road? Mr. SWEENEY. Yes.

Mr. O'HARA. At any rate that is the classification, that is the breakdown really. It has to do whether it is local or over the road.

Mr. CURLEE. Yes, that is true.

Mr. O'HARA. Certainly there is no justification for determining a separate classification by the kind of freight, to wit, mail. Now one other point I would like to make, as I understand it, one of the points the Post Office Department has tried to put forward in defense of its position has been, well, a lot of these contractors are very small operators, maybe it is a man and his son and they only have two trucks or something like that and that is an entirely different kind of thing, and well, I recognize that some of the contracts are very small and maybe it is a man and his son and two trucks or something of that nature or even indeed a man and a truck.

But by the same token, some of these contracts are very big and some of them are held by rather large operators who also haul other kinds of freight including a number of people who are covered under your National Freight Agreement, isn't that right?

Mr. CURLEE. Yes, sir.

Mr. O'HARA. So the effect of setting lower rates than they have been setting, inadequate as they were on these contracts, will be that the people, the employees who hold contracts with you are going to be at a competitive disadvantage, they are going to be paying their employees standard over the road rates and the fellow who is bidding against them is going to be paying something a lot less.

Mr. CURLEE. The effects are two fold. One is that organized carriers and the people that we represent would be put out of the mailhaul business because they will not be competitive. The second effect would be on the people that are not organized and still carry mail. They will be squeezed down to the very nub.

They will be driving for the benefit of the insurance company, the mortgage holder on the truck and the gasoline dealers and very little profit will be left over for themselves because of the harshness of the competition.

Mr. O'HARA. Thank you.

Mr. THOMPSON. There has been great emphasis by Mr. Moran on recommendations made by the General Accounting Office. We will be hearing from those gentlemen a little bit later in the morning. Mr. O'Hara?

Mr. O'HARA. Mr. Chairman, I have no more but I would like to have identified for the record that the publication brought by the witness from which I was reading is the Standard Industrial Classification Manual issued by the Executive Office of the President, Bureau of the Budget.

This classification, this new classification, of mail truck drivers will exist only for the purpose of setting lower wages for Star Route driv

ers. Other than that it won't be recognized by the government or anyone else for any purpose.

Thank you.

Mr. THOMPSON. Thank you very much.

Our next witness it Mr. Gregory Ahart, Deputy Director of the Civil Division, GAO, accompanied by Mr. Henry Eschwege, Associate Director, Civil Division, and Mr. Melvin E. Miller, Assistant General Counsel, Office of the General Counsel, GAO.

STATEMENT OF GREGORY AHART, DEPUTY DIRECTOR OF THE CIVIL DIVISION, GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY HENRY ESCHWEGE, ASSOCIATE DIRECTOR OF THE CIVIL DIVISION; AND MELVIN E. MILLER, ASSISTANT GENERAL COUNSEL, OFFICE OF THE GENERAL COUNSEL, GAO

Mr. AHART. I would like to introduce my associates here this morning. On my left is Mr. Melvin E. Miller, Assistant General Counsel, and on my right is Mr. Henry Eschwege, Associate Director of the Civil Division.

In the interest of the shortage of time here this morning, I would like to summarize my statement.

(The witness' prepared statement and supporting documents appear at the end of his oral summary.)

Mr. THOMPSON. It is nice to see you gentlemen.

Mr. AHART. We are pleased to appear here today, at your request, to discuss questions we have raised concerning the Department of Labor's determinations of wage rates for mail hauling services under the Service Contract Act of 1965, and a legal decision rendered by the Comptroller General, which held against the use of wage escalation provisions in wage determinations for service employees at the Vandenburg Air Force Base, Santa Barbara County, Calif.

As you know, the Service Contract Act requires that every contract entered into by the United States or the District of Columbia in excess of the $2500-the principal purpose of which is to furnish services to the United States through the use of service employees-shall specify the minimum wage rates and fringe benefits to be paid the various olasses of service employees in the performance of the contract or any subcontract thereunder.

The wage rates specified are those determined by the Secretary of Labor as being the prevailing rates for such employees in the locality where the contract is to be performed.

The purpose of the act is to provide standards for the protection of employees of contractors and subcontractors furnishing services to or performing maintenance service for Federal agencies.

We are currently making a review of determinations made by the Department of the minimum wage rates for drivers of vehicles for mail hauling under Star Route contracts awarded by the Post Office Department.

Wage determinations for Star Route drivers amount to about 13 percent of the total number of determinations made by the department for service employees working under Federal contracts.

We would like to emphasize that our review is still in process. Although we have raised certain questions in letters to the Department of Labor and Post Office Department for their consideration, we have reached no firm conclusions.

Star Route contracts are awarded for 4-year periods on a cycle basis. The first wage determinations were made in 1966; however, in 1967 the Department declared a moratorium on wage determinations which lasted approximately one year and contracts were awarded during this period without wage determinations.

At July 1, 1970, there were 12,533 Star Route contracts in the United States. Only about 4,000 Star Route contracts involving the employment of drivers are covered under the provisions of the act.

Contracts covering rural mail delivery and owner-operator routes not involving the hiring of drivers are not covered. The total estimated cost of Star Route contracts for fiscal year 1971 is about $170 million. We concentrated our review in 14 states and the District of Columbia where a number of contracts were covered by wage determinations, issued in fiscal years 1968, 1969, and 1970, and other contracts, not yet covered by wage determinations, would be covered when due for renewal or advertisement in fiscal years 1971, 1972, or 1973.

Generally, we found that the Star Routes have been classified into two categories by the Department-short haul (under 40 miles) and long haul (over 40 miles).

Wage determinations that have been issued generally provide for different hourly rates and fringe benefits for each category. Most of the Star Route contracts are in the long haul category.

The Department prescribed minimum wage rates and fringe benefits for short haul drivers in an area based on data obtained primarily from Bureau of Labor Statistics (BLS) Area Wage Surveys, which consisted of wage data for truck drivers of certain companies in that area, unidentifiable by either type of service or merchandise carried.

For long haul drivers, the Department established minimum rates and benefits derived from rates and benefits provided by the National Master Freight Agreement of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America.

The Master Freight Agreement covers, among others, drivers of trucks carrying freight regulated by the Interstate Commerce Commission. Such drivers are excluded from coverage under section 7 of the Service Contract Act.

It appears to us that data used by the Department in making wage determinations may not have been appropriate and therefore may have caused significant increases in contract costs.

It did not appear that the use of the International Brotherhood of Teamsters Union, Master Freight Agreement or the use of BLS Area Wage Survey data, which we were informed by BLS does not generally include wage rates paid to Star Route drivers, resulted in representative wage rates for many Star Route contracts.

In this regard, our review of wage determinations in nine States and covering 233 Star Route contracts for which we obtained information on wage rates before and after a wage determination, showed that the rates prescribed by the Department as minimum rates for drivers on

long haul contracts increased the hourly rates paid to such drivers from 42 to 90 percent.

We also noted that the Post Office Department in 1968 had estimated that the costs of Star Route contracts directly attribuable to the Department of Labor's determinations under the Service Contract Act would result in increased costs of $30 million annually by July 1, 1971. We brought our questions to the attention of the Department of Labor in a letter dated August 31, 1970, a copy of which is appended to my statement. As a possible solution for overcoming inequities in the bases used for determining wage rates for the Star Route contracts, we suggested to the Department of Labor and the Post Office Department that consideration be given to establishing the Star Route drivers as a separate class of service employees for minimum wage rate determinations.

In support of establishing a separate class or service employees, we noted that there were important differences in the operations and qualifications of drivers involved in mail hauling and those involved in general freight hauling.

These differences include the type of vehicle driven, the size of the operation, type of cargo carried, handling of the load, duration of trips, statutory and regulatory controls, and method of payment to the drivers. Our review also indicated that there are no classes of truck drivers reasonably comparable to the Star Route drivers.

We also noted that the Department's policies and procedures for the administration of the Service Contract Act provide for identification of service employees by class of service and that the Department has made separate wage surveys in regard to different services provided by drivers of vehicles.

For example, separate service surveys have been made by BLS in certain areas to assist the Department in determining minimum wages rates for drivers of vehicles for moving and storage, refuse disposal, and logging. These wage surveys show a wide variance in rates for the various types of truck drivers.

To date we have not as yet received the Department's final reply to our August 1970 letter, however, we have met with Department representatives a number of times to further discuss our review. Since we first brought the matter to its attention, the Department has requested from us the names of certain of the States covered in our review. Upon receipt of this information, the Department issued a directive discontinuing use of the wage rate determinations for long haul Star Route contracts in 10 States.

On December 28, 1970, the Postmaster General, in replying to our November 5, 1970, letter stated his belief that the establishment of the Star Route service as a separate and identifiable service for wage determinations purposes was both feasible and desirable.

He stated that the actual impact of the determinations under the act through June 30, 1970 (the end of the third year of wage determinations), was a cost increase of approximately $24 million.

In summary, Mr. Chairman, both the Department of Labor and our Office are giving further consideration at this time to the appropriate application of the provisions of the Service Contract Act to Star Route

contracts.

Turning now to our decision to the Secretary of the Air Force, I believe a bit of background information might be helpful. In carrying out our statutory responsibility to render advance decisions to the heads of departments, and in the performance of our bid protest functions, the Comptroller General has been asked to pass upon numerous questions relative to the application of the Service Contract Act, its effect upon the competitive procurement process, and the expenditures of appropriated funds.

The question considered in our 1969 decision (49 Comp Gen 186) to the Secretary of the Air Force, however, was first raised in April 1968 by a bidder who protested with our Office, that the Davis-Bacon Act wage rate determination included in an Army Engineer's invitation for bids on a construction project was unfair.

The bidder admitted that the wage rates included in the invitation were the same as he was paying under his union agreement, but pointed out that his union agreement provided for automatic escalation every 3 years, and that the rates he was currently paying would expire 5 days after bid opening.

In effect, his position was that the wage schedule included in this invitation for bids should reflect the rates he would be required to pay under this union agreement during the period of contract performance, rather than the rates he would be paying at time of bid opening and contract award.

In his decision of June 20, 1968, which is published at 47 Comp. Gen. 754, the Comptroller General reasoned as follows:

Since the minimum rates are required to be fixed in the advertised specifications for the contract, it is clear that such rates are to be based on the prevailing rates existing at the time the contract is advertised.

Under the current procedures of the Department of Labor, prevailing wage rates in the construction industry are determined periodically for various areas of the country and until such determinations are modified by later determinations or expire by their own terms they represent the correct rates to be used in advertising for bids on contracts in those areas. We are aware of no authority for considering as "prevailing" a rate which is not in fact being paid at the time a contract specification is advertised in a solicitation of bids, however definite the belief may be that it will thereafter become the prevailing rate.

The same question was first raised in connection with the Service Contract Act by the Assistant Postmaster General, who submitted a request for an advance decision to the Comptroller General on May 15, 1968.

The basis for this request was a wage determination dated April 9, 1968, which covered all contracts for the transportation of mail from any postal facility in the State of Colorado to any other postal facility. This determination caled for a truck driver's wage rate of $3.15 per hour from April 9, 1968, its issue date, through March 31, 1969, and for a higher rate of $3.28 per hour effective April 1, 1969.

In asking for an advance decision, the Assistant Postmaster General advised that he had 2,200 contracts of this type to review in the next 45 days; he expressed the belief that escalation provisions of this type were not contemplated by the Service Contract Act and would therefore unjustifiably increase costs to the Government; and he had therefore advised the Department of Labor that all escalation provisions would be deleted from wage rate determinations pending the Comptroller General's decision.