LEGAL ANALYSIS OF THE JUDICIAL REVIEW PROPOSAL CONTAINED IN H.R. 9590 (INTRODUCED JANUARY 8, 1964)

H.R. 9590, a bill introduced by Representative Goodell on January 8, 1964, proposes to amend the Davis-Bacon Act by providing judicial review of wage predeterminations issued by the Secretary of Labor and of enforcement proceedings under this act. This bill has been referred to the House Committee on Education and Labor which has obviously had no time to give it consideration.

It should be noted that the House Committee on Education and Labor reported the fringe benefits bill on May 9, 1963, and that at no time during 1963 did Congressman Goodell or any other Congressman introduce a judicial review bill for consideration by the committee. Actually, Congressman Goodell did introduce a bill on April 4, 1962, to provide for judicial review of Davis-Bacon Act administrative actions but his recent bill of January 8, 1964, contains so many changes in the 1962 bill that it is clear that the original bill is not considered an appropriate vehicle for consideration of the amendment.

The delay in formulating a legislative measure for committee consideration is an index to the difficulty and intricacies of the subject matter.

The analysis of H.R. 9590 which is set forth below demonstrates clearly that the decision by Congress on the matter of judicial review should be made only after hearings on a specific measure at which testimony can be secured from experts in the contracting agenices, the Comptroller General's Office, the Department of Labor and from industry and labor. The complexities of Government contract bidding and enforcement procedures are such that unwise decisions on the floor of the House can be avoided only by appropriate study of specific proposals, through the time-honored method of hearings before the appropriate House subcommittee and a report by the full committee.

H.R. 9590, is a substantial revision of the proposals contained in H.R. 11115, introduced by Representative Goodell on April 4, 1962. Under the earlier bill, the review procedure would have been initiated by a charge that a contractor paid wages less than those stipulated in his contract and less than those found prevailing under the act. Thereafter, the Secretary of Labor was to investigate the charge, hold a hearing, issue findings, and determine wages owing by the contractor. Persons aggrieved by such a decision could have sought review from a U.S. court of appeals, which was specifically authorized to stay any action under sections 2 and 3 of the act, pending completion of judicial review. The proposal contained in H.R. 11115 was defective in several respects in terms of the orderly operation of the act and the relative position of fair and unfair contractors. H.R. 9590 appears to be an attempt to avoid the problems arising from the earlier judicial review proposal. For the reasons discussed below, however, the new bill is subject to the same criticism.

PROVISIONS OF THE BILL

H.R. 9590 provides two avenues for judicial review. Section 1 of the bill would add a new section 8 to the act permitting "Any person (defined to include contractors, subcontractors, bidders, prospective bidders, labor organizations, employees, prospective employees, and public and private contracting agencies), aggrieved by a wage determination" to initiate an action in a U.S. district court against the Secretary of Labor and the contracting agency to "enjoin the application of such wage determination to the invitation for bids for the advertised contract and to determine the prevailing wage lawfully applicable thereto." Such action must be commenced within 15 days after the publication of the advertised specifications which contain the challenged wage determination. The district court is empowered to issue a temporary restraining order relieving all bidders from stipulating that they will comply with the determination being challenged, provided, that the court "may" require any bidder to whom the contract is awarded to post an indemnity bond to guarantee the fulfillment of any wage obligation if the challenged determination is sustained. The court is then charged with the duty of deciding whether the challenged determination was in accordance with law, and, if not, to establish the prevailing wage. Thereafter, review is provided to the appropriate U.S. court of appeals and the U.S. Supreme Court.

Section 2 of H.R. 9590 would amend section 7 to provide that whenever it is claimed that a contractor or subcontractor has failed to pay the prevailing wage

rate, the contracting agency is to investigate the claim and issue a written ruling on the claim. No penalties, including the withholding of funds from the contractor or subcontractor, can be imposed prior to such ruling. Any contractor or subcontractor aggrieved by such a ruling may bring a de novo action in the U.S. district court where the violation is alleged to have occurred. The district court, which may stay any penalty pending the completion of judicial review, is to determine whether the contractor or subcontractor has failed to comply with his obligations under the wage provisions of his contract. Similarly, employees aggrieved or adversely affected by the ruling of the contracting agency may seek review in a U.S. district court. While employees may maintain such actions on behalf of other employees similarly situated, only those employees who give their consent in writing may become a party plaintiff to any action brought under this section. It may be noted here that this limitation is entirely contrary to the recognized concept of a class action. In practice, this provision will operate in discriminatory fashion, since some employees will recover additional sums owing to them under the law, while others, entitled to exactly the same sums, will not receive them because of their failure to consent in writing to become a party. Following the decision of the district court, review is provided to the U.S. court of appeals and the Supreme Court. Although it appears that section 7 is intended to be limited to enforcement, there is no explicit statement in the bill that the validity of wage predeterminations cannot be challenged in the judicial proceedings related to the enforcement issue. The language of section 7(d) is of such ambiguous nature that it is possible that the validity of a wage predetermination could be challenged in a section 7 case. The answer to such question would not be known, under the present language of the bill, until a judicial test case had been completed.

EXISTING ENFORCEMENT PROCEDURES AND THE EFFECT OF THE BILL

To understand the detrimental effects upon the operation of existing law which would result from the enactment of H.R. 9590 it is necessary to review briefly the present enforcement machinery contained in sections 1 to 3 of the act. Section 2 presently provides that, upon a finding by the contracting officer involved that any laborer or mechanic is being paid a rate of wages less than that required to be paid by the contract. The Government may terminate the contractor's right to proceed with the work involved, to complete the work through other means and to recover from the contractor any existing costs occasioned by his violation. Section 3, read in conjunction with section 1, authorizes the Government to withhold from a contractor so much of any accrued payments as may be necessary to pay to his employees the difference between the rate of wages required by the contractor to be paid them and the rates actually received by them, and authorizes the Comptroller General of the United States to pay directly to the employees affected the wages so withheld. In addition, the Comptroller General is authorized to distribute to all Government departments a list of contractors whom he has found to be in violation, and such firms may receive no further contracts for a period of 3 years from the date of their appearance on the list.

The effectiveness of these enforcement procedures arises from the fact that, with the exception of the ineligible list, come into play while the work is still in progress. Under both of the Goodell bills, however, provision is made for the delay of these enforcement procedures until all administrative and judicial appeals have been exhausted. Under proposed section 7, the contractor can wait until a claim of violation is made, and then proceed to an investigation before the contracting agency. Thereafter, he may start all over again by bringing a de novo action in the U.S. district court and again follow the appeal route up through the Supreme Court of the United States. And, during all of this lengthy period, the withholding order of the Government may be stayed by judicial order. Under proposed section 7, it is specifically provided that no penalties, "including the withholding of funds from the contractor or subcontractor." can be imposed prior to the ruling of the contracting agency. Further, upon initiation of a de novo action in a U.S. district court, the court has authority to stay any penalty imposed "pending the completion of judicial review." Thus, a contractor receiving an adverse ruling could seek-and in most situations obtain-a stay of the well-established and necessary withholding procedure. Since, as noted above, no presumption of validity can attach to the Secretary's determination based on prior administrative rules, practices, etc.—which would ordinarily serve as sup

port for the administrative action challenged and thus as a defense to a request for a stay-the likelihood that the contractor will be able to stay this essential enforcement procedure is further enhanced. In effect, the admitted danger has been disguised, but not removed.

As noted above, the provision for an indemnity bond is made permissive by use of the word "may." In view of the not uncommon business occurrence of bankruptcy of contractors, such a provision cannot be fully effective to protect employees covered under the act unless it is made mandatory. In any event, even a fully effective indemnity bond for purposes of employees' protection does not mitigate against the damage to our fair bidding system, as described more fully below.

JUDICIAL REVIEW IN ENFORCEMENT PROCEEDINGS IS NOW AVAILABLE

It should also be noted that, at the present time, contractors who feel aggrieved by the enforcement procedures of the Davis-Bacon Act have the right of judicial review from the Court of Claims. Generally, this review arises through an action by the contractor to recover from the Government wages which he was required to pay in excess of those specified in his contract. In such a suit, the subjects open to review include whether the Government acted properly in withholding funds, whether the Government is responsible for increased labor costs to the contractor, whether the affected employees performed work which would place them in the classification requiring the increased payments to which the contractor objects, the amount of time worked by employees in the pertinent classifications, etc. Thus it is not accurate to say that a contractor has no right of judicial review under present operation of the act. And, the present form of judicial review in no way impairs the effectiveness of the statutory enforcement procedures.

DAMAGE TO OUR FAIR BIDDING SYSTEM

The proposals in H.R. 9590 will also tend to destroy or weaken the contract bidding and awarding procedures as such. Contractors are invited by the bill to base their bids or rates less than those predetermined by the Secretary of Labor as prevailing, pay their laborers and mechanics wages at such lower rates and seek review of the determination through the proposed judicial procedures. Even the most scrupulous contractor may be forced to take a "business gamble" on the rate to keep himself in a competitive position. Those even vaguely familiar with the process of appellate litigation realize that 3 or 4 years may pass before such an appeal procedure would be completed. Indeed, in this respect, the new bill is even worse than the old one which provided for initial court review in a court of appeals. Under H.R. 9590, however, the first step of judicial review begins with a district court determination. Whatever the results of the review proceedings, the contractor will have obtained his contract on a cost basis different from his competitors who used the specified prevailing wage rates in figuring and submitting their bids. The judicial review proposal thus operates in a manner contrary to a full and fair system of fair and competitive bidding, and places fair bidders who are operating in a manner consistent with the law at a disadvantage.

Obviously no final judicial determination can be made of the validity of DavisBacon Act predeterminations prior to the opening of bids in the particular Government contract.

The danger to a fair bidding process and to the orderly administration of the Davis-Bacon Act can be brought into sharp focus by a brief examination of the legislative development of the act. The 1931 act required only that advertised specifications for covered contracts contain a provision that the wages paid "shall not be less than the prevailing rate of wages ***." The act contained no provision for a system of wage predeterminations or for effective enforcement machinery. Almost immediately following passage of the act, many contractors, as well as the Comptroller General of the United States, recognized the danger of a system of postdeterminations rather than predeterminations.

An amendment to the act was passed in 1932 which, to establish a system of wage predeterminations, required a provision "stating the prevailing rate of wages as determined by the Secretary of Labor." [Emphasis added.] In addition, the amendment added enforcement provisions. (See Senate report to accompany S. 3847, 1932, p. 1.) The act was vetoed by President Hoover. During the hearings which preceded the 1932 amendment, representatives of the National Association of Builders Exchanges and the Associated General Contrac

tors supported the amendment. The Associated General Contractors, in a letter by Mr. Walbridge to President Hoover, stated that:

"We ask only that the officials who are now charged with making decisions as to what constitutes the prevailing wage to exercise the same function previous to the taking of bids, thereby placing all bidders on a parity and again establish competitive bidding on a known basis [italics supplied.] (Legis. Hist. DavisBacon Act, p. 47).

In a letter to Congressman Connery, Mr. Harding of the Associated General Contractors stated that it would be for the good of all that prevailing wages should be stipulated and made a part of the advertisement, specification, and contract. Congressman Mead of New York urged passage of the amendment as protection for workers and builders and to the end that "all contractors would have an equal and fair opportunity."

Congressional hearings in 1933 and 1934 added further evidence of the need of enforcement machinery and a system of wage predeterminations. These hearings led to passage of the Copeland (Anti-Kickback) and False Statement Acts of 1934, and the Davis-Bacon Amendments of 1935. The 1935 amendment added the requirement that the advertised specifications contain a provision stating the minimum wage to be paid "which shall be based upon the wages that will be determined by the Secretary of Labor ***"

Thus, for the first time, a system of wage predeterminations by the Secretary of Labor became a part of the law. The purpose of the amendment in this regard is clearly stated by the Senate and House reports accompanying S. 3303 at page 7:

"To provide for a predetermination of the prevailing wage on contracts so that the contractor may know definitely in advance of submitting his bid what his approximate labor costs will be * [Emphasis added.]

Reduced to its fundamentals, the proposals embodied in H.R. 9590 will have the effect of returning the law and conditions thereunder to the status existing prior to the 1935 amendments; a status which representatives of industry and the Congress recognized were not desirable or feasible. In operation, these proposals would strip the act's enforcement machinery of its effectiveness and would do away with the system of wage predeterminations. The ideas underlying these proposals are neither new nor feasible. They have been tried, and abandoned nearly 30 years ago.

Labor unions are in favor of all valid procedures which assure proper compensation for employees. We must point out, however, that the availability of judicial review proceedings to labor organizations and employees and prospective employees (all of which is probably necessary from a constitutional point of view if there is to be judicial review for employers) would add a further uncertainty to the bidding process. Even if all contractors bidding on a particular job use the Secretary's predetermination and do not challenge same in court, the challenge may come from the employee side to secure a higher rate.

The inclusion of the judicial review amendment may have the effect of starting a wave of litigation comparable to the flood of wage-hour suits preceding the Portal-to-Portal Act.

The backlog on our already overburdened courts, and particularly the U.S. district courts, is a fact well-known to lawyers and lawmakers alike. Yet, the proposals embodied in H.R. 9590 would add substantially to the burdens of these district courts-which have little knowledge of or experience with the subject matter involved-and, in the process, serve to increase the delay in a final determination in ever-increasing fashion. The problems of the district courts under both proposed sections is made even more difficult by the fact that the actions before them are either specifically made a de novo action or are in the nature of such an action

Specifically, under proposed section 8, the district court, if it finds that the wage predetermination of the Secretary of Labor was not made "in accordance with law" must "determine the prevailing wage" itself, and, in the course of its review. the court is not permitted to accord any presumption of validity to the Secretary's determination by reason of any prior administrative finding, action, praetice, policy or rule. Under proposed section 7, the action is specifically designated as a de novo action, and, once again, no presumption of validity can be accorded the administrative agency's finding of violations. The courts are thus invited to second guess the Secretary of Labor and the contracting agencies and to substitute their judgment for that of administrative officers, even though such judgments may be supported by substantial evidence in the record. It is to be noted in

this regard that under proposed section 7(b) of Representative Goodell's original bill, H.R. 11115, the findings of the Secretary as to the facts were to be conclusive if supported by substantial evidence which is the more customary provision in the relationship of administrative agencies to courts.

If only a small percentage of the some 5 million individual determinations issued yearly were subjected to this proposed procedure, the magnitude of the increased burden on our courts would be staggering. By subjecting the effectiveness of the existing enforcement machinery under the act to a cumbersome system of continual delay, the proposal would have as its end result the emasculation of that enforcement machinery.

CONCLUSION

There is no need for a new procedure for judicial review of enforcement cases because the present Court of Claims judicial procedure is entirely adequate to remedy any injustices caused by the contracting agencies to contractors.

It is not possible to have predeterminations and the judicial review of such predeterminations proposed by H.R. 9590, because no judicial review proceeding could be processed to final judgment of the Supreme Court or even a circuit court of appeals before the bids are submitted on a particular Government construction contract.

(Whereupon, at 11:10 a.m., the subcommittee recessed, subject to call of the Chair.)