oversight

Need for Improved Administration of the Davis-Bacon Act Noted Over a Decade of General Accounting Office Reviews

Published by the Government Accountability Office on 1971-07-14.

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

Need For Irnprov
Of The IDavis-
Noted 0
General
Department   0% Labor




BY THE COMPTROLLER   GENERAL
OF THE UNITED STATES
               COMPTROLLER        GENERAL     OF      THE      UNITED      STATES
                                WASHINGTON.    D.C.         20548




    B- 146842




/   To the     President        of the Senate   and the
    Speaker      of the      House of Representatives

            This report    presents       our findings      concerning  the
    need for improved       administration           of the Davis-Bacon
    Act by the Department          of Labor       noted over a decade     of
    General     Accounting    Office     reviews.

             Our review   was made pursuant                               to the Budget    and
    Accounting     Act, 1921 (31 U.S.C.  53),                           and the Accounting
    and Auditing     Act of 1950 (31 U.S.C.                             67).

              Copies   of the      report     are being sent to the Director,
    Office     of Management           and    Budget,  and to the Secretary                      of
    Labor.




                                                                Comptroller         General
                                                                of the United       States




                      50 TH ANNIVERSARY                      1921-       1971
1 ,
I
      COMPTROLLER
                GENEmL'S                     NEED FOR IMPROVEDADMINISTRATION OF THE
      REPORT
           TO THE CONGRESS                   DAVIS-BACONACT NOTEDOVERA DECADEOF
                                             GENERALACCOUNTINGOFFICE REVIEWS
                                             Department of Labor B-146842


      DIGEST
      ------

      WHYTHEREVIEWWASMADE
            In a series of reports issued between June 1962 and August 1970, the
            General Accounting Office (GAO) informed the Congress of the manner in
            which the Department of Labor--under the Davis-Bacon Act and related
            legislation--had      made minimum wage rate determinations    for selected
            mcjor federally     financed construction   projects.   The reports pointed
            out that the minimum rates prescribed by the Department were signifi-
            cantly higher than the prevailing       wages in the areas and had substan-
            tially    increased the costs of construction     borne by the Federal Govern-
            ment.

            Because of the large volume of wage determinations    made by the Depart-
            ment--about 25,900 in fiscal year 1970--and the substantial      dollar amount
            of federally   financed construction contracts--about  $28 billion     in 1970--
            GAO sought to identify   the basic shortcomings in the wage determination
              recess and to recomnend corrective  actions beyond those taken by the
            i--t
              epar ment in response to GAO's prior reports.

            The principal    objective of the Davis-Bacon Act was to protect communi-
            ties from the depressing influences of lower wage rates at which work-
            men might be hired elsewhere and brought into the communities on con-
            struction   work. This objective was to be accomplished through contract
            conditions    requiring payment of not less than minimum wages. These min-
            imum wages would be based on wages prevailing    for corresponding classes
            of laborers and mechanics employed on projects of a character similar      to
            the contract work in the community in which the work is to be performed.

      FINDINGSANDCONCLUSIONS
 I
            GAO's reviews.made over the past decade covered wage rate determinations
 I          for 29 selected construction  projects,  including military     family hous-
            ing, Iow-rent public housing, federally    insured housing, and a water
            storage dam. GAO estimated that, as a result of minimum wages' being
            established at rates higher than those actually    prevailing     in the area
            of the project,  construction costs increased 5 to 15 percent.        This
            amounted to about $9 million  of the total $88 million     construction    costs
            involved in these projects.   (See p. 9.)


       Tear Sheet
                                                                                    i




Higher wage rates not only increase the costs borne by the Federal Gov-             !
ernment but also can adversely affect the economic and labor conditions in          1
the area of the project and in the country as a whole.   (See p. 9.)                I
                                                                                    I
The inflationary    impact of minimum wage determinations   was highlighted
by the recent action of the President of the United States.        He tempo-        I
rarily   suspended the Davis-Bacon Act and related legislation     because of       I
                                                                                    I
the severe inflationary    pressures existing  in the construction    industry.     I
(See p. 11.)                                                                        I
                                                                                    I
The concept of the legislation     was that payment of prevailing wages would       /
preclude the depressing of local wages but would not be inflationary     and        i
therefore would not bring about unreasonable increases in the cost of               I
federally  supported construction.                                                  t
GAO believes that these objectives     can and should be achieved through a         I
                                                                                    I
more reasonable implementation     of the act and by an improvement in the          I
wage determination    process in several respects.      In particular, explicit     i
guidelines  and criteria    are needed on the principal    elements of adequate     I
wage determinations.                                                                I
                                                                                    I
                                                                                    I
The Department    has to identify     the classifications   of workers for which    I
determinations    should be made. In some cases, the Department applied             I
the wage rates    of one classification      to another classification    without   I
investigating    the rates paid to each classification.          (See p. 14.)       I
                                                                                    I

In defining the geographical area for which prevailing   wages were to be
determined, the Department, in some cases, has gone beyond the county
where the project was located and applied rates from other, sometimes
nonadjacent, counties or from another State having different   labor con-
ditions.    (See p. 16.)

In many cases, the Department has not distinguished       between different
types of construction,    such as commercial and residential,     although sig-
nificant variances exist between labor rates applicable       to these two
types of construction.      Often wage determinations   have applied the higher
rates for commercial-type     building construction   and have disregarded
the rates for residential-type       construction.  (See p. 17.)
The Department placed undue emphasis on wage rates established         in prior
determinations     or rates included in collective-bargaining     agreements,
without verifying     whether such rates were representative     of the rates
prevailing    on similar   construction in the area. These practices could
be attributed    to the fact that the Department had not compiled sufficient
up-to-date and accurate information      on prevailing    basic wages and fringe
benefits.     (See PPg 20 and 21.)
The Department's wage determinations   do not generally prescribe separate              I
                                                                                        I
rates for helpers and trainees.    GAO believes that, where local labor                 I
practices recognize these categories , separate rates would assist in                   I
lowering construction  costs and encourage contractors  to hire semiskilled             i
and untrained persons on Government financed projects.    Such a procedure              I
                                                                                        I

                                     2                                                  I
                                                                                        I
                                                                                        I
                                                                                        I
I
I
I   .
             could'be- particularly   desirable   in areas of hard-core         unemployment,
             (See p. 26.)

             To obtain up-to-date wage information-- including data on wage patterns
             and labor practices in specialized     industries--the   Department needs the
             cooperation of the Federal agencies which finance construction        projects
             subjectto    minimum wage determinations.      Efforts have been made recently
             by some of these agencies to provide the Department with needed wage
             data. Such cooperation would be increased materially        by more formalized,
             continuing working relationships     between the Department and the agencies.
             (See p. 29.)


        RECOMdENDATIONS OR SUGGESTIONS
                                          1
             The Secretary    of Labor‘should:

               --Formulate explicit  guidelines and criteria          covering    the principal
                  elements of an adequate wage determination.

               --Implement improved procedures for collecting     needed data on basic
                  wages and fringe benefits.    To supplement its own efforts,   the De-
                  partment should establish with the principal    Federal agencies financ-
                  ing construction   contracts a formalized and continuing working re-
                  lationship   for the exchange of pertinent wage information.

               --Require that, where appropriate and in accordance with labor prac-
                  tices, helper and trainee classifications    be included in the De-
                  partment's wage determinations.     (See p. 34.)


        AGENCY ACTIONS AND UNRESOLVED ISSUES

             By letter dated April 2, 1971, the Assistant           Secretary of Labor for Ad-
             ministration    informed GAD that the Department        had no comments to add to
             those made in response to prior GAO reviews.             (See list in app. I.)   He
             assured GAO that the Department was conscious           of the need for continu-
             ing its efforts     to find a practical solution       to the accurate predeter-
             mination of prevailing      wage rates.

             In corenenting on GAO's report to the Congress of August 12, 1970, the
             Department said it would seek to improve its wage determinations  by

                --more accurate determinations      of prevailing      wage rates for        residen-
                   tial construction;

                --more onsite surveys contingent      upon its      budgetary    resources     and avail-
                   able field staff; and


         Tear Sheet
     --extensive    revisions    of the regulations,   to clarify    distinctions'be-       I
        tween different     types of construction    and to facilitate      more adequate   1
        collection   of re'levant wage data.      (See app. IV.)                            I
                                                                                            I

MATTERS
      FORCOiWl?E?Z4T~OA7
                     BY THECONGRESS
   The Congress may wish to consider a revision of the Davis-Bacon Act to
   increase the minimum contract cost (presently $2,000) which is subject
   to wage determination.    GAO be'lieves that an amount between $25,000 and
   $100,000 would be more representative     of present-day costs of construc-
   tion projects.   GAO believes also that an increase in the minimum con-
   tract cost would substantially    reduce the number of wage determinations
   to be issued by the Department of Labor and thereby lessen the adminis-
   trative  burden imposed on it (and on the contracting        parties) without
   appreciably affecting  the wage stabilization     objectives     of the act.
   (See p. 36.)




                                      4
                          Contents
                                                                 Page
DIGEST                                                             1
CHAPTER

      1    INTRODUCTION                                           5
               Legislative   authority                            6
               Wage determinations                                7
      2    EFFECTS OF IMPROPERWAGEDETERMINATIONS                  9
               Increased cost of federally       financed
                  construction                                    9
               Possible effect    on competition                 11
               Inflationary    impact                            11
   3       NEED FOR IMPROVEDPROCEDURESIN WAGE
           DETERMINATIONS                                        13
               Elements of a wage determination                  13
               Data base for determining      prevailing
                 wage rates                                      20
               Use of 30-percent       rule                      22
               Determination      of fringe benefits             25
               Helper and trainee classifications          in
                 wage determinations                             26
               Potential    for improving collection      of
                 wage data                                       28
              Cooperation      with Federal contracting
                 agencies                                        29
              Conclusion                                         34
              Recommendations to the Secretary          of La-
                 bor                                             34
  4        PROPOSEDREVISION OF THE DAVIS-BACON ACT               36
              Contract   cost subject to minimum wage
                determinations                                   36
              Matter for consideration   by the Congress         37
APPENDIX

  I        General Accounting Office reports  to the
             Congress on reviews of wage rate determi-
             nations                                             41
APPENDIX                                                     Page

  II       Analysis of wage determinations  issued dur-
             ing fiscal  years 1965 and 1969 for proj-
             ects costing under $100,000 in selected
             areas                                           42

III        Letter dated April 2, 1971, from the Depart-
             ment of Labor to the General Accounting
              Office                                          43

  IV       Letter dated October 9, 1970, from the De-
             partment of Labor to the General Account-
              ing Office                                      44

       V   Principal   officials  of the Department of La-
              bor having responsibility   for determina-
              tions of wage rates discussed in this re-
              port                                            46

                            ABBREVIATIONS

FHA        Federal   Housing Administration

GAO        General   Accounting     Office

GSA        General   Services     Administration

HUD        Department   of Housing and Urban Development
COMPTROLLER
          GENEmL'S                   NEED FOR IMPROVEDADMINISTRATION OF THE
REPOR?
     TO TRECONGRESS                  DAVIS-BACONACT NOTEDOVER A DECADEOF
                                     GENERALACCOUNTINGOFFICE REVIEWS
                                     Department of Labor B-146842


DIGEST
------

WETTEEREVIEWWASM4DE
    In a series of reports issued between June 1962 and August 1970, the
    General Accounting Office {GAO) informed the Congress of the manner in
    which the Department of Labor--under the Davis-Bacon Act and related
    legislation--had      made minimum wage rate determinations   for selected
    major federally     financed construction   projects.   The reports pointed
    out that the minimum rates prescribed by the Department were signifi-
    cantly higher than the prevailing       wages in the areas and had substan-
    tially    increased the costs of construction     borne by the Federal Govern-
    ment.

    Because of the large volume of wage determinations   made by the Depart-
    ment--about 25,900 in fiscal year 1970--and the substantial     dollar amount
    of federally financed construction  contracts--about  $28 billion    in 1970--
    GAO sought to identify  the basic shortcomings in the wage determination
    process and to recommend corrective  actions beyond those taken by the
    Department in response to GAO's prior reports.

    The principal    objective of the Davis-Bacon Act was to protect communi-
    ties from the depressing influences of lower wage rates at which work-
    men might be hired elsewhere and brought into the communities on con-
    struction   work. This objective was to be accomplished through contract
    conditions    requiring payment of not less than minimum wages. These min-
    imum wages would be based on wages prevailing    for corresponding classes
    of laborers and mechanics employed on projects of a character similar      to
    the contract work in the conanunity in which the work is to be performed.


FINDINGSANDCONCLUSIONS
    GAO's reviews made over the past decade covered wage rate determinations
    for 29 selected construction  projects,  including military     family hous-
    ing, low-rent public housing, federally    insured housing, and a water
    storage dam. GAO estimated that, as a result of minimum wages' being
    established at rates higher than those actually    prevailing     in the area
    of the project,  construction costs increased 5 to 15 percent.        This
    amounted to about $9 million  of the total $88 million     construction    costs
    involved in these projects.   (See p. 9.)




                                     1
Higher wage rates not only increase the costs borne by the Federal Gov-    '
ernment but also can adversely affect the economic and labor conditions in
the area of the project and in the country as a whole.   (See p. 9.)

The inflationary    impact of minimum wage determinations   was highlighted
by the recent action of the President of the United States.        He tempo-
rarily   suspended the Davis-Bacon Act and related legislation     because of
the severe inflationary    pressures existing  in the construction    industry.
(See p. 11.)
The concept of the legislation     was that payment of prevailing wages would
preclude the depressing of local wages but would not be inflationary     and
therefore would not bring about unreasonable increases in the cost of
federally  supported construction.

GAO believes that these objectives     can and should be achieved through a
more reasonable implementation    of the act and by an improvement in the
wage determination    process in several respects.     In particular, explicit
guidelines  and criteria   are needed on the principal    elements of adequate
wage determinations.

The Department    has to identify     the classifications   of workers for which
determinations    should be made. In some cases, the Department applied
the wage rates    of one classification      to another classification    without
investigating    the rates paid to each classification.          (See p. 14.)
In defining the geographical area for which prevailing   wages were to be
determined, the Department, in some cases, has gone beyond the county
where the project was located and applied rates from other, sometimes
nonadjacent, counties or from another State having different   labor con-
ditions.    (See p. 16.)

In many cases, the Department has not distinguished       between different
types of construction,    such as commercial and residential,     although sig-
nificant  variances exist between labor rates applicable      to these two
types of construction.      Often wage determinations   have applied the higher
rates for commercial-type building construction       and have disregarded
the rates for residential-type     construction.    (See pm 17.)

The Department placed undue emphasis on wage rates established-in          prior
determinations     or rates included in collective-bargaining     agreements,
without verifying     whether such rates were representative     of the rates
prevailing    on similar   construction in the area. These practices could
be attributed    to the fact that the Department had not compiled sufficient
up-to-date and accurate information       on prevailing   basic wages and fringe
benefits.     (See PPa 20 and 21.)
The Department's wage determinations   do not generally prescribe separate
rates for helpers and trainees.    GAO believes that, where local labor
practices recognize these categories , separate rates would assist in
lowering construction  costs and encourage contractors  to hire semiskilled
and untrained persons on Government financed projects.    Such a procedure

                                     2
   could be particularly   desirable   in     areas   of    hard-core      unemployment.
   (See p. 26.)

   To obtain up-to-date wage information--including      data on wage patterns
   and labor practices in specialized   industries--the    Department needs the
   cooperation of the Federal agencies which finance construction       projects
   subject to minimum wage determinations.       Efforts have been made recently
   by some of these agencies to provide the Department with needed wage
   data. Such cooperation would be increased materially       by more formalized,
   continuing working relationships   between the Department and the agencies.
   (See p. 29.)


RECOMi'ENDATIONS
             ORSUGGESTIONS
   The Secretary   of Labor should:

     --Formulate explicit  guidelines and criteria              covering     the principal
        elements of an adequate wage determination.

     --Implement improved procedures for collecting     needed data on basic
        wages and fringe benefits.    To supplement its own efforts,   the De-
        partment should establish with the principal    Federal agencies financ-
        ing construction   contracts a formalized and continuing working re-
        lationship   for the exchange of pertinent wage information.

     --Require that, where appropriate and in accordance with labor prac-
        tices, helper and trainee classifications    be included in the De-
        partment's wage determinations.     (See p. 34.)


AGENCY
     ACTIONSANDUNRESOLVED
                       ISSUES
   By letter dated April 2, 1971, the Assistant              Secretary of Labor for Ad-
   ministration    informed GAO that the Department            had no comments to add to
   those made in response to prior GAO reviews.                (See list in app. I.)    He
   assured GAO that the Department was conscious               of the need for continu-
   ing its efforts     to find a practical solution          to the accurate predeter-
   mination of prevailing      wage rates.

   In commenting on GAO's report to the Congress of August 12, 1970, the
   Department said it would seek to improve its wage determinations by

     --more accurate determinations         of prevailing       wage rates       for residen-
        tial construction;

     --more onsite surveys contingent         upon its      budgetary      resources       and avail-
        able field staff; and
       --extensive    revisions     of the regulations,    to clarify    distinctions    be-
          tween different     types   of construction    and to facilitate      more ,adequate
          collection   of relevant wage data.         (See app. IV.)


MATTERS FOR CONSlDERATION     BY THE CONGRESS

     The Congress may wish to consider a revision of the Davis-Bacon Act to
     increase the minimum contract cost (presently $2,000) which is subject
     to wage determination.     GAObelieves that an amount between $25,000 and
     $100,000 would b  e more  representative    of present-day costs of construc-
     tion projects.    GAO believes also that an increase in the minimum con-
     tract cost would substantially     reduce the number of wage determinations
     to be issued by the Department of Labor and thereby lessen the adminis-
     trative  burden imposed on it (and on the contracting          parties) without
     appreciably affecting    the wage stabilization     objectives     of the act.
      (See p. 36.)
In some cases remedial   action   was taken   in response   to our--
        By letter     dated April 2, 1971, the Assistant        Secretary
for Administration,          Department of Labor, in commenting on a
draft of this report,          advised us that the Department was
conscious of the need for continuing           its efforts    to find a
practical      solution    to the accurate predetermination       of pre-
vailing    wage rates,        The Assistant  Secretary   stated, however,
that the Department had no comments to add to those made in
response to our previous reviews of wage determinations,
 (See app. III.>

LEGISLATIVE AUIHORITY

       Legislation    requiring    the payment of minimum wages to
laborers     and mechanics employed under federally           awarded con-
tracts    for construction      of public buildings    and public works
was first     adopted in the Davis-Bacon Act of 1931. This act,
as amended, requires        that the advertised     specifications    for
each contract      in excess of $2,000 to which the United States
is a party--for      construction,    alteration,    and repair of
public buildings      or public works--state      the minimum wages
to be paid to various classes of laborers            and mechanics.

      The act provides that the minimum wages be based on
wages determined by the Secretary         of Labor to prevail     for
the corresponding     classes of laborers      and mechanics employed
on projects    of a character     similar  to the contract    work in
the city,   town, village,      or other civil   subdivision   of the
State in which the work is to be performed.            The minimum
wage determination      includes the basic hourly rates of pay
and, since 1964, the amount of fringe-benefits            payments, if
=Y.
        The principal    objective    of the act was to protect        com-
munities     from the depressing influences         of lower wage rates
at which workmen might be hired elsewhere and brought into
the cormrunities      on construction    work,    This objective      was
to be accomplished through contract            conditions   requiring
payment of not less than minimum wages based on wages pre-
vailing    in the communities to be protected.

       The legislative   history of the Davis-Bacon Act indi-
cated that the Congress intended that the determined rates
should be based on the wage rates established       by private
industry.     The sponsors of the legislation   offered

                                     6
statements and assurances that it did not require new rates
to'be established  but merely required   contractors     to pay the
rates that had been established   by private    industry   for sim-
ilar construction.

        The legislative     proceedings   indicated also that determi-
nations of prevailing        wages were expected to be no more than
fact-finding      tasks and that the Government would determine
minimum wage rates to be paid by a contractor           on the basis
of findings     pertaining     to wage rates paid in the area.      The
concept of the legislation         was that payment of prevailing
wages would preclude the depressing of local wages but would
not be inflationary        and therefore   would not bring about
unreasonable      increases in the cost of federally      supported
construction.

        Legislation     enacted subsequent to the Davis-Bacon Act
extended minimum wage coverage to contracts               for construction
of federally       assisted projects        on the premise that such con-
tracts,     even though not awarded by the Government, similarly
should protect       locally     prevailing    wage standards.     These
laws apply to contracts           for construction     of projects   involv-
ing Federal grants,          loans, or mortgage loan insurance and
usually specify thatp in accordance with the provisions                  of
the Davis-Bacon Act, the wages to be paid not be less than
those determined by the Secretary of Labor to be prevailing
in the localities         where the construction       is taking place.

WAGEDETERMINATIONS

       The Secretary of Labor is responsible     for wage rate
determinations      required by the Davis-Bacon Act and related
laws.     Pursuant to these provisions    of law, the Secretary
predetermines     the wage rates and fringe benefits     which are
prevailing     and which must be adopted in a construction       con-
tract as the minimum wage rates to be paid to mechanics and
laborers    employed on federally   financed constructionprojects.

      Prior to fiscal     year 1970, the Secretary of Labor had
delegated the responsibility      for the operation      of the wage
determination  program to the Solicitor        of Labor.    On July 1,
1969, this responsibility      was transferred    to the Wage and
Labor Standards Administration,       which was later renamed the
Workplace Standards Administration.


                                      7
       Wage rate determinations       under the Davis-Bacon Act are
issued to the requesting        Federal agency responsible         for the
award of a contract,         These rates are then shown as minimum
wages in the bid specifications          and the final contract       docu-
ments.    The number of wage determinations          issued yearly by
the Department increased from 3,884 in fiscal             year 1945 to
43,186 in fiscal       year 1964.    In fiscal   year 1965, the Depart-
ment started     issuing area wage determinations          covering sev-
eral agencies and projects        in an area and thereby reduced
the number of wage determinations          issued in that year to
25,408.     In fiscal    year  1970,  the  Department    issued about
25,900 wage determinations        and estimated that 26,200 wage
determinations      would be issued during fiscal        year 1971.

      The Department was authorized    91 employee positions  and
a budget of about $952,000 for fiscal     year 1970 for wage
determination   purposes.  For fiscal   year 1971 the Department
requested an increase to 127 positions      and a budget of about
$1.5 million;   about $1.4 million   was authorized.

      In fiscal year 1970, about 58,000 contract     awards total-
ing about $28 billion   were covered by wage determinations.
The Department estimated that, for fiscal     year 1971, about
59,000 contract   awards totaling  about $30.1 billion   would
be covered by wage determinations.
                               CHAPTER 2

            EFFECTS OF IMPROPERWAGEDETERMINATIONS

      The prescribing    of minimum wage rates for federally      fi-
nanced construction     projects  that are substantially   higher
than the wage rates actually      prevailing  for similar  construc-
tion in the area of the project       not only would increase the
cost of Federal construction      programs but also could have an
adverse effect    on the economic and labor conditions     in the
area and in the country as a whole.

INCREASED COST OF
FEDERALLY FINANCED CONSTRUCTION

        Our reviews of the Department's         wage rate determinations
for selected construction        projects--including      military    fam-
ily housing, low-rent      public housing, federally         insured
housing, and a water storage dam--have shown consistently
that the prescribed      wage rates were higher than those pre-
vailing    for similar   construction      in the construction     areas.
We estimated that, because of the high rates, construction
costs increased 5 to 15 percent for these projects.                As a re-
sult we believe that the Federal Government and beneficiaries
of federally     financed projects      have obtained less construc-
tion per dollar      than have builders       of projects   not financed
with Federal funds.

      The wage rates prescribed   by the Department are princi-
pal factors  considered by contractors   in estimating    labor
costs and in arriving    at the amounts of their contract     bids;
the bid amounts, in turn, determine the cost of federally
financed projects.     In the case of housing projects    financed
with private  funds but supported by Federal mortgage insur-
ance, an increase in project    costs imposed on the sponsors
and/or users of the housing units may result     in added mort- '
gage risks to the Government.

        Using the results     of our previous reviews of specific
wage determinations       for 29 selected federally   financed con-
struction    projects,    we estimated   that, of the construction
costs of $88 million,        about $9 million  may have been paid
in excess wages, which appeared to be attributable           to


                                    9
improper determinations  of minimum wage rates.                  (See app, I
for titles of issued reports.)
        Of the wage determinations          made by the Department for
the 29 projects,        28 were    for  federally    financed and insured
housing projects        constructed     at a total     cost of about
$72.8 million.         Of these 28 projects,        16 were for low-rent
public housing, eight were for military                family housing, and
four were for federally          insured housing.         For the 28 projects,
we estimated       that extra construction        costs of approximately
$7.4 million       would be incurred.         These  extra costs were
largely    attributable      to the Department's         prescribing      as min-
 imum wage rates for construction             of residential-type         housing
projects     the higher wage rates paid by contractors                 for con-
 struction     of commercial-type       buildings    rather than the lower
rates paid by contractors            for construction       of private     resi-
 dential   housing.

        The Department has recently    recognized    the need for an
appropriate    distinction   between wage rates for commercial
construction     and those for residential    construction,      for
purposes of determining      minimum wage rates.       The supporting
data for the Department's      budget request for fiscal       year
1971 included estimates      showing that potential      savings of
$60 million    annually could be realized     by the Federal Gov-
ernment if wage rates prevailing       for residential      housing con-
struction    were prescribed   for such type of construction.
       In addition  to questioning   the improper determination
of minimum wage rates for housing construction         projects,     we
questioned    in our reviews certain    wage determinations      for
heavy construction     and highway construction    work.

       In our report to the Congress on wage rate determina-
tions governing the construction          of Carters Dam, Georgia,
by the Corps of Engineers,         we pointed out that the contract
price of $15.4 million        for the main dam work included about
$1.7 million     of extra labor costs which contractors         had
considered    in their bids and which therefore         had resulted
in increased costs to the Government.             These extra costs
were attributable      principally    to the payment of high wage
rates which were applicable         to more hazardous and more spe-
cialized   work than that actually        required   for the main dam
work and to the use of higher wage rates which were
negotiated     and paid by another contractor          for work on the
project    during an unrepresentative   brief         period.

POSSIBLE EFFECT ON COMPETITION

        Information     obtained by us indicated         that the determina-
tion of wage rates higher than those prevailing                    in the in-
dustry had discouraged some contractors               from bidding on Fed-
eral construction        contracts     and had resulted       in reduced com-
petition.       Some of the private       contractors      interviewed    by us
during our reviews of wage rates paid on housing construc-
tion projects       told us that they would not bid on federally
financed construction         projects    because of the high wage
rates they would be forced to pay.

       These contractors    stated that the payment of the rates
prescribed   by the Department would cause a disruption         in
their labor forces,      because the workers on federally     financed
construction    projects   would be paid hourly wage rates higher
than the rates paid to workers on privately         financed construc-
tion projects.      They also pointed out hardship and morale
problems among their workers, created by the reduction            of
wage rates after the federally       financed projects    were com-
pleted and the workers returned        to lower paid work on pri-
vate construction.

INFLATIONARY IMPACT

      Prescribing    minimum wage rates higher than those prevail-
ing for similar     construction    in an area not only increases
the cost of federally       financed construction   but also, be-
cause of the large volume of such construction,           tends to have
an inflationary     impact on the construction     industry    and the
national    econonry as a whole.
         Concern has been expressed by Government officials          and
economists over the inflationary         trend of construction     costs
and the need to control        such costs in the fight    against in-
flation.      From February 23 to March 29, 1971, the President
of the United States suspended the provisions           of the Davis-
Bacon Act because, in his judgment,          they had encouraged the
severe inflationary       pressures experienced    in the construction
industry.       When he reinstated    the act, the President    pro-
vided for labor-management         boards to review collective-

                                      11
bargaining   agreements for each of the construction           crafts
and established    the Construction   Industry    Stabilization
Committee--composed     of four representatives      each from labor,
management, and the public-- to review the boards' findings
on future collective-bargaining      negotiations     and agreements.

        As highlighted      by recent events which have focused at-
tention     on the economic impact of the Davis-Bacon Act and
related     laws, special efforts      are needed to ensure that the
legislation      serves its intended purpose of protecting        pre-
vailing     wage levels but does not become a vehicle for in-
flating     construction     costs.   The following   chapters discuss
measures which, we believe,          should be taken to improve the
administration        of the Davis-Bacon Act.       .




                                  12
                               CHAPTER3

    NEED FOR IMPROVED RROCEDURESIN WAGEDETERMINATIONS

       Our review of the wage determination         activities     of the
Department of Labor showed that improvements were needed to
ensure that minimum wage rates were prescribed              for federally
financed construction       on the basis of actual prevailing
rates determined in accordance with the requirements               of the
Davis-Bacon Act.       These improvements include the issuance
of explicit    guidelines    and criteria   covering the principal
elements of an adequate determination         of minimum wage rates
and fringe benefits       and the establishment     of adequate, up-
to-date,    and accurate information      based on prevailing       wages.

ELEMENTSOF A WAGEDETERMINATION

     The Davis-Bacon Act, as amended, provides            that   the min-
imum wage to be paid construction workers:

      “-fc* shall be based upon the wages that will be
      determined *     to be prevailing     for the corre-
      sponding classes of laborers      and mechanics em-
      ployed on projects    of a character     similar to
      the contract   work in the city9 town, village,
      or other civil   subdivision    of the State in
      which the work is to be performed ***,I'

       Therefore the Department must determine prevailing
wages on the basis of four principal      elements:   (1) identify
the classes of workers for whom the determination        should be
made, (2) fix the b oundaries of the area for which the de-
termination     is to be made, (3) decide what projects    are of
similar    character  to the proposed project,   and (4) determine
what wages actually     prevail,

       Our review of the wage determination      files    and our in-
quiries   regarding specific   wage determinations       showed that,
in many instances,   these principal    elements were not ade-
quately determined.     Cur findings  and suggestions        for needed
improvements are discussed in the following          sections of this
chapter.



                                    13
Corresponding    classes   of laborers    and mechanics

        In some cases minimum wage rates determined for a par-
ticular    worker classification      were applied as the minimum
wage rates for another worker classification,            without  de-
termining    the work practices      in the area0    In other cases
union-negotiated     rates were prescribed       for a number of dif-
ferent worker classifications          on the basis that    the wage
rates found to be prevailing         for one or more classifications
were union rates, without        determining   the prevailing    wage
rates for the other worker classifications.             The rates for
the other classifications        were based on prior determina-
tions.

      For example, in one case the Department prescribed         that
the wage rate paid to workers classified        as "ornamental
ironworkersl'   be paid to workers erecting     chain link fences;
yet s in private   residential   construction   work in the area,
chain link fences were installed       by workers who were classi-
fied as laborers     and foremen and who received much lower
hourly wage rates ($1.25 to $2.75) than ironworkers         ($3.65).

      In another case, wage rates for carpenters            were applied
to the installers     of insulation   material,     although in pri-
vate construction     work in the area persons doing such work
were normally classified      as insulation     applicators    and re-
ceived a much lower hourly wage rate ($1.25 to $1.50) than
carpenters   ($3.55).

        Further, we noted a determination        of wage rates cover-
ing 38 building    worker classifications        and a number of power
equipment operator classifications         based on wage data col-
lected for 11 of these classifications.            The Department had
determined that union wage scales were applicable              to all
classifications    and had disregarded       lower wages being paid
to some of the crafts     in the area because (1) such wages
were not considered equitable        for that worker classifica-
tion,    (2) the wage data obtained was not sufficient           to
change the union-negotiated       rates previously      prescribed,   and
(3) the wage rates being paid the craft were lower than
rates recognized    as prevailing      for related   crafts.     We ques-
tioned the propriety     of this determination,       because the De-
partment did not collect      wage data for the other worker


                                  14
classifications and did not adequately            use the data col-
lected for some of the 11 classifications.

        The act and the implementing         regulations    clearly    re-
 quire the determination       of prevailing      wage rates for corre-
 sponding classes of laborers        and mechanics.       We believe that
the Department should determine,           in each case, the wage
rates prevailing     for each worker classification            to be em-
ployed on a federally       financed construction        project.      The
local practices     should be adequately recognized with respect
to classification      and pay scale of workers.          Rates should
not be established      for groups of classifications            and rates
for one classification        should not be applied to another
classification.      Cur reviews have shown that failure             to iden-
tify    each class of worker and to determine its local pay
scale often has resulted        in the application       of higher rates
than those that actually        prevailed     in the locality.

Area to be considered        in determining
prevailing wage rates

      The act and implementing   regulations      provide that the
area to be considered in determining       prevailing     wage rates
be the city,  town, village,   or other civil       subdivision    of
the State in which the work is to be performed.             The regula-
tions provide further    that, if no similar      construction     proj-
ects have been undertaken within     the area in the past year,
wage rates paid on the nearest similar       construction       may be
considered.

         In June 1962 in testimony    before the Special Subcommit-
tee     on Labor of the House Committee on Education and Labor,
the     Solicitor   of Labor pointed out the Department's     views
on    the legislative     provisions regarding  determination    of
the     area9 as follows:

        *tThe Department as a practical     matter does not
        believe that these terms necessarily        restrict     our
        consideration     to a political  subdivision      but sim-
        ply specify that the area of consideration            should
        be large enough to yield an adequate factual            basis
        for each wage determination,      yet be small enough
        to reflect    only the wages and practices       of the
        area surrounding     the location  of the proposed
        project.“
                                     15
      In certain   instances the Department has gone beyond
the county in which the project was located,        and even be-'
yond the adjacent counties or to another State, with the re-
sult that rates from areas having different       labor conditions
have been applied.      This procedure has permitted    the appli-
cation of rates from noncontiguous      counties and the use of
union rates in nonunionized      areas.

        Cur report to the Congress1 on our review of the wage
rate determinations          for federally     financed building     con-
struction      in selected New England areas pointed out that
the Department had not collected            data showing wages ac-
tually    paid in the areas where the work was performed--in
the States of Maine, New Hampshire, and Vermont--adequate
to permit proper determinations            of prevailing      rates for
certain     worker classifications,          In regard to one worker
classification       (power equipment operator),           the Department
applied the *union-negotiated          rates being paid in the Boston,
Massachusetts      area, disregarding       the lower wage rates paid
on private      construction     in the project      area.

        One of the reasons the Department has gone to other
than adjacent counties or to other States to determine pre-
vailing    wage rates is that some of the workers were to be
imported from such areas for employment on the federally
financed construction     project.    The use of wage rates from
another area, howeverg appears not to be in accord with the
intent    of the act, which was to maintain    the local wage
rate structure     and not to raise or lower local wages on the
basis of rates prevailing      in other areas*

Identification       of construction    projects
of a similar       character

       To determine prevailing       wage rates,       the Department,    in
its regulations,      has classified      construction      into three
general categories--       building   construction,       heavy construc-
tion,   and highway construction.           We believe that,     for many
construction     projects,     this classification        has been too
broad for purposes of proper wage rate determinations,


1
    ~-146842,    January   26, 1965.
especially in the category of building  construction.     In
other cases the Department did not make proper distinctions
between the categories  outlined in the regulations.

       The regulations      have not distinguished         between differ-
ent types of building         construction      projects,    such as com-
mercial and residential,          although in the private        construc-
tion industry     significant       variances     exist between labor
practices   and rates applicable           to these two types of con-
struction.    As a general practice,            the Department has pre-
scribed in its area wage determinations                the rates paid for
commercial building        construction       and has applied the rates
to such different       building     projects     as single houses,
garden-type    apartments,       high-rise     apartments,    schools,   bar-
racks, hospitals,       and office      buildings.

       The Department has considered most federally             financed
housing construction        to be similar     to the construction       of
commercial-type      buildings     and has based the residential
construction     wage determinations        on commercial construction
wage rates.      In our previous reviews of wage determinations
for residential-type        construction,     however, we found that,
in the area where the federally           financed projects     were being
constructed,     lower wage rates prevailed         for similar    pri-
vately financed housing.

      As a result   of our reported findings,     the Department
has changed its position     and has intensified      its surveys of
wage rates paid in the housing construction         industry.     In
the congressional    hearings on the Department's        budget re-
quest for fiscal   year 1971, representatives       of the Depart-
ment stated that its onsite wage surveys confirmed the er-
roneous use of commercial construction        or union-negotiated
rates for construction     of residential   housing.

       With respect to nonresidential        construction,      our re-
view showed that the Department had not always adequately
recognized that different     wage rates were prevailing            on
special types of building      construction,      such as light      com-
mercial construction,     school construction,and          hospital    con-
struction,   and on special types of heavy construction,               such
as dams, tunnels,     and canal locks.



                                      17
      With respect to heavy construction,    our report to the
Congress1 on wage rate determinations     for the construction
of a dam pointed out that the minimum wage rates prescribed
by the Department were excessive and were not based on sim-
ilar construction  work.  The rates were based generally       on
higher wages paid by contractors    for hazardous and special-
ized work on a diversion  tunnel,   whereas the construction
of the main dam did not call for this type of work.

         The inadequacy of the categorization             of federally    fi-
nanced construction           into only three general categories
(building,      heavy, and highway construction)            has been most
evident where the Department has issued a wage determina-
tion for a general construction              category for a specific        geo-
graphical      area3 such as one or more cities,            counties,    or
military     installations.          If the contracting     agency does not
obtain a specific         wage determination       for the project     to be
constructed       in such a situation,        the contractor     will be
forced to pay the wage rates prescribed                for the general
construction        category,     regardless    of whether prevailing
rates for the specific            type of construction      are lower than
the rates determined by the Department.

       Our review showed that some wage determinations       had not
followed   the categorization    prescribed in the regulations.
Some building     construction rates had been prescribed     for
federally    financed heavy and highway construction     work, al-
though other heavy and highway construction       work in the
area called for lower pay rates.

        In one case, although it was the practice    in the area
to pay lower heavy construction     wage rates for site prepa-
ration work connected with private      building  construction,
the Department established    the higher building    construction
wage rates as the minimum wage rates for certain        crafts    for
heavy construction    and for federally   financed housing con-
struction.

      For the construction        of a parkway, the Department's
determination  prescribed        building  construction wage rates


'B-156269,    December 14, 1966.
as,prevailing      instead of the rates applicable      to highway
construction.       After we questioned this determination,        the
Solicitor     of Labor informed us that further      review by his
staff     showed that the wage data on which this determination
had been based were incorrect.         Different  rates were found
to be prevailing       for paving construction   work in the county,
and these rates subsequently were incorporated            in determina-
tions for other paving work in the area.

       We believe that, to ascertain         rates applicable   to con-
struction    of a similar    character,    appropriate   consideration
must be given to local labor practices            and possible varia-
tions in workers' wages due to type, size, and complexity
of construction.        Our review showed generally      that improper
wage rates had been prescribed          by the Department as prevail-
ing in many cases because the characteristics            of a proposed
construction     project   had not been adequately analyzed.




                                   19
DATA BASE FOR DETERMINING
PREVAILING WAGERATES

        The Department's  files    often did not contain sufficient
factual    wage payment data on the rates paid on specific             non-
Federal construction     projects.      As a result      minimum wage
rates were prescribed,      without    further   verification,      on the
bases of wage rates established          in prior Department determi-
nations or included in collective-bargaining               agreements.

       The Department's    regulations  provide that various types
of information     be considered in making wage rate determina-
tions and that the determination       of prevailing     wage rates
be based principally     on the wage rates actually         being paid
in the area on other construction       projects    similar     to the
federally    financed construction.     The need for factual        wage
data was expressed by the Solicitor        of Labor in 1962 in
testimony before the Special Subcommittee on Labor of the
House Committee on Education and labor, as follows:

         "It is fundamental   in the wage determination      pro-
         cess that each decision is based upon data show-
         ing that the rates determined as prevailing       are
         those actually  being paid in the locality     of the
         proposed work on projects   of a character    similar.
         It is necessary that the Department have informa-
         tion as to ** the hourly wage rates paid labor-
         ers and mechanics employed thereon, and the num-
         ber of workers employed in each classification.
         ***c '

                *         *              *      *            *


         "Jar;* What we like first   and foremost is payment
         information.      We want to know not somebody's
         estimate     of what the wages are, but we want the
         facts as to what wages are paid to how many em-
         ployees on what kind of a project.       ***I  (Under-
         scoring supplied.)

Rates from prior        determinations

         It    appears from our review that the Department has
placed        undue emphasis on prior wage determinations  as the

                                         20
bases for subsequent wage determinations,   even though the
prior wage rates may not have been representative    of the
rates being paid on similar  construction in the area.

        The legislative      history     of the Davis-Bacon Act indi-
cates that the determination             of minimum wage rates for fed-
erally    financed construction          should be based on the rates
established       by private    industry    for similar      construction.
The continued use of rates previously                determined,     regard-
less of whether they are representative                of the wage rates
prevailing      on similar    private     construction     in the area, may
establish      special Federal wage rates higher than the pre-
vailing     rates.

        In prior reports issued on this subject,          we pointed
out that, when unrealistic        wage rates are prescribed        for
federally     financed construction     projects,    the error may be
compounded by using such previously          prescribed    rates as
bases for new wage rate determinations.             Although we see no
objection     to the Department's    using wage rate information
obtained from contractors       working on federally       financed con-
struction,      we believe that, to be a valid source of informa-
tion for determining       new wage rates,     the rates being paid by
such contractors       should be representative      of wages prevail-
ing in the area.

Rates   from collective-bargaining        agreements

       Many of the wage rates prescribed        in wage determinations
were based on the union-negotiated         rates covered in
collective-bargaining      agreements.     Union-negotiated   rates
generally     were higher than the rates paid to nonunion labor
but frequently      were applied by the Department without       re-
gard to whether similar       construction    in the area had been
performed at lower rates.

       Department representatives       advised us that wage pay-
ment data were required as support for the rates shown in
collective-bargaining      agreements before these rates were
recognized as prevailing       in an area.      We found, however,
that in many cases the Department had accepted the union-
negotiated     rates as the prevailing      rates without obtaining
supporting     data that such rates actually       were paid on the
various types of construction        projects    in the area.

                                     21
USE OF 30-PERCENT RULE

       The Department's     application   of the so-called    30-
percent rule-- using the rates paid to at least 30 percent
of each classification       of workers to be covered in the de-
termination    --as a method of determining     the prevailing    wage
rates in an area has led to some unrealistic           wage determi-
nations and to inequities        among the contractors     and workers
affected    thereby.    We believe that these cases show a need
for a more equitable      rule.

        The Code of Federal Regulations      (29 CFR 1.2(a))   de-
fines "prevailing    wage rate" as the rate of wages paid in
the area in which the work is to be performed to the major-
ity of those employed in each classification         on similar    con-
struction    in the area.  When    the majority   is not  paid  at  the
same rate, the prevailing     rate shall be considered       to be the
rate paid to the greater number, which would be at least 30
percent of those employed.       If less than 30 percent of those
employed receive the same rate, then the average rate shall
be considered to be the prevailing       rate.

       The use of the 30-percent    rule has resulted,     in some
cases, in the determination      of minimum wage rates signifi-
cantly higher or lower than the rates actually         paid to the
majority   of the workers engaged in similar     construction    in
the area.

        For example, the Department determined a wage rate of
$4.25 an hour to be prevailing      for carpenters  in an area,
on the basis of the results      of a wage survey of eight con-
struction    projects  in the area.    The survey showed that,
of 102 carpenters,31     were paid an hourly wage rate of $4.25
and 71 were paid hourly wage rates between $2.50 and $4, as
follows:




                                 22
                  Number of
                 carpenters         Hourly wage
                  employed           rate paid
                       31              $4.25
                        1               4.00
                        9               3,50
                        9               3.25
                                        3.20
                       151              3.00
                       19               2.75
                      -I.7              2.50

                     &!g
        In prescribing the $4.25 rate paid to 30 percent of the
workers as the prevailing rate, the Department gave no con-
 sideration to the lower rates being paid to 71, or the ma-
jority,    of the 102 workers. Any contractors who, at the
time of the wage survey, were employing carpenters at these
lower pay rates would have had to increase the carpenters
wagestothe $4.25 level if the contractors obtained work on
federally financed construction --bringing about a significant
inflation    in construction costs in the area.
      In another area, use of the 30-percent rule led to
adoption of the lowest pay rate as the prevailing rate.
The Department determined the wage rate of $2.70 an hour to
be prevailing for electricians,       on the basis of results of
a wage survey which showed that six out of 16 electricians
were paid that rate.       The 10 other electricians  were paid
rates between $3 and $4.40 an hour. The various wage rates
paid the 16 electricians      follow.
                 Number of
                electricians           Hourly wage
                   employed             rate paid
                         1                 $4.40
                         1                  4.25
                         3                  4.00
                         4                  3.90
                         1                  3.00
                       - 6                  2.70


                               23
       In prescribing   $2.70 as the minimum hourly rate, the
Department gave no consideration        to the higRer wage rates
paid to 10, or the majority,       of the 16 workers covered by
the wage survey.      The contractors    employing these higher
paid electricians     were placed at a significant      competitive
disadvantage    when bidding for federally      financed construc-
tion work, unless they were able to lower the wages or
otherwise   absorb the higher wage costs.

      A representative    of the Department's     Division    of Wage
Determinations    informed us in January 1971 that         the Depart-
ment had been considering     alternatives    to the 30-percent
rule and that,    if found appropriate,a    revision     would be inA
eluded in the proposed new regulations        for administration
of the Davis-Bacon Act.




                                  24
DETERMINATION OF FRINGE BENEFITS

      An amendment to the Davis-Bacon Act, enacted on July 2,
1964, provides that the term "'prevailing     wages" include
fringe benefits,    such as medical, retirement,    vacation,  or
any other bona fide benefit     payments and contributions    made
to or for construction    workers in the area.

       Our review indicated         that the Department,         for the most
part, had determined fringe benefits               by reference       to
collective-bargaining          agreaents,      without    obtaining      adequate
supporting     documentation       showing that these fringe benefits
were actually       prevailing     on similar     construction      in the area.
In some instances        this practice     has placed the Government
in the position        of establishing      fringe benefits        where none
prevailed     and has increased the cost of federally                 financed
construction      in these areas.

      During the 1963 hearings before the House Committee on
Education and Labor concerning the proposed fringe-benefits
amendment to the Davis-Bacon Act, the Solicitor      of Labor,
in testifying   as to how the Department would implement the
determination   of fringe benefits,stated   that the Department
would first   determine the fringe benefits    in about 100 cities
in the United States from which the Department gathers union
wage scale information    and thereafter  would determine the
fringe benefits    for as many other areas as possible.

       We were advised by representatives         of the Department
that the determination      of fringe benefits      was directly     re-
lated to whether the basic wage rates were union-negotiated.
If the union-negotiated      wage rates were determined as prevail-
ing, the fringe benefits      were taken directly       from negotiated
agreaents,    without    supporting    documentation    that such fringe
benefits   were actually    prevailing    on similar    construction
in the area.

      Our review revealed that some fringe      benefits   had been
determined to be prevailing    for certain   labor classifica-
tions by application    of the 30-percent  rule,    even though
the majority   of workers employed in these classifications
apparently   had not been paid any fringe    benefits.



                                       25
       For example, for one county in Virginia      the results of
a wage survey -made by the Department showed that 36 eTectri-
cians working on building     construction projects    were paid '
varying wage rates,    ranging from $3 to $4 an hour, as fol-
lows :

                        Number of              Hourly   wage
               electricians    employed         rates   paid

                             2                     $3.00
                             6                      3.25
                             5                      3.50
                             1                      3.65
                             8                      3.75
                            14                      4.00

                            =36
        The survey showed that the 14 electricians       receiving
the hourly rate of $4 also received fringe        benefits;     there-
fore, in applying the 30-percent      rule, the Department deter-
mined that $4 was the prevailing      rate and that the corre-
sponding fringe benefits     were prevailing   in the area.        As a
matter of fact, however, 22, or the majority,        of the 36
electricians     included in the survey received an hourly rate
of less than $4 and did not receive fringe benefits.,

HELPER AND TRAINEE CLASSIFICATIONS
IN WAGEDETERMINATIONS

        The Department generally      has not prescribed        separate
wage rates for helpers and trainees          in its minimum wage de-
terminations.      In certain   situations,    particularly       where
the union agreement for an area provided for a helper clas-
sification,    the wage determination       has contained a separate
rate for such a classification.           We believe that the inclu-
sion of separate rates for helpers and trainees               in wage de-
terminations,     where local labor practices        recognize these
semiskilled    and untrained    worker classifications,          would as-
sist in (1) lowering the cost of construction              contracts     by
permitting    construction    contractors    to submit their bids on
the basis of lower wage rates where applicable              and (2) en-
courage the employment and on-the-job          training     of


                                    26
semiskilled  and untrained persons          by construction      contrac-
tors working on Government-financed           projects.

       The Davis-Bacon Act and the Department's             regulation
regarding worker classifications           refer only to laborers        and
mechanics.      The Department's     regulation      (29 CF'R 5.5(a)(4))
provides for an apprentice        classification,       but this classi-
fication   does not cover semiskilled          or unskilled     helpers or
trainees   outside a recognized apprenticeship            program.      The
regulation     states that, to receive an apprentice's            wage
rate, the employee must be registered             with a State appren-
ticeship   program recognized by the Department's              Bureau of
Apprenticeship      and Training.

        The use of trainees     on construction       projects    is a rel-
atively    new approach advocated in the construction               indus-
try, to help train workers through means other than the
regular apprenticeship       program.    The President's        Committee
on Urban Housing, consisting         of industrialists,        bankers,
labor leaders,      and specialists    in urban affairs,        in a 1968
report to the President       entitled   "A Decent Home" recom-
mended that a trainee classification           be recognized        in the
Davis-Bacon Act as part of the approved training                programs
for preparing workers to enter regular            employment in the
building    trades.

        We believe that the recognition       of separate helper and
trainee classifications       could be accomplished either by an
amendment to the Davis-Bacon Act, as proposed by the Com-
mittee,    or by an appropriate     provision     in the Department's
regulations,      that minimum wage rates for helpers and train-
ees   be  prescribed   in all future Department wage determina-
  .
tlons,    provided that they are in accordance with the labor
practices     in the area for similar      construction.       Such a
procedure should achieve lower construction              costs and en-
courage the employment and on-the-job           training     of semi-
skilled    and untrained    persons and could be particularly         de-
sirable    in areas of hard-core     unemployment.




                                     27
POTENTIAL FOR IMPROVING
COLLECTION OF WAGEDATA

       In our opinion,      the inadequacies      in the Department's
procedures for making wage rate determinations              have shown a
need for conducting more frequent            and thorough onsite wage
rate surveys to provide the Department with pertinent                in-
formation    concerning prevailing       wages. We believe that the
Department's    collection,     compilation,      and storage of wage
data, presently      carried   out by manual methods, could be
performed more efficiently         and effectively      if automatic
data processing      equipment were used.         The Department has in-
formed us of action taken or under way to improve its pro-
cedures in these areas of administration.
Wage rate   surveys

       The Department has conducted wage rate surveys, but
not as a continuing        practice,  either by mail--sending    out
inquiries     to selected employers or contractors       and labor or-
ganizations,    requesting     data on rates being paid on construc-
tion projects      in a particular    area--or  by onsite wage in-
vestigations.

       In our prior reviews we found that, when onsite wage
surveys had been made, more accurate wage data had been ob-
tained and that, as a result,     more realistic   wage determi-
nations had been made. We recommended1 that more onsite
surveys be conducted for projects     involving  federally   fi-
nanced housing construction,    to supplement and verify     in-
formation   obtained from other sources.

       In October 1970 the Department's     Assistant   Secretary
for Administration,   in commenting on action taken or planned
in response to our recommendations,      informed us that the
conduct of more onsite surveys remained contingent           on the
actions of the Congress regarding     the Department's       fiscal
year 1971 budget requests for additional        field staff.       He
stated that the Department was using its staff        to capacity
but fell considerably   short of the number of onsite surveys


1Report   to the Congress,B-146842,     August   12, 1970.


                                  28
needed to make appropriate   determinations in areas             from
which 'the Department lacked adequate information.               (See
app. IV.>

       For fiscal year 1971, the Department requested an in-
crease of 37 positions   and funds of $485,000 for additional
staff;   however, only $313,000 was authorized  for 20 posi-
tions.

Use of automatic     data processing

        The Department's    operations      pertaining     to the collec-
tion,    compilation,    and storage of wage data have been per-
formed manually by employees of the Wage Determination                  Di-
vision.     Our review showed that the underlying             wage payment
data on file were not organized in a systematic                 manner
which would make it readily         identifiable       for use in deter-
mining prevailing      wage rates.

     The feasibility    of changing the system for compiling
and storing   wage data from a manual operation   to one using
automatic   data processing  was affirmed by a study made in
the fall of 1967 by a Department task force.

       In a prior report'      we recommended that the Department
use, at the earliest       practicable     date, automatic processing
equipment for collecting,         compiling,    and storing    wage data.
In October 1970 the Department's           Assistant    Secretary   for
Administration     informed us that the National Archives and
Records Service of the General Services Administration
(GSA) had completed a reconnaissance            study which concluded
that automation of the wage determination             function    was fea-
sible.    He stated that GSA was conducting           a systems study
at the Department's      request and that, as soon as the study
was completed,    a determination       would be made as to whether
this function    should be automated.

COOPERATIONWITH FEDERAL CONTRACTINGAGENCIES

     To obtain up-to-date   wage information,  particularly              in
such specialized industries   as housing construction      or


1Report   to the Congress,     B-146842,    August   12, 1970.

                                    29
heavy construction,   the Department needs the cooperation      of
the Federal agencies which contract    for or otherwise    fi-
nance construction   projects subject to minimum wage deter-
mination.   Although efforts  have been made recently     by some
agencies to provide the Department with the needed data, we
believe that such cooperation    could be materially   increased.

        The Department's         regulations       (29 CFR 5.3) require        that
a Federal agency intending              to contract     for the construc-
tion,    alteration,       repair,     paintings     or decorating      of public
buildings      or public works of the United States apply to the
Department for a determination                of prevailing      wage rates.
The regulations         provide that the agency complete a request
form indicating         the classification          of workers needed to
perform the work and furnish               a detailed     description      iden-
tifying     the type of work.           For construction       projects      in ar-
eas where wage patterns             are not clearly       established,      wage
determination        requests are to be accompanied by any rele-
vant wage payment data available.                   The regulations      require
also that the Federal agency furnish                  to the Department,         at
the beginning of each fiscal               year, a general outline          of its
proposed construction           programs for the coming year, indi-
cating the estimated number of projects                   for which wage de-
terminations       will be required,          the anticipated       types of
construction,        and the locations          of construction.

      Some of the agencies have been furnishing      the Depart-
ment with lists  of proposed construction   projects     at the
beginning of each fiscal   year.  Department representatives
have informed us, however, that this information        generally
has not been very useful.

      In commenting on a prior report,1    the Secretary   of
Labor informed us that the Department did not have suffi-
cient staff  to make adequate surveys and was wholly depen-
dent upon the voluntary  cooperation    of contracting   agencies
and others for getting  adequate wage information.


1Report    to the Congress,        B-164427,     September     13, 1968.




                                       30
       .To stimulate  cooperation     between the Department and
the major Federal agencies seeking wage determinations,                  in
November 1968, we furnished         copies of our September 1968
report to the heads of 12 Federal departments and agen-
cies e1 We suggested that they require           their   contracting
officers    to provide assistance       and cooperation    to the De-
partment so that the other departments and agencies would
have better assurance that the minimum wage rates stipu-
lated in contract     specifications      are consistent     with the
wage payment practices       applicable    in the particular       areas
for the specified     types of construction.

       We received replies      from seven of these departments
and agencies, all of which indicated          or expressed the de-
sire to assist and cooperate with the Department.              Five of
the departments stated that contracting          officers    would be
instructed    to furnish    assistance  to the Department.        Two
of the five agencies, however, stated that such assistance
would be furnished      only when specifically      requested by the
Department.

      One agency advised us that it had already included in
its procurement regulations    certain    requirements    for fur-
nishing wage rate information     to the Department.       Another
agency suggested pointing    out in the Federal Procurement
Regulations  the importance of agencywide cooperation          in
maintaining  wage rate information,     and still    another agency
suggested that the Department designate a representative              to
work with the agency to determine means whereby it might
assist the Department in obtaining      the wage information       it
desires.

      In commenting on our more recent report,            2
                                                               the Under
Secretary  of HUD advised us that, as a result                of our review


1 Departments of Agriculture,    Commerce, the Interior,     and
 Transportation;   Department of Health, Education,       and Wel-
  fare; Post Office Department;    Atomic Energy Commission;
 GSA; National   Aeronautics   and Space Administration;     Small
 Business Administration;     Tennessee Valley Authority;     and
 Veterans Administration.
2Report   to the Congress,      B-146842,    August   12, 1970.

                                    31
and HUD's own investigations           into the wage data problem,
HUD had proposed that the Federal Housing Administration
(FHA) assist      the Department of Labor in establishing             the
prevailing      wage rate for federally       assisted residential
construction.         He said that each FHA insuring         office   could
maintain,     or  obtain    when  necessary,    information     on  current
wage rates for all trades involved,             which would enable FHA,
upon receipt      of an application       or proposal for housing as-
sistance,     to record the current prevailing            wages for the
specific    locality,      on the  basis   of residential     construc-
tion,    and submit them to the Department of Labor for ap-
proval and endorsement.           He stated that the Department was
most receptive        to the proposal and that meetings had been
held to ascertain        the type of, and the mechanics of obtain-
ing, information        which FHA could provide to the Department.

       In October 1970 the Department's    Assistant    Secretary
for Administration     informed us that HUD's plan to furnish
the Department with wage data on residential         construction
was in effect.     He advised us that some data had already
been received and had served as the basis for determining
residential    wage rates in several cities.      The Assistant
Secretary   said that HUD expected to provide a large volume
of data and that considerable     data were also expected from
other departments and agencies.,

        The Deputy Assistant   Secretary  of Defense, commenting
on our August 12, 1970, report,stated        that it was the in-
tention    of the Department of Defense to continue close mon-
itorship    of the matter,   in an effort  to ensure that   the
military    departments attempt to obtain the most favorable
wage rates for housing projects.

      The replies    received by us indicated          that there had
been constructive      efforts   by HUD and the Department of De-
fense to assist the Department of Labor in fulfilling                its
wage determination      responsibilities.        The replies    from a
few other agencies showed their general willingness                to pro-
vide assistance    if requested.          Five agencies did not re-
spond to our suggestion for effective            interagency    coopera-
tion.




                                   32
      We believe that the Department could materially            in-
crease interagency     cooperation    by establishing    with each of
the principal    contracting    agencies a more formalized       and
continuing    working relationship     for the exchange of up-to-
date wage information       and such other assistance      as the De-
partment may need for effective        administration    of the Davis-
Bacon Act.     Such formalization     could be established      by in-
teragency agreement, formation        of an interagency     committee,
and/or designation     of representatives      to cooperate on all
matters affecting     minimum wage determinations.




                                  33
CONCLUSION

       Our reviews of wage determinations         made over the last
10 years have consistently        shown the need for improvements
in the Departmentss procedures,          to achieve a more reason-
able implementation      of the Davis-Bacon Act and the other
Federal laws incorporating        the act.    As indicated    by the
legislative    history,   this legislation      was intended to sta-
bilize    wages in the building      industry   and other construction
industries    by precluding    the depressing of local wages but
was not intended to bring about unreasonable            increases in
construction     costs.

       We found that,   in many cases, improper wage determina-
tions had been made because local labor practices               had not
been adequately recognized,        the characteristics        of proposed
projects    had not been analyzed and properly          related   to sim-
ilar construction     in the area, and sufficient          care had not
been exercised     in obtaining   actual wage data applicable          to
the affected    area.   Although we noted improvements in the
Department's    wage determination       procedures in recent years
and were informed of further         improvements being considered
by the Department,     we believe that additional          actions are
needed to achieve adequate administration             of the Davis-
Bacon Act.     The Department has informed us that it is con-
scious of the need for continuing           its efforts    toward the
accurate determination       of prevailing      wage rates.

RECOMMENDATIONS
              TO THE SECRETARYOF LABOR

      We recommend that     the Secretary     of Labor:

      1. Formulate explicit      guidelines    and criteria   covering
the principal    elements of an adequate wage determination
and incorporate     such guidelines     and criteria    into a manual
of instructions.

       2, Implement improved procedures for collecting              needed
data on basic wages and fringe benefits             actually   being paid,
so that wage determinations          can be made on the basis of ac-
curate and up-to-date        information     on local practices     in the
construction    industry.       To supplement its own efforts,        the
Department should establish          with the principal      Federal agen-
cies financing     construction      contracts    a formalized    and

                                    34
continuing working relationship  for the exchange of perti-
nent wage information and for such cooperation as may be
needed for the accurate determination of minimum wage rates.
      3. Require that, where appropriate and in accordance
with labor practices, helper and trainee classifications   be
included in the Department's wage determinations, to facil-
itate the employment of semiskilled and untrained persons
on federally financed construction projects.
        more representatia
        projects.      We believe also that an increase in the minimum
        contract    cost would substantially       reduce the number of wage
        determinations     to be issued by the Department without      appre-
        ciably affecting      the wage stabilization     objectives of the
        act.

         CONTRACTCOST SUBJECT TO
         MINIMUM WACE DETERMINATlONS

                The minimum contract     cost of $2,000 reflected        the eco-
         nomic situation     between the years 1931 and 1935 when the
         prevailing    wage legislation     was originally     enacted and
         amended.     The legislative    history   of   the act  indicates   that
         the Congress was concerned at that time with protecting               those
         areas in which federally       awarded construction      was to be un-
         dertaken by enabling them to resist          the downward pressures
         on construction    wage rates and working conditions           in a se-
         verely depressed economy.
                To obtain some indication       of the range of construction
         costs for projects       requiring   wage determinations,      we re-
         viewed 600 of the 827 wage determinations            issued by the De-
         partment during fiscal        year 1965 and fiscal      year 1969 for
         construction    projects     in the States of Maine, Maryland,        New
         Mexico, and Rhode Island.          These 608 wage determinations
         were selected by us because the contracting             agencies' wage
         determination    requests showed the estimated construction
         costs of the proposed projects         to be about $663 million.

                   Of the 600 wage determinations,     274, or about 46 per-
             cent, covered projects    estimated   to cost under $100,000.
             In the aggregate,    they totaled   about $5 million,  or less
             than 1 percent of the total estimated construction       cost of
             $663 million.     Of these 274 projects,   f?l, or about 70




.   .   1.      ,
percent, were under $25,000.      These 191 projects   represented
about two tenths of 1 percent of the total      construction    cost
of $663 million    but accounted for close to 32 percent of the
600 determinations    issued.   (See app. II for a tabulation
of these determinations,)

        A study by the Department in 1960 and a study by a
private    consultant   in 1963 both recormnended that the con-
tract cost cutoff      amount be raised from $2,000 to $25,000.
The 1960 study pointed out that raising          the contract  cost
amount would reduce the Bepartmentss work load substantially,
without doing any significant         damage to the principle   of
prevailing     wage maintenance.      Four States have amended their
prevailing     wage legislations    to provide that minimum con-
tract costs requiring        wage determinations   be within  $25,000
tc $75,000,

      The lower cost construction     projects  often involve
    .
maintenance,   p ainting and repairs,    and additions  and alter-
ations and normally are small jobs which have little,         if
any, impact on the wage levels in the area.

        A reduction    in the number of wage rate determinations
issued yearly would permit the Department's           wage determi-
nation staff      to (1) make more thorough investigations,         (2)
conduct more frequent detailed          onsite wage surveys, and (3)
adequately resolve protests         or problems that may arise in
arriving    at factual    determinations.      The reduction    in volume
of contracts      subject to wage determinations      would benefit
the contracting       agencies, because less time would be re-
quired to make requests for wage determinations,             review the
determinations      that are issued, and enforce the rates estab-
lished.



      We recommend that the Congress consider the desirabil-
ity of amending the Davis-Bacon Act to increase the minimum
contract  cost subject to wage determinations from the $2,000
now stated in the law to an amount between $25,000 and
$100,000, which would be more representative  of present-day
costs of construction  projects.




                                   37
  APPENDIX




ag 39
                                                     APPENDIX I


                  GENERALACCOUNTING OFFICE

                   REPORTSTO THE CONGRESS

          ON REVIEWS OF WAGERATE DETERMINATIONS

      Review of Wage Rate Determinations for Construction    of
Capehart Housing at the Marine Corps Schools, Quantico,     Vir-
ginia (B-145200, June 6, 1962).

      Wage Rates for Federally  Financed Housing Construction
Improperly  Determined in Excess of the Prevailing  Rates for
Similar Work in Southeastern   Areas of the United States
(B-146842, August 13, 1964).

       Wage Rates for Federally  Financed Building Construction
Improperly   Determined in Excess of the Prevailing  Rates for
Similar Work in New England Areas (B-146842, January 26,
1965).

      Wage Rates for Federally  Financed Housing Construction
Improperly  Determined in Excess of the Prevailing   Rates for
Similar Work in the Dallas-Fort   Worth, Texas, Area
(B-146842, March‘26, 1965).

     Review of Determinations  of Wage Rates for Construction
of Carters Dam, Georgia (B-156269, December 14, 1966).

      Need for More Realistic   Minimum Wage Rate Determina-
tions for Certain Federally    Financed Housing in Washington
Metropolitan   Area (B-164427, September 13, 1968).

      Construction   Costs for Certain Federally   Financed
Housing Projects    Increased Due to Inappropriate   Minimum Wage
Rate Determinations     (B-146842, August 12, 1970).
AFPENDIXII

                               ANALYSIS OF t&GE RATE DETERMINATIONS
                              ISSUED DURING FISCAL YEARS 1965 AND 1969
                     FOB PROJECTSCOSTIB3GUNDER $100,000          IN SELECTEDABEAS



                                                                               Rhode
                                             Maine     &wyland        utxico   Islaad       Total
  TOTAL NUM8ER OF WAGERATE DE-
    TERMINATIONS REVIBWED                    117        294           156       33          600
  ESTIWTED COST (MILLIONS) OI?
    PROYECTSCOVWEH)BY UAGE
    RATEDETEMINATION                         $48.0      $532.2        $71.7    $11.2    $663.1
  DETERMINATIONS FORPBWBCTS
    UI'PH ESTIMATED CONSTRLCTION
    COST DNDBR $100,000:
       Number issued                                        92        106       19          274
       Percent of total issued                z.7           31.3       67.9     57.6         45.7
       Estimated cost (millions) of
         projects                            8 1.5      8     1.4     8 1.6    $ 0.5    8     5.9
       Percent of total cost                   3.1              .3      2.3      4.5            .o
  i@XERMINATIONS FOB PRQJECTS
    WITH ESTIMTED CONSTRWZTION
    COST DNDER $25,000:
      Number iseued                           33            67         81                   191
      Percentoftot8lissued                    28.2          22.8       51.9     ix.3         31.8
      Estimated cost hillions) of
        projects                             8 0.3      $ 0.4         $ 0.6    $ 0.1    8     1.4
      Percent      of total    cost              .07        .l            .8       .9           .2




                                              42
                                                               APPENDIX III


                      U.S. DEPARTMENT OF LABOR
                OFFICEOFTEE ASISTANT SECSETARYFOR ADMINISTRATION
                             WMHINGTON, D.C. 20210




APR 2 1971




Mr. Henry Eschwege
Associate Director, Civil Division
U. S. General Amounting Office
Washington, D. C. 20548

 Dear Mr. Eschwege:
 Thank you for your letter  of March 5, 1971, furnishing copies of
 8 draft report prepared by the General Accounting Office entitled
 '@Need for Improvements in Administration of the Davis-Bacon Act
 Uoted Over a Decade of Review.”

 We have retiewed the draft and at the present time have no coaments
 to add to those made in rssponse to your previoue reviews of wage
 detennfnations for specific coustruction projects listed in Appendix I[,
 We find your report very objective and you may be assured that the
 Department is conscious of the need for contfnufng its efforts   to f%nd
 a practical solution to the accurate predeterPriuation of prevailiug
 wage rates.
 Sincerely,




                                     43
APPENDIX   IV



                          U.S. DEPAR’I’MENT       0F LABOR
                OFF~~B~PTFIBA~~T~T         SECRBTABYFORAD~~A~~N
                                     WASHINGTON,D.C. 20210

     OCT 9 1970



     Honorable Elmer B. Staats
     Comptroller General of the United States
     United States General Accounting CXfice
     Washington, D. C. 20548

      Dear Mr. Staats:

      Thank you for inviting our comments on actions taken or planned to
      deal with problems described in your report on f*Construction Costs
      for Certain Federally Financed Housing Projects Increased Due to
      Inappropriate Minimum Wage Rate Determinations” (B-146842).

      My letter, as printed in the Appendix of your report, continues to
      represent the main thrust of our response to the report. Develop-
      ments to date relating to your recommendations are stated below
      following the order in your report and in your letter of August 12,
      1970:

           --The conduct of more on-sitesurveys       remains contingent
              on the action of Congress regarding 1971 budget requests
              for additional field staff. The Department is using its
              present staff to capacity, but falls considerably short of
              the number of on-site surveys it needs to make appropriate
              determinations in areas from which it lacks adequate in-
              formation.

           --29 CFR, Part 1, entitled “Procedures for Predetermination
              of Wage Rates” and 29 CFR, Part 5, entitled Yabor Standards
              Provisionsl’ are being revised extensively to clarify distinctions
              between different types of construction and to facilitate more
              adequate collection of relevant data.

           --The National Archives and Records Service of the General
              Services Administration has recently completed a recon-
              naissance study in which they concluded that automation of
              the Wage Determination function is feasible. They are now
              conducting a systems study at our request. As soon as this

                                            44
                                                     APPENDIX       IV


       is completed, a determination   will be made on automating
       this function.

    --A request for 37 new field personnel was made in the
       Department’s 1971 budget request to Congress. It appears
       that somewhat less than this number will be provided in the
       final appropriation.

    --A plan by which the Department of Housing and Urban Develop-
       ment will furnish to this Department wage data on residential
       construction is now in effect. Some data has already been
       received and has been the basis for determining lower resi-
       dential wage rates in several cities. HUD advises that we can
       expect a large volume of data, and we expect considerable data
       from other departments and agencies as well. As automation
       enables us to handle these data, we believe with you that they
       will go a long way toward solving our problems with residential
       wage rate determinations.

    --A larger field staff and an improved system for processing
       data will enable us to make the contacts and handle the data
       necessary to joint Federal-State studies of prevailing wage
       rates. We will pursue this proposal wherever possible as
       staff and equipment permit.

It will be apparent that we have given priority to securing and equipping
ourselves for the use of data from HUD and other agencies to the end that
we may make distinct determinations for residential construction where
appropriate. We expect to see results from this at an early date. We
shall continue with every resource at our disposal to seek wage deter-
minations which reflect accurately the prevailing wage rates for
residential construction in areas having Federally finsnced or insured
housing construction.

Sincerely yours,



Leo R. Werts
Assistant Secretary for
  Administration




                             45
APPENDIX V


                    PRINCIPAL OFFICIALS OF

                    THE DEPARTMENTOF LABOR

                  HAVING RESPONSIBILITY FOR

                DETERMINATIONS OF WAGERATES

                  DISCUSSED IN THIS REPORT


                                           Tenure of office
                                           From            -To
SECRETARYOF LABOR:
   James D. Hodgson                    July    1970     Present
    George Shultz                      Jan,    1969     June 1970
   W. Willard   Wirtz                  Sept.   1962     Jan.    1969
   Arthur Goldberg                     Jan.    1961     Sept. 1962

SOLICITOR OF LABOR:
    P.J. Nash                          Sept.   1970     Present
    L.H. Silberman                     %Y      1969     Sept. 1970
    Harold C. Nystrom (acting)         March   1969     May     1969
    L.D. Friedman (acting>             Jan,    1969     Feb. 1969
    Charles Donahue                    March   1961     Jan.    1969

ASSISTANT SECRETARYFOR EMPLOY-
     T STANDARDS(note a):
    Arthur A. Fletcher                 Msbr    1969     Present

"Title   changed frm Assistant   Secretary    for Workplace Stan-
     rds in April 1971.  The Assistant    Secretary  for Wage and
 Labor Standards was redesignated      as Assistant  Secretary
 for Workplace Standards in August 1970.




                                                      U.S.   GAO. Wash.,   D.C.

                                 46
                                              ,-i




 Copies  of this report are available     from the
 U. S. General Accounting     Office, Room 6417,
 441 G Street, N W., Washington,     D.C., 20548.

  Copies are provided    without        charge to Mem-
  bers of Congress,     congress iona I committee
 staff members, Government         officials,     members
 of the press, college     libraries,       faculty mem-
 bers and students.     The price to the general
~ public  is $1.00 a copy. Orders should be ac-
 companied    by cash or check.