I suspect we would be still debating the issue, except that HUD politely and properly informed us that if Huntsville wanted to get any more federallyflamed or insured nousing, we must approve the use of plastic drain pipe, as it fuly met teir specifications and cost less to us. With some grumbling, the od gentleman agreed, and we now use plastic drain pipes in Huntsville.

This was one small example of what happens thousands of times each year around the country. The technology is there but its application is delayed, sometimes blocked entirely by rulings, interpretations, inertia, local codes that sometimes date back half a century.

I could cite you similar examples until I bored you with detail. I will not do that.

One of the things that pains me greatly I will touch on. As an American, I was brought up to think and believe that we are the best, that whatever way we do things is bound to be the best because we do it that way. During the last twenty years especially, as I've come to know more about my own industry, and look more objectively at what other peoples do. I've been embarrassed and ashamed to realize that many of the European countries have far outstripped this country in their application of smart technology to construction.

Look around the Washington skyline at the big, tall buildings and you will see a proliferation of what we call tower cranes. A vertical tower with a rotating horizontal boom, used to efficiently lift and place materials. An American idea? Not on your life. Those machines were conceived, developed and are manufactured in Europe, imported into this country. Only within the last several years has one American company begun making these cranes. I would guess that 98% of those used in this country, and there are thousands, are brought here from Europe.

A remarkable plumbing drainage system, the Soviet System, developed in Europe and used for years is just now being used here. Our company expects to be the first in the Metro Atlanta area to use it. Float glass, concrete building systems, bridge construction methods, the list goes on and on--all ideas imported, and slowly, from our European, even Russian counterparts.

I have digressed from housing in wanting to illustrate a problem we in construction face. There is no contractor or manufacturer who conceives of and builds a better mousetrap, who has the resources or time to travel throughout the entire country, convincing each building official or board, one by one, that he has a better method that should be allowed. It can't be done that way, it isn't being done and it's costing us lots of money. Money that serves no good purpose. The Federal Government is the largest originator of housing starts. The Federal Government is the only body with enough muscle to cause the removal of arbitrary and antiquated restrictions on the application of proven technology in our industry.

Senator Brock has rightly reasoned this out and has designed excellent, constructive legislation to remove these stumbling blocks, most of them acquired by habit, inertia and the passing of time. The Senator from Tennessee is respected as a progressive, thinking man. On behalf of our pressing need for housing at reasonable cost, I respectfully ask that you give his measure your considerable attention and favorable action.

Senator Tower is to be commended for having correctly seen another inequity in our laws, and he has proposed S. 3654 to correct it. Specifically his bill would remove federally-assisted housing-and housing only-from the provisions of the Davis-Bacon Act.

The Davis-Bacon Act was enacted in 1931. The nation was at the time in the grip of a serious financial depression and was searching for means to extricate itself. Various laws to this end were enacted in the 30's. Davis-Bacon was one of them. The move was quite drastic, both the method used and the result achieved. The method was drastic because the law gave a dictatorial authority to the Secretary of Labor with respect to wage rates on federal construction contracts. The law specifies that the wages to be paid on such projects "shall be based upon the wages that will be determined by the Secretary of Labor to be prevailing 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..." Thus the Secretary of Labor was given complete authority to make the wage determinations required by the law. There was no appeal from his determination. As a result of much outery an administrative Wage Appeals Board was set up in 1963 with limited power to review wage determinations. To this day, however, the Davis-Bacon determinations are not reviewable by any court of law.

The result of the law has been fully as drastic as the method used. It has brought a government controlled wage economy in federal construction. Wage bargaining is excluded. There is no charge for the flexibility that comes from give and take which arises out of wage negotiations. The wage element of contract cost is fixed and rigid as a result of the law.

Theory Back of Law

The influence of the depression of the thirties on this and other legislation has been mentioned above. Congressman Bacon argued at the time the law was enacted that he was aiming at preventing "itinerant, irresponsible contractors" from picking off contracts here and there with "local labor and local contractors... standing on the side-lines looking in."

Whether there was really any validity to Congressman Bacon's contention has never been proved. It was in any event a most persuasive and emotional type of argument. Every legislator is desirous of protecting his own constituents and his constituents want to feel that he is protecting them.

There is an angle to the matter that was overlooked, however. The interplay of a free market recognizes the most efficient and is a benefit to the taxpayer. Every time a contractor sufficiently efficient to make the lowest bid is shut out of a locality, the taxpayers must pick up the difference. Those taxpayers in the immediate locality of the project are just as much concerned, moreover, as are the taxpayers in other localities. The multitude of citizens thus affected outweigh in importance the desirability of awarding the contract to a local bidder who is not sufficiently efficient to compete with other bidders.

Moreover, if the law was designed to protect local wage rates it has in many instances done anything but that. The facts are that wage rates which are not in fact representative have very often been imposed. They thus distort the more efficient conditions that arise out of a free market.

Referring to a study of Davis-Bacon determinations by D. M. Gujarati, Graduate School of Business, University of Chicago, Professor John P. Gould of that University, has stated in "Davis-Bacon Act-The Economics of Prevailing Wage Laws", p. 18, that the Gujarati study "suggests that the Labor Department goes beyond a reasonable commuting distance in search of 'prevailing wages.'" Professor Gould further states:

"Whatever the reason, the history of Davis-Bacon determinations indicates that these determinations have played an important role in strengthening the position of unionized construction labor, have tended to raise wages in the construction industry, and have spread high wages to various geographical localities irrespective of the wage rates that actually prevailed in those localities. "These problems appear to arise because of shortcomings in the determination of Davis-Bacon wage rates and this has led many investigators, such as the Comptroller General, to recommend improvements in the wage determination procedure. It is, however, even more important to examine the validity of the act per se. There are two reasons for this: First, there is no evidence, despite several assurances to the contrary by Labor Department officials, that the determination procedure can ever be significantly improved. The poor record of determination under the Act is, in fact, strong evidence to the contrary. Second, it seems likely that the Act would have undesirable consequences even if determination were made in strict accordance with the Secretary of Labor's directive on wage determination procedure...."

Anybody who has had experience with Davis-Bacon knows exactly what this study means by the quote above. Communities frequently find that the wage rates imposed on a local project are not the rates paid in the immediate community at all, but that wage rates paid on a project some considerable distance from the community are imposed. Moreover, the wage rates imposed are often not average at all, but are much above the average. An example from my own experience; in 1970, in Scottsboro, Alabama, a town of about 10,000, 45 miles from my home, we did a Low Rent Public Housing Project. All one story, wood frame buildings, built just like anybody's conventional house. From prior experience in the town, we knew that the prevailing wage at that time for unskilled common labor was $1.75 per hour. There had been a moderate amount of construction in the town, nothing spectacular, but a plant here and there. The town was growing. A very large metals company then built a 100-million dollar ore reduction plant and mill just outside the town. The plant has been good for the town-it has generated ancillary business and it makes a substantial contribution to the community, even though it is highly automated and employs rela

tively few production employees. It is a gigantic, complicated place. The company got the experienced, heavy construction contractors it needed from out of the state and out of town. Much of the work was on cost plus, with time being critical. These companies imported men, hired men from everywhere, scoured the countryside for men to build up a large workforce for a short time.

The plant is financed by what we call industrial Revenue Bonds, municipally issued, tax free bonds.

During the time of this frantic heavy construction, a wage determination was made for the housing project. It found that the prevailing wage for unskilled common labor was $3.45 per hour (we had experienced $1.75). The housing project was bid, we and the other contractors paid, as required the $3.30 rate, almost 200% of what we previously paid. A few months into the housing project, we negotiated a large shopping center in the town on which we paid unskilled common labor $2.00 per hour, with plenty of men available.

I submit that the labor on that housing project approached 100% higher because a large plant was being built on a crash program with taxfree funding. I don't criticize the plant owners, the other contractors or the town-they all acted in their own prudent interest, as they should. I do criticize the application of a law, unneeded in housing that caused this project to cost hundreds of thousands of dollars more than it should. You gentlemen pay for that extra cost, just as I do, but what is especially tragic is that that money would have bought a large number of additional housing units that were then and are now sorely needed by a small town unable to fully provide for its poorer citizens. I call it waste, gentlemen, shameful waste that benefits no one. It may be said that the workmen enjoyed higher wages for a time. True. However, violent ups and downs in a small town hurt the town, hurt the merchants and hurt the townspeople. If that wasted money had been spread out over a longer time period to build more units, employing the same people, but for a longer time, I submit that you, I, the workmen and the needy citizens would have a much better deal.

Gentlemen, that is not an isolated extreme case; there are hundreds similar. How does the Act produce such an irresponsible result? To understand such results, in part at least, it is necessary to look at the regulations. Section 1.2 of the regulations defines "prevailing wage rate” as:

“(1) the rate of wages paid in the area in which the work is to be performed, to the majority of those employed in that classification in construction in the area similar to the proposed undertaking;

"(2) In the event that there is not a majority paid at the same rate, then the rate paid to the greater number: Provided, such greater number constitutes 10 per cent of those employed; or

"(3) In the event that less than 30 per cent of those so employed receive the same rate, than the average rate."

Unrealistic wage rates, far higher and thus out of line with those paid locally, often arise because of this obligation to use "the rates paid to the greater number: Provided, such greater number constitutes 30 per cent of those employed."

DISTORTIONS OF LOCAL ECONOMY CAUSED BY UNREALISTIC DAVIS-BACON RATES Let's examine how this rule works in practice. Suppose some federal housing is to be built in town X. Suppose 100 carpenters have recently worked on similar projects in the county. Suppose 65 of them worked at various hourly rates-10 at $4.25 an hour, 15 at $4.15 an hour, 20 at $4.10 an hour and 20 at $4.00 an hour. Suppose, however, a similar project was completed six months previous in town Y which is 40 miles away in the same county. Suppose 35 carpenters on that project were paid $5.75 an hour. What rate will be imposed for the housing project in town X? Because of the thirty per unit rule, we may be sure the rate of $5.25 will be the required rate. It is not average. It is not even a representative rate in town X. Yet it is imported into the community where no rate that high has ever been paid.

It plays havoc with local efficiency and efforts to improve employer-employee relations. Employees paid the long established local wage rates immediately feel they are unjustly treated.

This example is hypothetical to be sure. I have already given one example from my own experience. Let me give more examples of real situations that show how Davis-Bacon rates are inflating construction costs and cause the mentioned distortions that disrupt and interfere with local wage rates and practices.

On February 21, 1971, Murry Electric Company, Inc., of Rockdale, Maryland, submitted a bid to the Veterans Administration Hospital, 3900 Lock Raven Boulevard, for installation of a government-furnished 75 KW generator, panels and necessary wiring. The job was bid under the provisions of the Davis-Bacon Act. Murry Electrical Company, Inc. was low bidder at $28,884.00. Bids were rejected because of suspension of Davis-Bacon. The job was re-bid on March 30, 1971 under the same plans and specifications, but without the burden of DavisBacon rates. This Company was again the low bidder, but at the lower figure of $22,769.00. The project was completed at a consequent saving of $6,116.00 to the taxpayers, a saving of 22 per cent.

Similarly, a bid was made on Feb. 18, 1971 by Logan Construction Company, Tampa, Florida, to the Tampa Housing Authority in the amount of $289,000 for a housing project in that area. After Davis-Bacon suspension the same project was bid by his company on March 25, 1971, in the amount of $270,382.00. There was thus a saving of over $18,000 to the taxpayers, a saving of about 6 per cent. Meisner Electric, Inc., Newton, Iowa, had occasion in 1971 to make two bids, representing two phases or two jobs of similar size on one building at the University of Northern Iowa. This employer states:

"Phase No. 1 had a Davis-Bacon minimum wage of $6.15 per hour. Phase No. 2 did not have a Davis-Bacon wage. ... we were 10% lower on Unit No. 2."

On the construction of the Jewish Rehabilitation Center for Aged of the North Shore at Swampscott, Massachusetts, the contractor has facts to show that there was a saving of twenty-three (23%) per cent on the work done above the foundation, inasmuch as that part of the work was done under a contract which reaped the benefits of Davis-Bacon suspension.

In analyzing what the Davis-Bacon Act has done to the construction industry W. I. Hogan, Secretary-Treasurer of the Dan Hogan Construction Company, Inc., in Louisiana, states:

"It is quite alarming to realize that in a time when our national economy needs every advantage and when the 'free enterprise' system needs to be able to act, without superficial imposed restrictions, we are still forced to conduct our affairs in 1972 under covenants of legislation designed for 1931 and created in 1931, and that should have been buried in the 1930's. Wages, as prices, should be determined in a free 'Market Place.'

"We have determined, through experience, that when our employees work on any project that is under Davis-Bacon Act regulations that three very detrimental results occur.

"1) The employees receive inflationary wages above their normal wages, and consequently do not produce as they normally do because they want the job to last longer so they can continue to receive the higher wages.

"2) When the project is completed, the employees do not want to return to work on other projects at the lower wage rate so they quit or if they do return to other projects, their attitude is such that their employment is terminated. This causes unemployment.

"3) Because of the high wages, we cannot economically employ apprentice workers on Davis-Bacon regulated projects and this has been an effect of creating a future shortage of supply of skilled craftsmen and this fact adds fuel to the fires of inflationary wages, through reduced labor supply."

When the Act was passed in 1931, there were relatively few federal projects and therefore few wage determinations required. Even in 1945 the number of wage determinations required was only 3,884. However, by 1961 this number rose to 49,740. In 1962 Charles Donahue, Solicitor of Labor, testified that a single determination required wage rates for anywhere from 10 to 300 job classifications and 100 classifications per determination is not at all unusual. The task became so tremendous that the method was changed about that time to area determinations which continue in use. These determinations have to be updated regularly. If done accurately, they require extensive research in the locale, verifications, checking, testing, etc., etc.

Gentlemen, I submit that it is an horrendous task, an impossible task, a task that has not been done in the 41 years of the Act's history and will not be done for the next 41 years.

What happens? The same thing that would happen if either of us had the task. A federally funded project cannot be bid without including a listing of "prevailing wage rates." The staffers at the Department of Labor get them out as best they can, often late-late enough to require bid date postponement, often hurriedly done in pencil, often "borrowed" from another locale, and not 80-741-72-5

surprisingly, often exactly the same to the last tenth of a cent as union contracts in the area, even though the union contracts may represent a tiny fraction of the work done in the area. I ask you gentlemen to guess as to whether the rates determined are generally higher or lower than those that actually prevail.

Between 1962 and 1970 the General Accounting Office, in six reports, showed that wages paid under these determinations were as much as 221 per cent higher on federal projects than on similar private projects.

What does all this have to do with our housing costs? It often, very often, results in higher, commercial wage rates for heavy construction being imposed on one to three story, wood frame, garden type apartments. The cost goes up. There is, we wish to emphasize, no economic need for the Davis-Bacon law today. B.L.S. statistics show that average hourly earnings in contract construction work were $4.79 in 1969, $5.25 in 1970, and $5.72 in 1971. During the early part of this year the average has approached $6.00 an hour. These high rates exceed substantially those paid to workers in any other employment categories. They distort the economy. It is common knowledge that one of the worries, both official and unofficial, in our fight on inflation has been the exceedingly high pay of construction workers. The problem we emphasize has worried both those in official places who are charged with curbing inflation and those in the private sector who feel a share of responsibility for the problem.

The facts are that construction wages should be kept from increasing out of proportion to all other wage rates. The Davis-Bacon law, however, stimulates such disproportionate increases. It fixes construction wages at high levels and these high levels in turn become take-off points from which the wage rates move even higher.

APPRENTICESHIP PROGRAMS HAVE SUFFERED UNDER DAVIS-BACON

I wish to emphasize one further problem of great national importance which ties in with the Davis-Bacon Act. In the past there has been anything but evenhanded treatment of apprenticeship programs not under control of the unions. This unfairness has had a serious effect on Davis-Bacon projects.

Department of Labor approval last year of this Association's apprenticeship training standards should help alleviate this problem. Any unfair treatment of programs because they are not under union control hampers the full possibilities for all around excellence of contract performance in such instances. It likewise restricts the future possibilities of more economic construction programs. To assure the taxpayers of this country the very best and most economic national policy for federal construction projects, the law should protect any open shop apprenticeship training programs whose standards measure up to approved programs under union sponsorship.

CONCLUSION

We believe the needs of this country dictate the following conclusions: 1. Artificial restraints on improvements in efficiency and technology in the construction industry should be removed.

2. There is no need for a government prop under construction wages in these prosperous times.

3. The excessive resultant costs are unfair to those who need housing and to the taxpayers.

4. Favorable action on the bills before this Committee would do much to rectify these excesses.

EXCERPTS FROM ECONOMIC REPORT OF THE PRESIDENT; TRANSMITTED TO THE CONGRESS, FEBRUARY 1968, PP. 118-119

CONSTRUCTION

The measurement of construction costs presents difficult problems, but the statistics record an average annual advance of 3.2 per cent since 1961. The rate of increase fluctuated somewhat during the last two years, with a slowdown in late 1966 and early 1967 when demand eased. As housing starts recovered, construction costs resumed their usual trend.

1 See Monthly Labor Review, March, 1972, p. 93 and ibid, May, 1972, p. 101.