Hearing Relative to H. R. 3345 and H. R. 11245 Requiring That Certain Subcontractors Be Identified on Bids for Public Works Contracts

Published by the Government Accountability Office on 1971-04-07.

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

                     COMPTROLLER      GENERAL      OF      THE   UNlTED   STATES                ‘J     _
                                                                                   /,   -   ,
                                    WASHfMGTOrY.    D.C.     23948

B-109181                                                                           Illlllllllllll
Dear Mr.    Chairman:

       By letter      dated February 20, 1970, our Office        replied   to your
letter    dated February 6, 1970, wherein you advised us that a hesring
would be held on March 11, 1970, relative               to H.R. 3345 and H.R. ll245,
gist Congress.         These identical      bills would require    that certain    sub-
contractors       be identified      on bids for public works contracts.        An iden-
tical   bill,     H.R. 10, has been introduced        in the 92nd Congress.      In our
letter    of February 20, 1970, we advised you that our Office               had no audit
experience      in the area and that we had no recommendations           to make
regarding     the merits       of the proposed legislation.

       Subsequently, we have made a review of this matter.       In this review,
we were unable to obtain any significant      new information   not already
received   by your Committee in the testimony    over the years.      Since we
noted, however, a lack of uniformity     in agency procedures    related   to
this area, we are sending a copy of this letter        to the Commission on
Government Procurement.

       As stated in the subject bills      requiring      the naming of subcontrac-
tors in bids on certain       Government construction        work, the intent    of such
a requirement      would be to promote fair competition           among prime contrac-
tors and subcontractors       and to curb a practice        referred   to as bid shop-
  -.m.. i.e.,   efforts  of a prime contractor,      after     awsrd of a contract,    to
secure lower subcontract       prices.

       The proposed legislation        defines a subcontractor             as an individual
or firm with whom the prime contractor               proposes to enter into a subcon-
tract   for manufacturing,      fabricating,       installing,       or otherwise        perform-
ing work pursuant      to the specifications.            The categories        of subcontrac-
tors to be listed      (named) by the bidders would include                 "plmbing,        heating,
air conditioning     and ventilation,        electrical,        elevators,     painting,
masonry, tile     and terrazzo,     granite,     lathing       and plastering,       roofing,
and all other categories        comprising      more 43s .?$ percent           of the total
estimated    cost of the contract".          Other categories          could be included          at

                          50TH ANNIVERSARY                  1921- 1971
the discretion of the contracting  officer.  Only the name of the sub-
contractor and the type of work to be performed would be required to
be specified on the bid documents.
      Because of your Committee"s interest,  we inquired into the current
procedures of Federal agencies as related to specifying subcontractors
in prime contractors'   bids and attempted to obtain information bearing
on the merits of the proposed legislation,   including information on the
extent of any problem areas that would indicate the need for a closer
control of subcontractor    selection.
       In connection with this examination, we studied the history of
previously proposed subcontractor listing    legislation    and applicable
position papers of various Government construction       agencies.   We also
reviewed the listing    regulations of the Generti Services Administration
and the Department of.the Interior    and examined some of their contract
      Further, we studied the statutes governing subcontractor      listing
in the States of California    and Massachusetts and also secured and con-
sidered the opinions of about Xl.0 individuals    in Washington, D. C., and
the States of California    and Massachusetts.   These individuals    repre-
sented Government and State construction     agencies, prime contractors,
subcontractors,   trade associations,  and legal, financial,    and surety
organizations   and firms.
       Although there is no Federal. legislation          requiring that names of
subcontractors be submitted by prime contractors with their bids, two
agencies--the General Services Administration             and the Department of the
Interior--have     administrative     regulations   requiring     such information
for certain construction        contracts.     In addition,    some States, notably
California     and Massachusetts, have had such requirements by State law
for many years.
      We found that    the Federti agencies hating listing requirements were
generally following      their stated procedures. We noted that these pro-
cedures permit the     requirements to be waived pursuant to administrative
determination,   and   we found instances wherein such waivers were made.
        The Department of Defense, which awards more construction  work by
far than any other Federal agency and does not require subcontractor
listing,    has received, according to Defense officials,  very few com-
plaints of bid shopping.

        We were given the following       assertions, pro and con, regarding
the desirability     of requiring    bidders on Government construction      work
to list    the names of their     subcontractors.

       --The subcontractors    would be protected  because their    bids                  to
          the prime contractor   could not be lowered unilaterally,

       --More subcontractors        would submit bids and the increased com-
          petition     would result   in lower subcontractor bids and in turn
          lower    prices,

       --Better    wortianship would result        because the subcontractors
          would   not have to "cut corners”        to make reasonable   profits,

       --Subcontractors   would not be forced into              financial        distresses
          caused by price squeezes from the prime               contractor,

       --The practice   of bid shopping would be curbed                  and more ethical
          conduct in the bidding process would result,                   and

       --The awarding authority      would      have more control          in the selec-
          tion of subcontractors.


       --Competition      would be reduced because           of the complexity    of a
          listing    procedure,  thereby presumably           increasing  construc-
          tion costs,

       --The time required   for preparation          of bids would be extended
          because bid shopping would tske          place before rather  than
          after  award of the contract,

    I --Some otherwise      valid   low prime     contract      bids     would    be rejected,

       --As the proposed law would permit subsequent substitution     of
          subcontractors,  with cause, the Government would be inter-
          jected into disputes  between the prime contractor  and

       --Subcontractors     could make it difficult       for          a particular   prime
          contractor    to bid by collusively    withholding             all of their
          bids, and

                                                                                      - 3 -
     --Higher prices would result because of the prime contrac-
       tor's exposure to more risk and more complicated    procedures
        and also because the prime contractor would not be able to
        anticipate getting lower subcontract  costs through bid shop-
       ping in determining the bid price.

       We were unable to document or prove any of the assertions pro or
con regarding the effect of having a subcontractor listing        requirement
for construction    contracting.    Our Office has, however, received com-
plaints of bidders whose bids were rejected because of failure to comply
with listing   requirements.     During this current review, although bid
shopping was generaLLy acknowledged by Government contracting         personnel
and by State officials     and responsible IndividuKls    in the construction
industry to be a prevalent practice,       we were not furnished  etidence    of
any specific case of bid shopping hating occurred.
      We conclude, therefore,     that our review disclosed insufficient
evidence to support a position for or against legislation        requiring   sub-
contractor listing   in bids under construction      contracts.  We believe,
however, that the lack of uniform2ty among the Federal agencies as indi-
cated by the diametrically      opposed procedures--some agencies with and
others without listing     requirements --may warrant consideration.
                                             Sincerely   yours,

                                                              9v 4-L
                                Aesistant                    eneral
                                             of the United    States

The Honorable l3manuel Celler
Chairman, Committee on the Judiciary
House of Representatives