Senator TAFT. These contracts provide for certain pay and also for certain types of fringe benefits.

Mr. KEEGAN. That is correct.

Senator TAFT. Do you see a problem in getting such a contractor to come in and bid in competition where in effect he is going to have to rewrite his contract under the provisions of the proposed bill to different amounts-maybe higher or maybe lower-with regard to the overall package, maybe higher or lower between wages and fringe benefits?

Do you see any difficulty in that being involved, in discouraging contractors from coming in?

Mr. KEEGAN. Yes, sir. It could have that effect, I think, depending on how lucrative the particular contractor assessed the contract opportunity.

I think as I read the amendments a new contractor succeeding to an existing service contract would be faced with an absolute floor in terms of wage and fringe benefits of the predecessor contract. Senator TAFT. On each item?

Mr. KEEGAN. On each element, yes. To that extent I think he would have to evaluate the difficulty and perhaps monetary impact of renegotiating, or at least accepting and changing the relationship between himself and his many employees by virtue of this law. If he received the contract, he would have to at least meet the previous contractor's standards.

Senator TAFT. And the discouragement on each of the standards? Mr. KEEGAN. Yes.

Senator TAFT. You have already testified, I think, as to the overall possible adverse effect on the DOD budget insofar as its possible connection with discouraging contracting out of service work, but would not it also be true discouragement of major contractors from bidding could occur from the situation which would also tend to go in the same direction?

Mr. KEEGAN. It might, sir. Certainly, if we cannot get an adequately competitive base, then we cannot take advantage of the usual benefits we get from competition, which is to get more reasonable prices for the services we need. It could have that effect.

The CHAIRMAN. We are going to recess for 7 to 10 minutes. I have nothing further, Mr. Keegan. We have to vote. (Recess.)

AFTER RECESS

The CHAIRMAN. We will resume our hearings on S. 3827. I am not sure who is to be first.

STATEMENT OF RICHARD MCCURDY, ASSOCIATE ADMINISTRATOR FOR ORGANIZATION AND MANAGEMENT, NATIONAL AERONAUTICS AND SPACE ADMINISTRATION; ACCOMPANIED BY GEORGE J. VECCHIETTI, DIRECTOR OF PROCUREMENT AND JOHN WHITNEY, ASSISTANT GENERAL COUNSEL FOR PROCUREMENT MATTERS

Mr. MCCURDY. I will lead, thank you, Mr. Chairman.

I am Richard McCurdy, Associate Administrator for Organization and Management at NASA, and I have two colleagues with me.

Mr. George Vecchietti, Director of Procurement and Mr. John Whitney, Assistant General Counsel for Procurement Matters. We are pleased and honored to appear before the committee here.

We will propose that Mr. Vecchietti first make a short statement, and then the three of us will be available for your questions.

The CHAIRMAN. Thank you. Mr. Vecchietti.

Mr. VECCHIETTI. Mr. Chairman; members of the subcommittee: I appreciate this opportunity to discuss with you NASA's views on S. 3827, a bill which would revise the method of determining wage rates and fringe benefits under the Service Contract Act of 1965, and make certain additional changes in the act. We have followed with interest the oversight hearings conducted by the Special Subcommittee on Labor of the House Committee on Education and Labor. These hearings preceded the passage of H.R. 15376 by the House on August 7, 1972, which is identical to the bill now before this subcommittee. NASA is one of the agencies which procures a substantial amount of services work from private industry. Thus, substantive changes to the act, such as those proposed in S. 3827, will affect NASA supportservices contracting;

I believe it would be helpful to the subcommittee to have a brief description of the nature and extent of NASA support-services contracting. In keeping with the general Government policy of relying on the private sector to supply its needs, NASA has since its inception relied extensively on industry to provide support services at or near our installations by contract. Attachments to this statement illustrate the nature and extent of this support-services contracting. I will touch on each one briefly.

Attachment 1 lists the number of contracts, manpower, and costs. of NASA support-services contracts by installation for fiscal year 1972. It shows that there will be in effect an estimated 162 supportservices contracts of $100,000 or more, requiring 24,000 man-years of contractor effort, estimated to cost $416 million.

Attachment 2 provides a further breakdown of these contracts by type of service and type of skill. Most of the clerical and blue-collar skills, as well as many of the technicians and administrative classifications, are of such a nature as to be covered by the act.

Attachment 3 breaks down the manpower by installation and type of skill.

Attachment 4 provides, by way of illustration, further details on two types of services: Data processing and facilities maintenance. We have similar charts for each type of service, which we can make available to the subcommittee if wanted.

Turning now to the bill itself, NASA is in agreement with the views of Assistant Secretary of Labor Grunewald, in his testimony before this subcommittee on August 16, 1972, though we naturally view the bill from a different perspective-that of an agency which makes significant use of support-services contracts in carrying out its mission.

As a responsible agency with a significant national program to manage, it is essential that we perform our mission effectively at a reasonable cost to the taxpayer. So that this statement of basic NASA policy is not misunderstood, I emphasize that we support reasonable wages for our contractor employees. The objective of the Service Contract Act of 1965, as we understand it, is to prevent the Govern

ment from promoting the undercutting of pay scales established by private industry and labor in the localities where the Government operates.

We believe this objective is consistent with our responsibility to perform our mission effectively at a reasonable cost. However, in our view, some of the provisions of the bill might require NASA to bear the cost of wages and fringe benefits that would not be reasonable in relation to the prevailing pay scales in the localities where the work is to be performed. Our remarks today will attempt to highlight some of the problems we envision were the bill to be enacted into law. The bill would make a radical departure in the method of setting minimum wage and benefit rates, transforming the act in applicable cases from a prevailing wage law to an entirely new concept. Where a collective bargaining agreement triggers its operation, the bill presumably would establish that single agreement as the minimum standard. This would remove the incentive for hard bargaining in many cases and would encourage collusion in the worst cases.

In a second radical departure, the bill would enact for Government contracts a form of successor doctrine which the Supreme Court has recently held not to be sound law for service contracts generally. Thus, the bill would bind an incoming contractor and employee organization to particular economic contract terms negotiated by other parties. This again involves the vice of delegating to a particular employer and a particular employee organization the determination of what pay scale any prospective employer and set of employees must live with.

These amendments would leave a contractor with little incentive to bargain for wage and fringe terms which are either competitive, reasonable or comparable to those being paid within the local area on non-Government work. He would know that whatever he negotiates will be what a potential successor contractor must use in its bid or proposal to the Government. Under these circumstances, armslength bargaining will become a thing of the past on work subject to the Service Contract Act.

In this way, the Service Contract Act would escalate wage settlements in the private sector which would be an additional factor in the country's economic inflationary spiral. Under a cost contract, the Government would usually have no alternative to paying whatever rates its contractor agreed to.

Under a fixed price service contract, the incumbent contractor's motivation will be to bargain for the best rates possible for the contract term or at least until close to the end of the term and, in exchange, to concede to almost any demand for higher rates thereafter. These higher rates would bind the successor and have to be borne by the Government.

The third major departure in the bill is the provision for fixing prospective minimum rates and benefits. This would encourage an incumbent contractor and incumbent union to agree on increases to take effect at the end of the contractor's performance term. We think the present rule, that prevailing rates are rates actually being paid, is preferable.

For many years, minimum wages and fringe benefits for Government-construction contracts have been required by the Davis-Bacon Act to be determined by the Department of Labor through local area

urveys which are the prevailing rates and fringe benefits being paid n the locality. We feel that support services contract rate determinaions, based on the actual prevailing rates in the locality, is consistent vith the Davis-Bacon approach and is more equitable to all concerned han the methods proposed in the bill. NASA believes that service ype employees should receive wage and fringe benefits that are easonable and comparable to those being paid on non-Government >rojects.

Section 3(b) of the bill would further amend section 4 of the act to provide that "Subject to limitations in annual appropriation acts but notwithstanding any other provision of law, contracts to which this act applies may, if authorized by the Secretary, be for any term of years not exceeding 5, if each such contract provides for the periodic adjustment of wages and fringe benefits pursuant to future determinations, issued in the manner prescribed in section 2 of this act no less often than once every 2 years during the term of the contract, covering the various classes of service employees."

As noted by Assistant Secretary Grunewald, it is unclear how this provision would affect the existing authority of certain agencies to enter into multiyear support services contracts without authorization from the Secretary of Labor. If it is the intent to limit the authority of procuring agencies in this matter, the Secretary of Labor would be required by law to review and approve actions which are integral to the procuring agencies' internal management. We do not believe that this result would be desirable.

As to increased administrative complexities and uncertainties, I believe Secretary Grunewald's testimony adequately covers this aspect.

These remarks, I believe, show NASA's concern and its reasons for opposing enactment of this bill. We will be happy to answer any questions from members of the subcommittee, to furnish any information that would be helpful for your deliberations in this important area.

Mr. Chairman, I would add only one thing not in the prepared statement. As may have come to your attention, the Commission on Government Procurement, established by the Congress, which is studying the overall Government procurement, has as one of its major topics, and one on which it will be reporting, the total area of support service contracting.

It may be of interest to the committee to be familiar with what their findings are.

The CHAIRMAN. Thank you, Mr. Vecchietti.

Mr. McCurdy.

Mr. MCCURDY. Mr. Chairman, that is our formal statement, and we are available for the committee's questions.

The CHAIRMAN. Thank you very much, Mr. McCurdy.

A lot of attention has been given to the situation at Cape Kennedy. Senator Gurney has been most concerned about the experience there. Who had the contract, and who got the contract?

Mr. MCCURDY. We, of course, are very familiar with the Cape Kennedy case. Would it be good for me to give you a brief outline of the situation?

The CHAIRMAN. Yes, I think it would.

Mr. MCCURDY. To answer your question, the contract that was existing prior to the competition was in the hands of Trans World

Airlines, and it was under a nationwide labor union contract of air transportation type.

It was under the Railroad Labor Act actually, so it was a piece of a nationwide contract which happened to exist in Cape Kennedy for this aerospace operation largely by accident.

Up to 1968, in my recollection-I think that is accurate; you can correct me if I am wrong—the results of the nationwide bargaining of TWA yielded wages in Cape Kennedy that were comparable with those being paid by the aerospace companies that were operating in that area.

Commencing in 1968, there were several nationwide escalations of wages on the part of TWA which had their roots not in the aerospace business but in the airlines transportation business.

Now, it is not germane to this, whether those were proper or not in relation to the transportation business, but they did have the effect of raising the TWA wages at the Cape substantially over the prevailing wages at the Cape. That happened simply because it was a nationwide contract.

When the recompetition came along—and I might interject here this is what recompetition is for, to redress a happening of this kind— Boeing came in and bid the same wages that they had been paying at the Cape under their contract-perfectly good aerospace wages-and they won the contract. TWA chose to bid on the basis of its nationwide contract which by that time, as I have said, had been escalated up out of the range of reasonable wages at Cape Kennedy. That is all that happened at the Cape.

Now, this has been widely put forth as an example of wage cutting. I submit it is nothing of the kind.

The CHAIRMAN. The effect of course is that wages were reduced substantially for the workers who had been under the TWA contract and who became the employees of Boeing.

Mr. MCCURDY. Reduced, if you wish, sir, but remember just prior to that they had been raised up a lot, because of this nationwide contract which really had no relation to labor conditions at the cape. You may say, if you wish, they were reduced-and indeed they were reduced. I would say but don't forget they were raised just prior. The CHAIRMAN. Senator Taft.

Senator TAFT. Thank you very much, Mr. Chairman.

Mr. McCurdy, I have received a letter from the legislative affairs officer at NASA which gives a summary report of the labor aspects in the competition for the Kennedy Space Center contract. Are you familiar with that document?

Mr. MCCURDY. Yes.

Senator TAFT. You have reviewed it?

Mr. MCCURDY. Yes. It is an attempt to give a summary of the happenings at the cape, and I believe that it will reinforce what I have said.

Senator TAFT. Mr. Chairman, I ask that the letter and that material be put in the record at this point.

The CHAIRMAN. It will be included.

(The documents referred to were not available when this publication went to press.)

Senator TAFT. Mr. McCurdy, you are familiar with the rationale behind the proposed change relating to the problem which we have considerable testimony concerning in prior hearings. Do you believe