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determinations are to be modified to reflect such changes when they become effec. tive, and the revised determinations would then apply to contracts entered into after the modification.

Our decision therefore concludes that the Service Contract Act does not authorize wage rate determinations which provide for escalation at definite future times and at specified rates, and advises the Air Force that such escalation provisions should not be included in contracts subject to the act.

A copy of our September 19 decision was forwarded to the Secretary of Labor on that same date, and reference was made in our forwarding letter to our previous letter of September 12, 1968, and to the lack of a reply thereto.

To date, our letter of September 19, 1969, has not been acknowledged by the Department. Our file does contain, however, a copy of a memo dated December 10, 1969, from the Secretary of Labor to his Administrator of Wage and Hour and Public Contracts Division. This memo refers to discussions within the Department of Labor resulting from our September 19 decision and states that determinations under the Davis-Bacon Act do not incorporate fixed future increases in wage rate determinations. It concludes that wage determinations under the Service Contract Act should likewise be based only on current prevailing rates.

We assume that this memo accurately describes the present practice of the Department under both the Davis-Bacon and the Service Contract Acts on a Government-wide basis.

Very briefly now, I would like to summarize and emphasize several points I have tried to bring out by discussing the last three cases.

First, our original decision on the question of escalation provisions in wage rate determinations was rendered in connection with the Davis-Bacon Act, and we have had no indication of dissatisfaction in Government or industry with that decision.

Second, our decision to the Secretary of the Air Force on the question of including escalation provisions in wage rate determinations under the Service Contract Act was based in part upon, and was consistent with, our prior decision under the Davis-Bacon Act.

Third, Labor's original decision not to include escalation provisions in wage rate determinations under the Service Contract Act was not based upon a decision of our Office. Labor's original decision was made on its own volition when it advised the Post Office Department that escalation provisions would not be included in future determinations.

Fourth, Labor's determination not to include escalation provisions in wage rate determinations under the Service Contract Act was in accord with its own regulations, and the Comptroller General's decision to the Air Force was also in accord with such regulations.

This concludes our statement Mr. Chairman; we will be happy to respond to any questions you may have.

[A Legal Decision of September 19, 1969, Rendered by the Comptroller General

to the Secretary of the Air Force (49 Comp. Gen. 186)]

UNITED STATES GENERAL ACCOUNTING OFFICE,

Washington, D.C. Hon. ARTHUR A. FLETCHER, Assistant Secretary for Workplace Standards, Department of Labor

DEAR MR. FLETCHER: As part of our review of the procedures and methods used by the Department of Labor (Department) in making determinations of the minimum wages required to be paid to service employees under the Service Contract Act of 1965, we have been reviewing the wage rates and fringe benefits prescribed for drivers of vehicles used on Star Route mail hauling contracts awarded by the Post Office Department. Our review, which is being conducted in Washington, D.C., and in the Atlanta, Boston, Denver, and Wichita Postal Regions, has shown that the minimum wage rates prescribed by the Department for Star Route drivers were not based on prevailing wage rates of drivers hauling mail under Star Route contracts and were generally substantially higher than the rates being paid to these individuals before such wage determinations became effective.

The Service Contract Act of 1965 requires that every contract not exempted by section 7 of the act entered into by the United States or the District of Columbia in excess of $2,500, the principal purpose of which is to furnish services through the use of service employees, contain a provision specifying the minimum monetary wages to be paid the various classes of service employees. These wages and fringe benefits are to be determined by the Secretary of Labor in accordance with prevailing rates and fringe benefits for such employees in the locality.

The Star Route mail haul contracts are awarded for a 4-year period on a cycle basis. The first wage determinations were made in 1966, however, the Department in 1967 declared a moratorium on wage determinations which lasted approximately one year and as a result, contracts were awarded during this period without a wage determination. At the time of our review most mail haul contracts in 40 percent of the States were not covered by Department wage determinations (18 States that were renewed in 1967 during the moratorium and two States, due to be renewed in 1970, which have been extended to January 1, 1971).

The Star Routes have been classified into two categories by the Departmentshort haul (under 40 miles) and long haul (over 40 miles—and 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 has prescribed minimum wage rates and fringe benefits for short haul drivers in an area from data obtained primarily from Bureau of Labor Statistics (BLS) Area Wage Surveys which consist 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, although section 7 of the act and the Labor Standards for Federal Service Contracts (29 CFR 4.117) excludes "freight” services from coverage under the Service Contract Act, the Department has 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 drivers of trucks carrying freight regulated by the Interstate Commerce Commission.

The following schedule, based on our review to date, shows how hourly wage rates and contract costs have increased because of the application of wage determinations made by the Department. While the increase in contract costs includes costs for fringe benefits the hourly rates shown in the schedule do not.

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We noted during our review that the Post Office Department in 1968, had made its own survey in this area and on the basis of this survey estimates that the costs of Star Route contracts directly attributable to the Department of Labor's determinations under the Service Contract Act will result in increased costs of $30 million annually by July 1, 1971.

We believe that the data used by the Department in making the determinations may not be appropriate and therefore may have caused significant increases in contract costs. It does 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, results in representative wage rates for many Star Route contracts.

As a possible solution for correcting the apparent inequities in the bases used for determining wage rates for Star Route contracts, we believe that consideration should be given by the Department to establishing the Star Route drivers as a separate class of service employees for minimum wage determination purposes.

In support of establishing a separate class of service employees we note that there are important differences in the operations and qualifications of drivers

involved in mail hauling and of those involved in general freight bauling. 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 to assist the Wage Determination Branch in determining minimum wage 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.

Our review has not been completed. However, the Post Office Department during this fiscal year, will be soliciting bids for new contracts in 20 States. Therefore, reconsideration at this time by the Department of Labor of the bases used for determining wage rates to be included in these contracts could possibly result in considerable savings to the Government.

We would appreciate your views and comments on the entire matter of prescribing minimum wage rates for Star Route contracts, including (1) the appropriateness and the bases of the present use of the BLS surveys and wage provisions in union agreements for the Star Route determinations, (2) the feasibility of establishing the Star Route Service as a separate service for wage determination purposes, (3) the apparent significant increase in costs of Star Route contracts due to wage rate determinations as indicated by our review and that of the Post Office Department, and (4) any action to be taken at this time to assist the Post Office Department in negotiating the appropriate amounts for the mail hauling contracts now under consideration.

Should you or your staff have any questions concerning this matter, please let us know. Sincerely yours,

HENRY ESCHWEGE,

Associate Director.

COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, D.C., September 19, 1969. THE SECRETARY OF THE AIR FORCE, Washington, D.C.

DEAR MR. SECRETARY: Reference is made to the letter of August 1, 1969 (reference AFSPPMA), with enclosure, from the Chief, Industrial Labor Relations, Contract Management Division, Directorate, Procurement Policy, requesting our decision as to the propriety of wage determinations issued under the Service Contract Act of 1965, Public Law 89-286, 41 U.S.C. 351-357, which in addition to establishing currently prevailing wage rates also purport to provide for escalation on definite future dates at specified rates. The determinations in question are issued by the Administrator, Wage and Hour and Public Contract Divisions (WHPC), Department of Labor, in the exercise of authority delegated to him by the Secretary of Labor under 29 CFR 4.3.

Enclosed with the letter is a copy of Wage Determination Number 69–225 (Rev. 2) dated July 16, 1969, relating to the Vandenberg Air Force Base in Santa Barbara County, California. It is explained that the determination was requested in contemplation of soliciting and awarding a food service contract to replace one then current which expires on September 30, 1969.

The Chief, Industrial Labor Relations, says that the wage determination was issued by WHPC after several discussions between their representatives and those of his headquarters; that these discussions pertained, in part, to the inclusion of a schedule of rates held by WHPC to be those which will be prevailing at a future date or dates corresponding to the dates of union negotiated increases, and that the enclosed determination typifies the WHPC practice of issuing rates intended to be effective in the future.

It is further stated that during the discussions with WHPC, it was learned that something in excess of 100 determinations containing prospective rates have been issued and are presumably still in effect; that in order to prevent delay of a procurement necessary to the operation of a major Air Force installation the

enclosed wage determination was included in the solicitation in question; but that our opinion is requested as to the propriety of such rates and the action to be taken in the event others are received in the future.

Section 2(a) (1) of the Service Contract Act of 1965 provides that "every contract (and any bid specification therefor)," with certain exceptions, entered into by the United States or the District of Columbia the principal purpose of which is to furnish services through the use of service employees shall contain "a provision specifying the minimum monetary wages to be paid the various classes of service employees * * * as determined by the Secretary [of Labor] * * * in accordance with prevailing rates for such employees in the locality * * *."

Similar language is employed in the Davis-Bacon Act, as amended, 40 U.S.C. 276a, section 1(a) of which provides that the advertised specifications for every construction contract to which the United States or the District of Columbia is a party shall contain provisions stating the minimum wages to be paid various classes of laborers and mechanios, which shall be based upon the wages "that will be determined by the Secretary of Labor to be prevailing for the corresponding classes of laborers and mechanics" employed on similar projects in the city, town, village, or civil subdivision in which the work is to be performed. No provision is made for any modification or adjustment of such advertised minimum wage rates, and since there is 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, and since the minimum rates are required to be fixed in the advertised specifications for a contract, we held in 47 Comp, Gen. 754 that the Davis-Bacon Act requires such rates to be based on the prevailing rates existing at the time the contract is advertised.

We are of the view that the words "as determined by the Secretary * * * in accordance with prevailing rates," which appear in section 2(a) (1) of the Service Contract Act, were intended by the Congress to have exactly the same effect as the words "based upon the wages that will be determined by the Secretary of Labor to be prevailing" as appearing in section 1(a) of the Davis-Bacon Act. This view finds support in the statement made by the then Solicitor of Labor, Charles Donahue, as reported on page 11 of the Hearing before the Subcommittee on Labor of the Senate Committee on Labor and Public Welfare, 89th Congress, 1st session, on H.R. 10238, which was subsequently enacted as Public Law 89-286. That statement, in part, reads as follows:

"At the threshold I have been told that there is some curiosity as to why we did not simply take the Davis-Bacon Act and extend it so that it would cover service contracts as well as construction contracts.

"Another answer to that question is, that in principle, without mentioning it, we have followed the Davis-Bacon Act. I address myself to the provisions on page 2 of the bill as it was reported in the House of Representatives, para. graph No. 2, which provides for the determination of prevailing wage rates by the Secretary of Labor on the basis of those prevailing for service employees in the locality."

Further, the Department of Labor's own regulations implementing the Service Contract Act clearly contemplate that even where, because of union agreements, it is anticipated that increases in prevailing rates will be effective at specific future dates, wage rate determinations must only reflect rates current at the time the determinations are made. These regulations (29 CFR 4.164) read, in part, as follows:

"(a) Information considered. The minimum monetary wages and the fringe benefits set forth in determinations of the Secretary are based on information as to wage rates and fringe benefits in effect at the time the determination was made. The Department considers all pertinent information regarding prevailing wage rates and fringe benefits in the locality for the classes of service employees for which determinations are made.

"Such information may be derived from area surveys made by the Bureau of Labor Statistics or other Department personnel, from Government contracting officers, and from other available sources including employees and their representatives and employers and their associations. The determinations may be based on the wage rates and fringe benefits contained in union agreements where such have been determined to prevail in a locality for a specified occupational group.

*(b) Provision for consideration of currently prevailing wage rates and fringe benefits. (1) Determinations will be reviewed periodically and where prevailing wage rates or fringe benefits have changed, such changes will be reflected in new determinations. In a locality where it is determined that the wage rate which prevails for a particular class of service employees is the rate specified in a collective bargaining agreement or agreements applicable in that locality, and such agreement or agreements specify increases in such rates to be effective on specific dates, the prior determinations would be modified to reflect such changes when they become effective, and the revised determinations would apply to contracts entered into after the modification * * *." (Emphasis supplied.)

In view of the foregoing we must conclude 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 other words, only the rates included in the specifications upon which bids or proposals are solicited (or substituted by amendment prior to the opening of bids or proposals) pursuant to determinations of the Secretary of rates currently prevailing, have any legal effect during the life of a contract awarded on such solicitation. In this connection, while it is recognized that the correctness of a wage rate determination under the Service Contract Act is not open to review (see United States v. Binghamton Construction Co., 347 U.S. 171), we do not construe the principle of that case to be applicable to a determination which on its face does not purport to determine wage rates actually prevailing at the time of the determination. A copy of this letter has been forwarded to the Secretary of Labor. Sincerely yours,

R. F. KELLER,
(For the Comptroller General

of the United States). Mr. THOMPSON. Mr. O'Hara.

Mr. O'HARA. Mr. Chairman, I have several questions that I would like to ask the witness, but first let me clarify one point the witness made. On page 6 of the statement, Mr. Chairman, with respect to Star Route, the witness said, "both the Department of Labor and our Office are giving further consideration at this time to appropriate applications of the provisions of the Service Contract Act to Star Route Contracts.”

The previous witnesses, both of the two previous witnesses have referred to letters they have received from Mr. Robert M. Moran, Administrator of Workplace Standards, indicating to them it was the intention of the Department to establish a separate category of truck drivers, to wit, Star Route drivers to be used for the basis for making these determinations.

I have a letter to me dated March 1, 1971, from Mr. Moran and would like to read a portion of it in the record.

Secretary Hodgson sent you a copy of the preliminary report issued on August 31, 1970 by a team from the General Accounting Office. The report dealt specifically with wage determinations issued under the service contract art for postal service mail haul drivers.

The GAO recommended that such wage determinations be based on wage rates and fringe benefits paid to mail haul drivers as a separate class rather than on wage rates and fringe benefits paid to truck drivers generally.

The postal service supports this approach and we have received through the GAO a copy of a letter dated December 28, 1970 from Postmaster General Blount to this effect. This matter has been carefully reviewed, taking into account the views of the GAO and Postmaster General, and it has been decided to revise our procedures for issuing service contract wage determinations to treat as a separate class all mail haul drivers and other truck drivers engaged in performing duties similar to those performed by drivers on mail haul contracts.

We are now engaged in working out the details of this change.

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