APPENDIX II Analysis of wage determinations issued dur- areas Page 42 III Letter dated April 2, 1971, from the Depart- 43 IV Letter dated October 9, 1970, from the De- 44 V Principal officials of the Department of La- 46 COMPTROLLER GENERAL'S NEED FOR IMPROVED ADMINISTRATION OF THE DIGEST WHY THE REVIEW WAS MADE In a series of reports issued between June 1962 and August 1970, the Because of the large volume of wage determinations made by the Department--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 communities from the depressing influences of lower wage rates at which workmen might be hired elsewhere and brought into the communities on construction work. This objective was to be accomplished through contract conditions requiring payment of not less than minimum wages. These minimum 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. FINDINGS AND CONCLUSIONS GAO's reviews made over the past decade covered wage rate determinations for 29 selected construction projects, including military family housing, 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.) Higher wage rates 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. (See p. 9.) The inflationary impact of minimum wage determinations was highlighted by the recent action of the President of the United States. He temporarily 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 conditions. (See p. 16.) In many cases, the Department has not distinguished between different types of construction, such as commercial and residential, although significant 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 pp. 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 could be particularly desirable in areas of hard-core unemployment. To obtain up-to-date wage information--including data on wage patterns RECOMMENDATIONS OR SUGGESTIONS The Secretary of Labor should: --Formulate explicit guidelines and criteria covering the principal --Implement improved procedures for collecting needed data on basic wages and fringe benefits. To supplement its own efforts, the Department should 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. (See p. 34.) AGENCY ACTIONS AND UNRESOLVED ISSUES By letter dated April 2, 1971, the Assistant Secretary of Labor for Administration informed GÃO 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 continuing its efforts to find a practical solution to the accurate predetermination of prevailing wage rates. In commenting on GAO's report to the Congress of August 12, 1970, the --more accurate determinations of prevailing wage rates for residential construction; --more onsite surveys contingent upon its budgetary resources and available field staff; and --extensive revisions of the regulations, to clarify distinctions between different types of construction and to facilitate more adequate collection of relevant wage data. (See app. IV.) MATTERS FOR CONSIDERATION BY THE CONGRESS The Congress may wish to consider a revision of the Davis-Bacon Act to |