The proposal facilities action against such restraint by creating a presumption that any technique, mode, material, or product ap proved by a nationally recognized, standard-setting or testing agency does not have adverse effect on working or living conditions. This would shift the burden of proof to those defending the standards and obviate the heavy burden placed on companies, such as Kingsberry Homes, faced in the case I described.

We would suggest several changes to make S. 3373 more effective. First, we would prefer to see the benefits of the bill broadened to apply to all newly constructed housing, not just housing assisted under Federal programs.

The problems to which the bill is addressed are faced by all industrialized housing producers, and a susbtantial part of our industry does not sell housing exclusively for federally assisted programs.

Also, both in the House and the Senate version of the Housing and Urban Development Act of 1972, there is created the National Institute of Building Science or Standards, as it is referred to in the House bill, which has the power to promulgate performance criteria standards in the area of new building technology.

Certainly, any NIBS approved process should also create the same presumption referred to above, and we believe the act should so state.

With these small changes, we reiterate our support for S. 3373. We feel that industrialization in housing presents the most meaningful way of keeping spiraling housing costs down. This means a saving to both the housing consumer, and to the Government which assists in financing so much of the housing built today.

However, these costs can only be kept down to the extent that we can do away with unwarranted restraints to new technology, no matter where their source.

S. 3373 would provide portal to achieving these objectives. Because of the limitations of time, we have devoted most of our testimony to S. 3373.

However, I would like to express our support of S. 3654, introduced by yourself. This would remove the applicability of the Davis-Bacon Act to projects constructed with Federal assistance under the National Housing Act of 1934 and 1937. The Davis-Bacon Act is just not suited to the residential housing construction industry with its large number of relatively small contractors.

Administratively, it has proven to be a nightmare and has been a source of delay in many FHA projects, due to the lengthy time often required to determine the prevailing wage rate in an area. It often forces the cost of residential construction up, needlessly, in areas where homebuilding is traditionally nonunion.

Substantially, it has been equally harmful in keeping small builders from participating in the Federal programs because of the unrealistic determination of prevailing wage rates set for their region.

For these reasons, we urge favorable action on S. 3654.

In closing, we thank you for the opportunity of appearing here be fore you.

As uniformity of regulations and standards can be achieved in building, we will be able to, first, stabilize building costs; and secondly, eventually, reduce them to the benefit of the buyer, or the renter, as well as the taxpayer.

Thank you.

Senator TOWER. Thank you very much, Mr. Smith, for your testi

mony.

(The full statement of Mr. Smith follows:)

STATEMENT OF ROBERT C. SMITH, PRESIDENT, NATIONAL ASSOCIATION OF BUILDING MANUFACTURERS

Mr. Chairman: My name is Robert C. Smith. I am President of the National Association of Building Manufacturers, headquartered in Washington, D.C., as well as the General Manager of Boise Cascade Manufactured Housing Group, a company that has long been active in the building industry. I am here today to testify on behalf of the National Association of Building Manufacturers, a trade association of over 400 companies which collectively produce over 50 percent of the factory manufactured or industrialized housing produced in this country. Accompanying me are Richard L. Bullock, Executive Vice President of NABM, and David Falk, of Frosh, Lane and Edson, Washington, D.C., general counsel to our organization.

First, I wish to express the gratitude of our industry to your Committee for holding hearings today on the important measures introduced by Senators Brock and Tower, for, as will be stated in the testimony, both S. 3373 and S. 3654 are of singular importance to the industrialized housing industry. In 1970, this industry accounted for nearly 300,000 code complying housing units. Last year this figure increased to about 400,000 units. Similar growth is expected for 1972. These statistics, by the way, do not include mobile home units. Impressive as these figures are, they would be even more so but for the problem of unwarranted restraints on industrialized housing which not only impede the production of housing but usually force costs up without proportionate increases in value.

The multiplicity of building codes prevailing in most local jurisdictions around the country presents a major problem for production of industrialized housing. The economic shipping radius of one factory may be several hundred miles. This may embrace several states and hundreds of local political jurisdictions, each with an individual set of building codes, and a regulatory body of enforcement of these codes. The result is that the industrialized housing producer is faced with a wide array of differing and even contradictory standards and requirements in a single market area, making it impossible to design a housing unit that will meet the code-requirements of every jurisdiction. Consequently, the manufacturer must constantly adjust his production processes to meet the requirements of the particular jurisdiction that he is supplying. The economies of industrialization are dissipated by this lack of uniformity.

Secondly, the manufacturer sometimes finds requirements in jurisdictions which he cannot effectively meet at all. In some jurisdictions, only one type of building material is permitted, to the exclusion of all others, without regard to their performance in actual use. Or, only one design of a building element is permitted. Or, to cite another typical situation, the building code permits the local code enforcement official to accept materials or techniques that are equivalent in performance to those specified in the code, but the code enforcement officials are unwilling to exercise their authority in this respect. Elsewhere, the codes specify inspection practices by code enforcement officials that interfere with the industrialized process. Most frequent are provisions that have the effect of prohibiting closed-wall construction at the factory.

The situation I have described is wasteful. It deprives the producer, the developer and the consumer of the full economic benefits inherent in industrialization in the building process.

Let me give you some examples of what I mean:

In one medium size mid-western city, Kalamazoo, a study showed that a new building would have to meet five different state codes, four different city codes (building, plumbing, electrical and mechanical), pass inspections by seven different agencies and get seven licenses plus seven different state and city permits. In Massachusetts there is a plumbing board's directive requiring that housing built in a factory must have the plumbing exposed over every inch of its length so that it can be inspected on-site. In such cases, there would be no sense in including the plumbing as an integral part of the manufacturing process, thus obviating an advantage of factory-produced housing.

In one case of which I am particularly aware, involving Kingsberry Homes, within our Boise Cascade Manufactured Housing Group, we had to bring a very costly federal court action against the Commissioners of a Georgia county

who had denied us building permits because our manufactured homes differed from the local building code in two very inconsequential respects, such as whether roof sheathing should be th or 1⁄2 inch. In order to win our case, we had to undertake extensive tests of our product as well as present expert testimony. On hearing our evidence, the Court ruled that the local codes were both unreason. able and unenforceable. However, this specific example lasted almost three years and cost $10,000 in legal fees, not to mention uncounted management hours expended during this suit. Many smaller manufacturers could not have carried on this fight and the factory marifactured house would never be erected.

Similar problems exist as a result of restrictive zoning codes. In several instances, communities have attempted to zone out houses produced in a factory, although they are equal-or superior-in style, appearance, and code compliance, with a conventionally built house. Oftén city officials confuse factory produced houses with non-code complying mobile homes, and zoning ordinances properly restricting the latter are wrongfully applied to the former.

In the labor area, problems are equally vexing. We are aware of many instances where labor contracts or work practices impede the use of factory manufactured housing or add such additional expenses that our inherent cost advantage disappears. An example of the problem is frequently seen where a union may refuse to handle or work with manufactured components at all or unless they are first dismantled and rebuilt by employees at the job site. Under certain circumstances the National Labor Relations Board may find that such practices are illegal secondary boycotts. However, even in these instances administrative delays, costly appeals and varying interpretations of the law can make any remedy which the Board may fashion either moot or useless in a practical sense to the builder or the supplier faced with tight scheduling requirements. The impact these practices can have on the marketability of manufactured components or the efficiency of new building methods is clear.

Another area of concern is the demand by a union for what amounts to "double coverage" on tasks which have been simplified by new building methods into jobs requiring fewer men. A current problem recently faced by housing manufacturers in the midwest is the demand by operating engineers to work a truckmounted crane which has traditionally been operated by the truck drivers to hoist panelized roof and wall sections delivered from the factory to the site. Under the prevailing wage scales in that area, this action would increase the cost of a house package by $100 or more but would yield no increase in value to the buyer. This particular case is under consideration by the National Labor Relations Board after months of litigation and thousands of dollars in legal expenses. Obviously, if this work assignment is split as demanded by the union the increased cost will have an adverse impact on the progress of this type of construction.

We believe that S. 3373 would be most beneficial in remedying some of the problems we discussed, by proscribing unnecessary restraints on the use of industrialized houses in HUD programs. The proposal facilities actions against such restraints by creating a presumption that any technique, method, material or product approved by a nationally recognized standards setting or testing agency does not have an adverse effect on working or living conditions. This would shift the burden of proof to those defending these standards and obviate the heavy burden placed on companies such as Kingsberry Homes faced in the case I described.

We do suggest some changes to make the provisions of S. 3373 more effective. First, we would prefer to see the benefits of the bill broadened to apply to all newly constructed housing, not just housing assisted under federal programs. The problems to which the bill is addressed are faced by all industrialized hous ing producers, and a substantial part of our industry does not sell housing exclusively for federally assisted housing.

Secondly, the presumption provision could be made more effective. I refer to lines 7 through 10 on page 2 ofthe bill, establishing the presumption when the product conforms to standards approved by:

"... any nationally recognized standard setting or testing agency (1) ap proved by the Secretary of Housing and Urban Development, and (2) qualified and equipped to perform suitable tests or evaluations."

We believe that the requirement that such agency "be qualified and equipped to perform suitable tests or evaluations" is superfluous in view of the requirements that the agency be approved by HUD. Also it is ambiguous as to who must decide whether the agency is qualified and equipped-the Department of Housing and Urban Development or the court in which the matter is tried.

Third, both in the House and Senate versions of the Housing and Urban Development Act of 1972 there is created the National Institute of Building Sciences (or Standards as it is designated in the House Bill) (NIBS) which has the power to promulgate performance criteria standards in the area of new building technology. Certainly, any NIBS approved process should also create the "presumption" and the act should so state.

With these caveats, we reiterate our support for S. 3373. We feel that industrialization in housing presents the only meaningful way to keep spiraling housing costs down. This means a savings to both the housing consumer and to the government who assists in financing of so much housing today. However, these costs can only be kept down to the extent that we do away with unwarranted restraints to new technology no matter what their source. S. 3373 would provide an imporant tool to achieve their objective.

Because of the limitations of time, we have devoted most of our testimony to S. 3373. However, I would like to express our support for S. 3654, introduced by Senator Tower, which would remove the applicability of the Davis-Bacon Act to projects constructed with federal assistance under the National Housing Act of 1934 or the United States Housing Act of 1937. The Davis-Bacon Act is just not suited to the residential housing construction industry with its large number of relatively small contractors. Administratively, it has proven a nightmare and has been a source of delay of many FHA projects due to the lengthy time often required in determining the prevailing wage rate in an area. And, it often forces the cost of residential construction up needlessly in areas where housebuilding is traditionally non-union. Substantively, it has been equally harmful by keeping small builders from participating in the federal programs because of unrealistic determinations of prevailing wage rates set for their region. For these reasons, we urge favorable action on S. 3654.

In closing, we thank you for the opportunity of appearing here before you and would only add that as uniformity of regulations and standards can be achieved in building we will be able to first stabilize building costs and secondly, eventually to reduce them to the benefit of buyers and renters alike, as well as all taxpayers and citizens.

Senator TOWER. I would like to order that the record of the proceedings be kept open, until Friday, next; so that we may include any additional material, pertinent to the record on these two bills: S. 3373,

and S. 3654.

At this point in the record, I would like to insert two excellent studies of the Davis-Bacon Act prepared by two professors at the Graduate School of Business of the University of Chicago-Prof. John P. Gould and Prof. Yale Brozen. As economists, Professors Gould and Brozen offer interesting insights into the matter of prevailing wages in their most definitive and scholarly works. I should also like to include at this point an excerpt from the Congressional Record and articles from the Wall Street Journal, Barron's, and the Washington Post, each of which bears direct relationship to the subject of the hearings we have conducted this week.

THE DAVIS-BACON ACT: How To LOAD THE DICE AGAINST YOURSELF

By Yale Brozen Professor of Business Economics Graduate School of Business University of Chicago

Unusual and quixotic as it may seem, and contrary to the spirit of the laws requiring the award of government business to the lowest bidders, the Federal Government does not seek the lowest bids available on its construction projects. It also does not permit those whose projects it subsidizes to seek the lowest bids available. Attached to the grants provided by the Hill-Burton Act for meeting 50% of the cost of local hospital construction, for example, is a requirement which outlaws those who might bid lowest. Even where the subsidy provided is indirect, such as guaranteeing a loan or providing part of the interest on a loan, as in the case of the Federal Higher Education Facilities program, those who might bid lowest are barred from bidding.

For each construction project financed or assisted by the Federal Government, the Secretary of Labor is empowered by the Davis-Bacon Act to set minimum wage rates. A separate minimum is set for each of the crafts in advance of inviting bids. Contractors who bid must agree to pay at least these government determined minima on the project.

The minima set by the Secretary of Labor are not at the level that may be required to ensure a family income above the officially defined poverty line for a single worker or for a family. Typical of the minimum rates set is an $8.58 rate for carpenters and a $6.00 an hour rate for trainees in Gary, Indiana. In Washington, D. C., the minimum for steamfitters is $8.12 and that for common laborers is $5.24.

THE VIOLATION OF THE LAW BY THE SECRETARY OF LABOR

The Secretary of Labor is empowered by the Davis-Bacon Act to set minimum rates for construction workers at the level of prevailing wage rates in the "city, town, village or other civil subdivision of the state in which the work is performed." The rates he sets, however, are never the average of rates paid in the area for the skills in question. They are almost always at least as high as the union rates found in the "city, town, or other civil subdivision in which the work is performed." Union rates are usually above the average rate paid to the construction workers in the area.

The average union scale for all construction trades in the United States in 1967, for example, was $4.83. Actual average hourly earnings of construction workers in 1967 ranged from $3.80 in heavy construction and $3.96 in building construction to $4.10 in contract construction and $4.35 in special trades. The actual average hourly earnings of journeymen ranged from 75 to 85% of the union scales. These prevailing rates, however, are not the rates used for Davis-Bacon minima. They are set at the union scale in over 90% of the Federal determinations.

In a large number of instances, the Secretary sets minimum rates above even the union scale found in the area "in which the work is performed." Higher union rates in some other area fifty or seventy-five miles away from where the work is to be done are frequently used instead of local rates, despite the instruction in the law to the contrary. In over 50% of the determinations, union rates from a county other than that in which the work was done were used. The 450 unit Capehart housing project at the Marine Corps Schools, Quantico, Virginia, provides an example of the importation of a high rate into a lower rate area. The Wage Determination Division of the Department of Labor used union rates from Washington, D.C. to set a schedule of minimum rates for various crafts at the Quantico project. The rates set ranged from 65 cents to $1.95 an hour higher than the rates paid by the builders of a 300 unit private housing project and another 400 unit private housing project constructed in Quantico in the same time period. The Davis-Bacon minimum rates for this project could hardly be called prevailing rates in the area. They were higher than the highest rates found in a Navy survey of wage rates in the area. The amounts by which the minima exceeded the highest rates paid ranged from three cents to $1.49 for the various crafts. The highest rates paid found in the Navy survey were Davis-Bacon minima which had been set by earlier determinations for federally assisted projects.

PERVERSION OF THE ACT'S PURPOSE

The original purpose of the Davis-Bacon Act was, in the words of Congressman Bacon (N.Y.), "simply to give local labor and local contractors a fair opportunity to participate in the federal building program." At the time (1931) a Southern contractor had won the bid to build a Veterans' Hospital in New York. He imported "some thousand" Southern construction workers to do the job. The wage paid by the contractor was below that which prevailed in Congressman Bacon's district. The higher prevailing wage in the Congressman's district prevented local contractors from bidding as low as the "interloper."

Since the Secretary of Labor has begun setting minimum wage rates for federal and federally assisted construction, the purpose of the act has been perverted. Instead of setting minimum wage rates at the level prevailing in "the city, town, village or other civil subdivision of the state in which the work is performed," as the law requires, the Wage Determination Division of the Department of Labor frequently sets rates on the basis of union rates in cities or counties which are not even contiguous to the counties in which the work is to be done. In some