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CHAPTER 1

INTRODUCTION

The General Accounting Office has reviewed the policies, procedures, and practices of the Department of Labor for making determinations of minimum wage rates required to be paid to construction workers employed on federally financed construction projects under the provisions of the DavisBacon Act of 1931, as amended (40 U.S.C. 276a), and more than 50 related acts. The review was specifically directed to an evaluation of whether the act was being administered by the Department in a manner that would produce reasonable and realistic minimum wage rates applicable to federally financed construction contracts. The dollar value of construction contracts covered by wage determinations averaged $14.1 billion in fiscal years 1968 and 1969, amounted to $28 billion in fiscal year 1970, and is estimated to be $30.1 billion in fiscal year 1971.

As used in this report, the term "federally financed projects" refers to projects constructed under federally awarded contracts or financed, in whole or in part, under either Federal grants and loans or federally insured mortgage loans.

Starting in June 1962 we issued a series of reports to the Congress on our reviews of wage determinations for several major construction projects, pointing out areas needing improved administration by the Department. (See app. I.) In some cases remedial action was taken in response to our reports, and the Department informed us of several corrective steps in general administrative procedures that were under way or under consideration.

This report summarizes the basic shortcomings in the wage determination process revealed by our reviews and presents both our recommendations for further action by the Department and a proposed change in legislation for consideration of the Congress.

Certain of our findings corroborated those of Department employees and private consultants that resulted from their studies of the Department's wage determination practices under the Davis-Bacon Act.

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 prevailing 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 AUTHORITY

Legislation requiring the payment of minimum wages to laborers and mechanics employed under federally awarded contracts 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

any.

The principal objective of the 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 based on wages prevailing in the communities to be protected.

The legislative history of the Davis-Bacon Act indicated 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

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 similar construction.

The legislative proceedings indicated also that determinations 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 contracts, even though not awarded by the Government, similarly should protect locally prevailing wage standards. These laws apply to contracts for construction of projects involving Federal grants, loans, or mortgage loan insurance and usually specify that, 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.

WAGE DETERMINATIONS

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 contract as the minimum wage rates to be paid to mechanics and laborers employed on federally financed construction projects.

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.

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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 documents. 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 Department started issuing area wage determinations covering several 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 totaling 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.

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CHAPTER 2

EFFECTS OF IMPROPER WAGE DETERMINATIONS

The prescribing of minimum wage rates for federally financed construction projects that are substantially higher than the wage rates actually prevailing for similar construction 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 family 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 prevailing 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 result we believe that the Federal Government and beneficiaries of federally financed projects have obtained less construction per dollar than have builders of projects not financed with Federal funds.

The wage rates prescribed by the Department are principal 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 insurance, an increase in project costs imposed on the sponsors and/or users of the housing units may result in added mortgage risks to the Government.

Using the results of our previous reviews of specific wage determinations for 29 selected federally financed construction 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