Wage Rates Determined by DOL on Mail Hauling Services

Published by the Government Accountability Office on 1971-04-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                    United       States General Accounting                   Office
                                                   Washington,  D,C, 20548

                                                                          FOR RELEASE ON DELIVERY
                                                                          Expected at 1O:OO a.m. EST
                                                                          April 2, 1971

                                               STATEMENT OF
                                                BEFORE THE
                         *.-           SPECIAL SUBCOMMITTEE ON LABOR
                                 HOUSE COMMITTEE ON EDUCATION AND LABOR
                                             WAGERATESDETERMINEDBY THE
                                 DEPARTMENT OF LABOR ON MAIL HAULING SERVICES
                                    UNDERTHE SERVICE CONTRACTACT OF 1965
                                    A LEGAL DECISION OF SEPTEMBER19, 1969,
                                  RENDEREDBY THE COMPTROLLER GENERALTO THE
                                SECRETARYOF THE AIR FORCE(49 COME',GEN, 186)

               Mr, Chairman            and Members of the Subcommittee:

               We are pleased             to appear         here     today,     at your      request,        to discuss

      questions         we have raised             concerning           the Department          of Labor's         determina-

      tions     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 wageescalationprovisions                             in wage determina-

      tions     for     service        employees          at the Vandenburg            Air   Force      Base,      Santa

      Barbara         County,      California,

               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 $2,500--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              classes           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     D 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      in-

volving          the hiring         of drivers,                are not           covered0         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)          0 Wage determinations                           that     have been issued                   generally           pro-

vide      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          i

type      of service             or merchandise                carried,              For long haul               drivers,          the Depart-

ment established                  minimum rates                and benefits               derived         from rates            and benefits

provided          by the National                 Master         Freight           Agreement        of the             International               Brother-

hood 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 driver:&              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                 costs0        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           attributable                to the Depart-

ment 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 state-

ment 0 As a possible                       solution             for         overcoming           inequities                in the bases             used       1
for     determining              wage rates              for     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         of    service         employees,            we

noted      that      there         were      important                differences               in the operations                    and qualifi-

cations         of drivers            involved            in mail              hauling          and those                involved        in general

freight         hauling.            These differences                          include          the type            of vehicle            driven,


                                    0                                                                  0

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              slso     indicated           that      there       are no

classes            of truck        drivers         reasonably              comparable         to the Star Route                      driver.s.
         We also           noted        that     the Department’s                   policies:      an@ proced&ei                     for        the     :L
                                                                                          I     i:            .
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            0 For example,                 separate             service         surveys       have been made by BLS

in certain             areas       to assist          the Department                    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.

         To date           we have not as yet                      received         the Department’s                 final       reply           to

our August             1970 letter,              however,           we have met with                   Department            representa-

tives      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        reviewD          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                    applica-

tion     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       competi-

tive      procurement           process,         and the         expenditure              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               to our Office             that         the Davis-Bacon                    Act wage rate          deter-

mination        included          in an Army Engineer’s                        invitation           for      bids      on a construc-

tion      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            his     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 Camp.

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 D 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 solicita-
           tion 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 ?‘lay 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                   called      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


         On July       12,    1968,      we asked     the Solicitor                of Labor     to submit        any

comments he might               want     us to consider             in reaching          a decision      on the

Assistant          Postmaster      GeneralOs         request,              No such comments had been

received          by September         4, when the Assistant                   Postmaster      General        advised

the     Comptroller          General      as follows:

         “We have been informally     advised by the Department    of Labor
          that it is withdrawing     all wage determinations   which in-
          cluded wage escalation     provisions   and that none would be
          included  in future   determinations  .‘I

         We again       wrote     to the      Solicitor            of Labor        on September        12,    1968,

advising          him of the Assistant              Postmaster             General’s      advice      of September            4, and

concluded          as follows:

                I’* * *we interpret     the advice from the Post Office
         Department     as being indicative     of a determination     by the
         Department     of Labor to withdraw     all current    wage rate
         determinations      issued to any Government agency under the
         Service    Contract    Act which included     wage escalation    provi-
         sions,    and not to include      such provisions   in any future
         wage rate determination        issued thereunder.

                “If this interpretation      is correct,      it would appear
         that no further    consideration      by this Office       need be given
         to the propriety     of including     escalation     provisions   in
         wage rate determinations,        in which event your reply        to our
         letter    of July 12 will     be unnecessary.      In the event, how-
         ever, that such interpretation         is incorrect,       please advise
         us to that effect *‘I

         Since      we received          no reply     to our         letter        of September        12,    1968,      we

assumed that           wage escalation           provisions               had been discontinued              on a Govern-

ment wide          basis*       Almost     a-year     later,         however,          the Department         of the Air

Force      asked for         a decision       on the propriety                 of including        a wage determination

dated      July     16, 1969,      in an invitation                 for     bids    on a food      service      contract        at

Vandenburg              Air    Force         Base.       That        wage determination                     set      out “current”

rates       of pay applicable                    to the period                July         16 through          September           30,      1969,

and substantially                     higher         rates      effective               October      1, 1969.

           Our decision               of September              19, 1969,               to the Secretary               of     the Air         Force,

is     published              at 49 Comp. Gen.                 186 and a copy is attached                             to my statement.

That       decision           makes reference                 to our previous                    decision          under      the Davis-Bacon

Act      (47      Comp. Gen. 754)                to the effect                   that      wage rate         determinations                 under

the act           are      to be based on the prevailing                                 rates      existing          at    the time           this

contract            is advertised.

           Our decision               to the Air             Force        then     expresses              the view         that    the

“prevailing                rates”      provision             of the Service                 Contract         Act      was intended              to

have       the same effect                   as the “prevailing                    wages”         provision           of    the Davis-Bacon

Act.        It      supports          that     conclusion             by reference                to a portion              of the       legis-

lative           history        of    the Service             Contract            Act.

          Finally,             the decision            points         out     that         Labor’s         own regulations               imple-

menting           the act        contemplate             that        wage rate             determinations              should       only

reflect           rates       which      are    in effect             at    the time             the determination                 is made.

Where union                agreements          specify          increased               rates     to become effective                    on

specific           future        dates,        and such rates                 continue            to be the prevailing                     rates,

the regulations                  provide        that         prior        determinations               are     to be modified                 to

reflect           such changes               when they          become effective,                    and the          revised       deter-

minations            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.                     Cur 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 dis-

cussions           within       the Department                of Labor       resulting              from our       September               19
decision           and states          that      determinations              under         the Davis-Bacon               Act         do not

incorporate            f’ixed     f’uture        increases            in wage rate            determinations.                   It        con-

cludes       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+ide                  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              provi-

sions      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 ques-

tion      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.

                                                                         - 10 -
         Third,      Labor’s     original       decision        not to include          escalation        provi-

sions     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.

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