In some cases work has been taken to the homes and apportioned out among the children, and there is no way, under existing laws, to stop it. When a contractor or subcontractor gets a Government contract, there is nothing in the law that permits the agency letting the contract to prohibit that type of fulfillment. It seems to me that some plan could and should be evolved placing the burden on the original contractor to require a proper performance bond from each and every subcontractor, to the end that every person performing service of any kind on a Government contract will be assured of fair wages and will not be compelled to work excessive hours. I believe that the act now specifies that the principal contractor shall be exempt from certain provisions. I believe it is going to operate successfully, but if I may make the suggestion to the committee, you will have to write into the law that the principal contractor, who gets the contract and whom the Government pays, is made responsible, and that he should get a performance bond from his subcontractor. Mr. HEALEY. Under this bill, we provide that he is only exempt from the penalty in the event that he has notified the subcontractor that it is a contract for Government work. Mr. MCENTEE. I may be wrong, sir, but as I read it—and I confess I did not have much opportunity to read it carefully Mr. HEALEY. The principal contractor is exempt― Provided he has given actual notice of such representations or agreements to such employer. Mr. McENTEE. Does not that excuse him, then? Mr. HEALEY. That lets him out. Mr. McENTEE. The thought I had in mind was that he had to notify the subcontractor, but who is going to see that the provision is enforced? Mr. HEALEY. We have made a provision for cancelation in case of violation. Mr. McENTEE. I see. Sections IV and V of this bill I regard as of vital importance, particularly the latter section. There have been a number of cases brought to our attention wherein the employer has not only exacted but required and coerced his employees into refunding a considerable portion of the wages that they were paid under the N. R. A. codes. The amount in some cases has run from 25 to 33 percent. To illustrate that, a firm in Pennsylvania, when the decision was announced, notified their employees that they had to refund to the company all of the increase. When the minimum wages came in at the beginning of the codes, this firm had brought up its minimum scale to that called for by the Code Authority, and when the Supreme Court decision was announced, this company notified its employees that they had to refund to the company all of the money they received during the operation of the codes. They had a contract with us. Mr. MICHENER. Do you mind giving the name of that concern? think the name should be in the record. Mr. MCENTEE. It was the National Pants Co. Mr. MICHENER. Where? Mr. McENTEE. Newcastle, Pa. As illustrating that, reference is made to our files, if the committee wants them, on the Zielinski case and also the National Pants case, and I have talked about the Zielinski case and also the National Pants case. Every effort was made by the Director of the Civilian Conservation Corps to debar and exclude these companies from participating in any further contracts relating to the Civilian Conservation Corps or payable out of our funds, for the reason stated, and upon the broad ground that the company was not a responsible bidder. The construing of the term "responsible bidder" seems to be restricted to that of financial responsibility. The concern in question was undoubtedly financially responsible. The practices to which it has resorted, if continued, could only tend to increase the financial part of such responsibility. In the National Pants Co. case, the concern, as I told you, has just attempted to collect these back wages. Representations from the Director of the Civilian Conservation Corps to the War Department-which is our purchasing agent in the matter of supplies-similar to that in these cases, proved unavailing, for the same reason that I stated in the National Pants Co. case. I might say at this time, too, Mr. Chairman, that I feel that the War Department is just as much concerned over this situation and their inability to do anything about it as we are. A number of other cases of this character have also come to our attention, including the Sexton Manufacturing Co.'s contract violation at Fairfield, Ill., in 1933. The Attorney General of Illi nois called to our attention that this company was paying its female labor 33 cents per hour on a Government contract. Mr. HEALEY. When was this? Mr. McENTEE. 1933. The codes were in operation then, and the code authority corrected that condition. However, there is no such control over industry today, and unless Congress will pass the type of legislation that you have before you, there is nothing that any of the governmental agencies can do. There is one other matter, which I mention briefly, that I would like to ask the committee to give consideration, and that is to put a clause in this bill that will bar not only the principal contractor but all subcontractors from doing work on a Government contract at any place outside of their own factory. The thought back of that is to prevent so-called home work being done and the so-called sweatshop from operating on a Government contract. Mr. HEALEY. You also refer to the bid brokers, do you not, and the practice of bid broking? Mr. McENTEE. Yes, sir. I believe that whoever gets the contract should be made responsible, through a performance bond, to do this work. I might say also, Mr. Chairman, that I do not believe there is any attempt made to have the Secretary of Labor arbitrarily set up wage scales that are out of line with the industry. I am satisfied that the working out of this bill as passed will bring about a condition whereby the prevailing rate of wages of the industry will be set up, which is going to protect not only the employee, but the manufacturer who wants to keep pace with present social trends and who tries to treat his employees decently; because now he is placed in a position where he cannot bid with any idea of successfully getting a Government contract in the line of certain commodities. Our automotive equipment, road-building machinery, and things of that character we do not have this trouble with. We do have it with clothing; and, to restate what I just said to you, there is nothing that we can do unless this committee and Congress will pass legislation that will permit the purchasing agency to write into its contracts under what conditions that clothing shall be made. There is not a thing that we can do, and it will work a great deal of injustice, not only on the employee; but on the employer who wants to be fair and who wants to carry out the intent of the legislation that has been passed to maintain the conditions in his industry which the codes established. That is all I have to say, Mr. Chairman, unless there are some questions.. Mr. HEALEY. Mr. McEntee, you gave some figures at the very outset of your statement with reference to the volume of business that the C. C. C. had done with contractors. Does that represent the entire volume of business that the C. C. C. has done with contractors? Mr. McENTEE. With contractors, $294,300,000. That is an approximate estimate. I have not the exact figure. Mr. HEALEY. What proportion of that would be for clothing? Mr. MICHENER. You have had no trouble with our automobile industry? Mr. McENTEE. No, sir; there are no complaints about companies of that type. The trouble comes from the fellow who has no plant and no responsibility, and who subcontracts it out, and it is made in somebody's cellar or in somebody's home, and under the law you cannot do anything about it. I know that because we have tried, sir. Mr. HESS. That is the bid-broking? Mr. McENTEE. Yes, sir. Mr. HEALEY. Thank you very much. The committee is trying to secure permission to sit this afternoon during the session of the House, and I believe that permission will be obtained. We will recess until 2 o'clock. (Thereupon a recess was taken until 2 p. m.) AFTERNOON SESSION The recess having expired, the subcommittee reconvened at 2 p. m., Hon. Arthur D. Healey (chairman) presiding. Mr. HEALEY. Gentlemen, we will resume the hearing. Our first witness is General Tschappat. STATEMENT OF MAJ. GEN. W. H. TSCHAPPAT, CHIEF OF ORDNANCE, WAR DEPARTMENT Mr. HEALEY. Will you tell the committee your full name, General? Major General TSCHAPPAT. Maj. Gen. W. H. Tschappat, Chief of Ordnance, United States Army. Mr. HEALEY. You may proceed. Major General TSCHAPPAT. I received notice that I was to attend this meeting of the committee, only on Saturday. So there has not been time to coordinate the views of the War Department with the Budget, as is our practice. Nor has there been time to coordinate all the procuring agencies of the War Department with each other, through the Secretary. So I am representing just one of the procuring agencies of the War Department, the Ordnance Department. There is present, however, a representative of the Quartermaster Corps, which is the largest procuring agency of the War Depart ment. I am going to read a paper to the committee and submit my views on the bill as it would affect the operation of the Ordnance Department. I have no thought, in doing this, of passing on the commendable objects of the bill. I am in a position to say that while I am presenting only the views of the Ordnance Department, the objects and purposes of the bill have the sympathy of the War Department. The paper which I have is a memorandum addressed to the Assistant Secretary of War which covers the points I wish to bring out; and if agreeable to the committee, I shall read it. Mr. HEALEY. That is agreeable to the committee. You may proceed. Major General TSCHAPPAT (reading): Memorandum to The Assistant Secretary of War. MARCH 17, 1936. 1. This office has just received a copy of bill H. R. 11554, introduced in the House by Mr. Healey. This bill is entitled, "A bill to provide conditions for the purchase of supplies and the making of contracts by the United States, and for other purposes." The bill is similar in many respects to S. 3055, which passed the Senate July 29, 1935, and was referred to the Committee on the Judiciary of the House. 2. While this bill, H. R. 11554, contains many changes with respect to S. 3055, it has many objectionable features from the standpoint of cost and administration of procurement activities of the Ordnance Department. 3. In the first place, section 1 of the bill states that it shall apply to any purchase or contract in an amount exceeding $2,000. The multiplicity of transactions of this nature conducted by the many ordnance establishments situated throughout the United States will place a tremendous burden not only upon the Department of Labor in its efforts to administer this act, but also upon the Ordnance Department in the preparation of data and the added cost of such of the administration as devolves upon the Ordnance Department. The latter part of section 1, beginning with line 9, on page 2, reads as follows: "Will be paid not less than such minimum rates of pay and employed not to exceed such maximum hours as shall be designated specifically or by reference in the invitation to bid." This part of the bill will be a great added burden, not only in the cost but also in the time required to administer procurement functions. In the procurement of material and supplies by the Ordnance Department, bids are requested from manufacturers located in many sections of the United States. If minimum rates of pay and maximum hours of employment for each class of artisans are to be included in each invitation for bids, schedules must be prepared and must be included specifically or by reference for all sections of the United States. In addition, these schedules must be developed to apply only to each particular type of work or material in process of procurement. Therefore, there may be many instances in which a bidder's process of manufacture varies greatly from that utilized by the Ordnance Department, so that a schedule issued with the circular proposal would not be applicable and would cause an unlimited number of inquiries in these particular cases. Furthermore, there are many hundreds of items procured which are never manufactured by the Ordnance Department. In those particular cases it would be necessary to obtain schedules in advance from prospective bidders to determine what types of artisans should be included in the lists pertaining to minimum rates and hours of work. Then again, there is the added complexity of procurement from stock. It is possible that a bidder may offer supplies or material which have been in stock for several years. In this particular case, rates of pay and hours of labor could not be applied to these specific items. Furthermore, there may be cases where a sole producer submits bids but refuses to comply with the requirements of the provisions set forth in this bill. In this particular case, the Department would be deprived of essential material or supplies while awaiting the long-drawn-out process of litigation. Inadequate enforcement was one of the weak spots in the administration of the National Recovery Act and undoubtedly would be a great weakness in the administration of this contemplated act. In effect, all industry will be operating under codes with respect to hours of labor and rates of pay. The majority of reputable firms will comply with the provisions of this bill. However, the less reputable firms will be the ones who will submit the low bids, as they will evade the provisions of this bill wherever possible. As a result, procurement programs will be greatly retarded and awards will be made to firms of poor financial standing and less able to meet their obligations. This will complicate procurement and cause an endless amount of trouble for procuring agencies. While the reputable firms will administer self-discipline on the part of their respective groups, industry will not be able to support the provisions of this bill without a Government enforcement agency which is quickly and adequately effective. It is believed that adequate machinery for enforcement of the provisions of this bill with respect to all transactions over $2,000 would not only cost the Government exorbitant amounts but would also finally become ineffective through the choking of all courts with pending litigation. 4. Section 2 of the bill puts an extra burden upon the prime contractor with respect to his relations with subcontractors, with the result that this added burden will be reflected in increased costs to the Government. 5. Section 3 sets forth certain penalties which must be agreed upon by both the principal and various subcontractors. Unless all parties concerned have complete information in advance with respect to rates of pay for each designation and for hours of labor authorized, it is reasonable to assume that all prime contractors and subcontractors will protect themselves against the prospect of liquidated damages and other penalties set forth in section 3 by the addition of cetrain amounts to their bids as a reserve against such contingency. 6. Section 4 pertains to the withholding of certain amounts due upon any contracts as the result of the application of section 3. Since the bill refers to all transactions over $2,000, it can readily be seen that there will be a tremendous amount of unfinished business added to the procurement burden of each procuring agency. The administration of this unfinished business and correspondence with the Department of Labor with respect to same will be a greatly increased task with added expense to each procuring agency. 7. Section 5 relates to the rejection of bids of any previous offenders. This section will be very difficult of administration on account of the amount of correspondence involved to keep all ordnance establishments posted on bidders who are on the restricted list and will be a great added expense to each station on account of the checking necessary before award is made on each transaction involving over $2,000. 8. Section 6 pertains to the creation of a unit in the Department of Labor for the administration of the provisions of H. R. 11554. It is believed that the cost of administering the provisions of this bill will tremendously exceed the commensurate returns to the Government. 9. Section 7 provides for contemplated litigation. This Department can foresee a great number of cases where litigation will be involved even with painstaking efforts to carefully administer the provisions of this bill. 10. Sections 8 and 9 relate to exceptions respecting minimum rates of pay and maximum hours of labor which may be made by the Secretary of Labor, and refers to the method of determining the minimum wages and maximum hours for any service or class of service involved. The preparation of these data would be a herculean task even though an immense amount of information has been compiled, as a result of the National Recovery Act. It is the submission of the rates and hours for the respective classes of labor involved in the |