The higher wage rates that result from inappropriate minimum wage determinations not only increase the costs borne by the Federal Government but also can adversely affect the economic and labor conditions in the area of the project and in the country as a whole. The inflationary impact of minimum wage determinations was highlighted by the President of the United States when he suspended the Davis-Bacon Act and related legislation from February 23 to March 29, 1971, because of the severe inflationary pressures existing in the construction industry.

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.

We believe that these objectives could 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, we believe that explicit guidelines and criteria were needed on the principal elements of adequate wage determinations. We found that:

Although 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.

In defining the geographical area for which prevailing wages were to be determined, the Department, in some cases, went beyond the county where the project was located and applied rates from other, sometimes nonadjacent, counties or from another State having different labor

conditions.

In many cases, the Department had not distinguished between different types of construction, such as commercial and residential, although significant variances exist between labor rates applicable to different types of construction.

The Department had 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.

If the union-negotiated wage rates were determined as prevailing, the fringe benefit rates, required by a July 1964 amendment to the act, were also based directly on the fringe benefits prescribed in the negotiated agreement. Therefore, if the union-negotiated rate did not actually prevail but was so designated, the fringe benefits determination was equally inappropriate.

Also, the Department's wage determinations had not generally prescribed separate rates for helpers and trainees. 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 could be particularly desirable in areas of hard-core unemployment.

We pointed out that to obtain up-to-date wage information-including data on wage patterns and labor practices in specialized construction-the Department needs the cooperation of the Federal agen

cies which finance construction projects subject to minimum wage determinations.

Efforts have been made 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.

We also noted two possible improvements in the collection of wage data upon which Davis-Bacon wage determinations are based.

During our earlier reviews, we found that more accurate wage data and more realistic wage determinations resulted when on-site surveys were performed. We recommended, therefore, that more onsite surveys be conducted to supplement and verify information obtained from other sources. The Department has informed us that more on-site surveys are being conducted and that this is now a major source of wage data for Davis-Bacon Act wage determinations.

We also found that the compilation and storage of wage and fringe benefit data was performed manually and that the data was not organized in a manner which would make it readily usable in determining prevailing wage rates.

In response to our recommendation, the Department had a preliminary study performed which indicated that the automation of this system was possible, and informed us that further study would be performed before a final decision was made on the matter.

A Department official subsequently advised us that the decentralization of responsibility for gathering wage rate data to field offices has made the use of an automated system infeasible.

In our July 1971 report, we recommended that the Secretary of Labor:

Formulate explicit guidelines and criteria governing 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, we recommended that the Department establish with the principal Federal agencies financing construction contracts a formalized and continuing working relationship for the exchange of pertinent wage information.

Require that, where appropriate and in accordance with labor practices, helper and trainee classifications be included in the Department's wage determinations.

We understand that the following corrective actions have been initiated by the Department in response to our recommendations:

Guidelines and criteria governing the principal elements of a wage determination are included in an interim manual, issued in February 1972, for making Davis-Bacon wage determinations.

Federal regulations on labor standards are being revised to clarify distinctions between different types of construction and to facilitate more adequate collection of relevant data. Revised regulations will probably be issued in September 1972.

Early in fiscal year 1971, 27 resurveys of wage rates on residential construction resulted in minimum wage rates being lowered in 19 cases, by an average of 35 percent.

A plan was instituted to obtain wage rate data on housing construction through the Department of Housing and Urban Development and possibly other Federal agencies.

Regulations became effective on January 30, 1972, requiring the employment of apprentices or trainess on certain Federal or federally assisted construction and providing for minimum wage rates for these employees.

Because of the recency of these actions, Mr. Chairman, we have not been able to evaluate the effect they have had on wage determinations.

We also recommended in the report that the Congress consider revising the Davis-Bacon Act to increase the minimum contract cost subject to wage determinations from $2,000 to between $25,000 and $100,000, which would be more representative of present day costs of construction projects.

We believe that such an increase would substantially reduce the number of wage determinations required without appreciably affecting the objective of the act.

The bill under consideration today would remove from the minimum wage requirements of the Davis-Bacon Act contracts entered into pursuant to the National Housing Act and the United States Housing Act of 1937.

We are not able to determine the exact effects of the bill, if enacted, but information we obtained from the Department of Housing and Urban Development indicates covered program levels totaling about $5 billion in fiscal year 1971 pursuant to these two housing acts. Information on the amount of construction contracts actually awarded under the two acts which would be amended was not available.

Mr. Chairman, that completes my statement. We would be happy to respond to any questions which you may have.

Senator TOWER. Thank you for a very comprehensive statement. I would like to ask some questions relative to the July 1971 report. (The report is reprinted at p. 471.)

On page 11 of that report, you comment briefly concerning morale problems that exist among workers that have worked on federally financed projects, and how their morale is adversely affected when these projects are completed and they go on to privately funded projects.

Can you expand on that comment?

Mr. AHART. The information included in the report was based on discussions which we had with small contractors in a number of areas. They indicated to us that they were reluctant to bid on projects which were subject to the Davis-Bacon Act, because if they got themselves in a position where they had to pay the higher wages and then had to go back to privately financed construction, it would disrupt their relations with their own workers.

So, in effect this limited to some degree the competition which would be obtained on certain of the projects for which the smaller contractors or the local contractors might otherwise have submitted a bid. Senator TOWER. Generally, it tends to discriminate against the smaller contractor?

Mr. AHART. It would, if he is in that situation, and is not bound by a union agreement.

Senator TOWER. Now, you did not mention in your statement today about the 30-percent rule. However, in your July report on page 22, there is strong language to the effect that there exists a need for a more equitable rule.

Apparently the 30-percent rule can work both ways, that is, either require a wage scale, far above the medium, or one perhaps far below. Now, in either case there is an obvious lack of equity. Can you comment on this rule?

Mr. AHART. We did discuss that in our report, Mr. Chairman, and what we were suggesting is that there ought to be a more equitable application of the concept of prevailing wage rates. What happened under the 30-percent rule was that if the Department found that 30 percent of the employees included in the survey received a particular wage, this was determined to be the prevailing rate. One of the examples we included in the report was that out of 16 electricians that were included in the survey, they found six-which was more than 30 percent-which had a rate of $2.70.

Now, this became the prevailing rate even though the other 10 employees included in the survey were receiving wages considerably higher than that. As you mentioned, reverse can also happen; out of 102 carpenters included in a particular survey, 31 were found to be paid $4.25, and that became the prevailing rate, even though the remaining 71 employes received rates considerably below that ranging down to about $2.50 an hour.

So what we were suggesting was that there ought to be a more reasonable application of the concept and some departure from the 30percent rule.

This involves also the fringe benefits problem which I did mention in my statement. Where the 30 percent rule is applied and you find a rate, and there are fringe benefits attached, you may get that tacked on as part of the minimum rate prescribed, even though no other workers in the survey may have received fringe benefits, or fringe benefits of that particular magnitude.

Senator TOWER. Thank you, Mr. Ahart.

Senator BROCK. I have a couple of additional questions. You mentioned you found that the Department had not distinguished between different types of construction, although significant variances exist between labor rates applicable.

I have noted that Davis-Bacon has applied in rather broad geographical areas. I think you mentioned sometimes they would even include noncontiguous counties, in a different State, that would be included under the prevailing wage determination.

Did you get into the disparity between, say, a rural, residential construction, as opposed to urban-residential construction? You do not mention that specifically, but in my own State, there is a rather sizable difference. What we have found has been that the application of urban rates to rural construction, either residential, industrial, or commercial, creates a problem whereby, in many cases, rural communities simply cannot afford a Federal Housing Project.

They simply cannot afford to do it, because it places the price so high that they cannot repay the debt.

Senator TOWER. I might note the same problem exists in my State, where a small town 100 miles from Dallas may be required to pay the union-the highest union negotiated rate in Dallas.

Mr. AHART. To comment on your question, Senator, my colleagues here can probably fill in the details much better than I. I do recall the work that we did with respect to housing at Quantico, Va., and in that particular case they were using the prevailing rates in the Washington metropolitan area as such, the Washington, D.C. area, and in effect, importing those rates into the Quantico area without giving consideration to the substantial amount of privately financed housing which was being built in that particular area.

Now, I do not know if we have any more similar cases.

Mr. Brown, who has been involved in this work over the whole decade, could probably give more details.

Mr. BROWN. We did not go into the specific areas, except Quantico, as Mr. Ahart mentioned.

But, we did know, from our general survey, that they were using the urban rates for the rural areas. This was due to the fact, I think, that when a negotiated agreement rate is used, it also covers the negotiated agreement area, so the union jurisdiction would cover a lot of these rural areas, and therefore, the rate would be blocked from the urban areas into the rural areas.

Senator BROCK. But, we have had situations where the union jurisdiction does not cover that particular area. For example, in a county that is situated halfway between Chattanooga and Knoxville, the prevailing wage might be established on the Chattanooga basis, and yet they might be under the Knoxville union jurisdiction.

Now, what conceivable logic could you have to that situation, and yet it is done time and time again by the Labor Department.

To me, the tragedy is not the Davis-Bacon Act, which had, as you point out, a very logical premise as its objective, but the way it has been mismanaged and misapplied. In this instance we have found, time and again, smaller counties, simply unable to provide services to their communities with Federal support because they could not afford to pay the support, and I think it would be well in your continuing studies if you might crank this in, to see the magnitude of this kind of problem, if you would?

Mr. AHART. We will be happy to give that consideration in our future work, Senator.

Senator BROCK. You also mentioned that the Department's wage determinations had not generally prescribed separate rates for helpers and trainees.

Now, you do not say so in your statement here, but what that means to me is that blacks are not getting adequate construction jobs.

Mr. AHART. It could mean one of two things, Senator. I think it could go both ways. It could discourage a contractor from picking up people in the helper-trainee category because he would have to pay them such a high wage, and not get the productivity out of it.

Or, it could increase costs, if the local labor practice was to use this category of help, and if they were forced to pay them the higher wage, and they did put them on board, it would tend to increase the cost of construction.

Senator BROCK. As you have noted, through the Philadelphia plan, and otherwise, there has been a low ratio of minority employment in the construction trades. It seems to me if the Labor Department is