Some contracts are awarded for emergency short-term jobs in localities where wage data are not available for the classes of employees involved. There is no good reason to spend taxpayer dollars on wage determinations in these cases.

Section 3(a) of the bill is objectionable because it reduces flexibility to grant limitations, variations, tolerances, and exemptions where they are in accordance with the protective purpose of the act, the public interest and effective Federal procurement.

By express provision, it would forbid any exemption from the wage determination requirements of section 5 of the bill. Remaining discretion with respect to other sections of the Act is left in a dubious state by the requirement that any limitation, variation, tolerance, or exemption be granted only in "special circumstances."

The rule that a successor contractor must pay his employees not less than the wages and fringes which they would have earned had they been employed under the predecessor contract, as embodied in section 3(b) of the bill, could well lead to excessive rates, possibly high above those actually prevailing in the locality, at the expense of the government and, ultimately, of the taxpayer.

This further undercuts the "prevailing rate in the locality" concept which, as I explained earlier, is the central concept in the act.

The proposed change thus lacks essential safeguards to prevent the possibility of an outgoing contractor raising his wages to any point he selects during the end period of his contract, in effect forcing the successor to pay those rates.

Since the Government must foot the bill, competitive forces, which normally would operate to assure more reasonable wage levels, will be lacking.

The Supreme Court recently had occasion to consider the serious problems involved in requiring a successor contractor to observe the terms of a collective bargaining agreement entered into by a predecessor contractor.

In NLRB v. Burns, decided May 15, 1972, the Court found such a requirement inconsistent with the national labor policy as expressed in the National Labor Relations Act.

Even where the successor contractor has a duty to bargain with the union representing the predecessor's employee, the Court declared that "to compel agreement when the parties are themselves unable to agree would violate the fundamental premise on which the act was based private bargaining under governmental supervision of the procedure alone, without any official compulsion over the actual terms of the contract.'

Further, for reasons detailed at length in the Court's opinion, the Court concluded that "holding either the union or the new employer bound to the substantive terms of an old collective bargaining contract may result in serious inequities" and that a duty of a successor contractor to assume its predecessor's obligations under the old contract does not and should not ensue "from the mere fact that an employer is doing the same work in the same place with the same employees as his predecessor."

Also, to the extent that this provision would allow the Secretary to give effect to prospective wage increases provided in the successor's contract, it is objectionable because there are no safeguards to limit

such increases so that they are not, at the time they become effective, far above the prevailing rates in the locality.

Section 3(b) also allows the Secretary to authorize agencies to enter into service contracts for up to 5 years' duration, as long as wages and fringes are adjusted no less often than every 2 years.

The only limitations on this authority are those which might be placed in annual appropriations acts. It is unclear how this provision would affect the existing authority of certain agencies to enter into multiyear service contracts without authorization from the Secretary of Labor.

It is our understanding, for example, that the Postal Service currently entered into 4-year contracts for mailhauling. Under this amendment, must each such service contract be submitted to, and approved by, the Secretary?

Section 4 of the bill would, in effect, eliminate the Secretary's ability to decide whether or not to list for debarment a contractor found by a hearing examiner to have violated the act.

Within 30 days of such a finding, the contractor's name would have to be forwarded to the Comptroller General for debarment. Only under "unusual circumstances" could such a contractor escape the mandatory, rigid penalty of 3 years of debarment.

The value of flexibility to provide a measured response to violations of the act cannot be overstressed.

This amendment would severely limit the possibility of granting relief in return for binding assurances of future compliance. For example, under present law, violations can be treated commensurately with their seriousness. Under the proposed bill, this differentiation would be possible only under a test of "unusual circumstances," not a test of seriousness. This provision is unduly rigid and harsh by any reasonable standard.

The 30-day period specified in section 4 is simply too short a time for a contractor to pursue his administrative remedies of filing exceptions to the hearing examiner's decision and appealing for relief to the Secretary.

Indeed, in the absence of "unusual circumstances," it appears that the bill would not allow for such remedies or appeal. This raises questions of fundamental fairness.

I hope that I have managed to convey to the subcommittee the true nature of the problems we see in this bill. As it stands now, it is at best confusing and at worst completely unworkable. I would point out that, subsequent to my testimony before the Special Subcommittee on Labor in the House, the bill being considered by the subcommittee was changed in certain respects.

These changes appear to have been intended to meet some of the objections this Department had voiced. But as I hope I have made clear, the bill now before you continues to raise many of the same problems which concerned us when I testified in the House.

Insofar as we can ascertain this bill's intent and possible application, we believe that it is far too broad and indiscriminate in both approach and ramifications, especially when considered by the House subcommittee in its oversight hearings. For these reasons, we must oppose the bill and strongly urge that this subcommittee carefully consider our objections.

As you know, the Commission on Government Procurement is investigating contracting procedures under the act. The Commission's report is due in December 1972, and we believe that it would be appropriate to consider what the Commission has to say on this subject in formulating amendments to the act.

In the meantime, we will be happy to work with the subcommittee in resolving specific problems without destroying the overall workability and effectiveness of the act.

I will now be pleased to answer any questions you may have.

Thank you.

The CHAIRMAN. I appreciate your last statement where you say "resolving specific problems without destroying the overall workability and effectiveness of the act."

Here are a couple of situations. I will state them as hypothetical, though they are pretty close to actual situations.

An employer under a 1-year service contract ending June 30, 1972, was paying $1.75 an hour. In March of this year he agreed, in collective bargaining, to increase his workers' wages to $1.82 beginning July 1, this year.

Then in April, bids were solicited on a new service contract to begin on July 1, this year. What can we do to insure that the workers get that 7 cents an hour increase?

Mr. ALBERT. I think I can address myself to that.

I think you will note from prior testimony from the Department, I think this involves the question of taking into account future increases in making wage determinations.

I think this is one area in which the Department has indicated that it would be agreeable-it used to be the position of the Department that future increases could be taken into account.

The Comptroller General said that the statute, when it said wage determinations had to be based on wages being paid, could not take future increases into account.

The Comptroller General being the watchdog of the purse strings of the Government, we deferred to the Comptroller General's opinion. Remember, along those lines, I think it would be acceptable to the Department, providing that that increase per se does not become the wage that it has to be paid.

It is taken into account in determining what the prevailing wage is in the locality. That still adheres to the concept of the bill of existing law. The CHAIRMAN. I think I understand you. This presumes or assumes there will be a Labor Department wage determination; is that right? Mr. ALBERT. That is right.

The CHAIRMAN. What happened at Cape Kennedy? Was there a determination or was there not? I got a confusing story about the situation there.

Mr. ALBERT. There was ultimately a wage determination.
The CHAIRMAN. Ultimately. What does that mean?

Mr. ALBERT. That goes back to 1969, the determination of the Department of Labor that in view of the circumstances which existed at the cape, mainly that wage rates were largely governed by collective bargaining rates in the area, that a wage determination would have very little practical effect in utility, and no wage determination was made.

Early this year I think at the request of Senator Gurney-he submitted certain data to the Department that suggested that that was no longer the situation, and the Department, pursuant to that request, examined the circumstances and found that it was no longer the circumstances and did make a new wage determination.

Mr. Landis can probably tell you better than I, what the actual wage rates were that were found. We did make a determination ultimately.

The CHAIRMAN. Ultimately, and it was after a congressional determination that conditions indicated there should be a determination. But I would think from where you gentlemen sit, you would rather not have congressional determinations on a case-by-case basis, and have a law that is clear authority.

Mr. GRUNEWALD. Based on added information that the Senator gave us, that convinced us

The CHAIRMAN. Would you not rather have a law that is clear? Mr. GRUNEWALD. The wage determination was limited to Brevard County, not a series of counties, as Senator Gurney had indicated. Warren, would you like to add anything to this?

Mr. LANDIS. No, sir. I think that is about all.

The CHAIRMAN. Here is another situation.

A man in a skilled job has worked with a government installation for several years and under a succession of service contracts.

His hourly rate is now at $5.45. A new contractor bids and is awarded the contract and offers this man $3.45, despite an existing collective bargaining agreement which provides for $5.45 an hour.

This kind of action is cutthroat wage cutting and an undermining of what should be, in my judgment, despite an honest, arm's-length agreement arrived at in collective bargaining. Now, what can we do to bar this kind of action?

Mr. LANDIS. Well, of course, our present approach, Mr. Chairman, is to determine the prevailing wage in the localities, so that one more piece of information would be needed in that example: What is the prevailing wage in the locality as determined by the Secretary? Is it $4.50? Is it $5, which of course is just the minimum that the contractors pay?

The CHAIRMAN. This case is one where a determination was not made by the Department. What you are saying is basically that agreements that have been arrived at following collective bargaining can be undercut by a successor contractor?

Mr. GRUNEWALD. It is possible that the rates could be lowered; yes.

The CHAIRMAN. The way I read our bill here before us, this does not freeze the situation down the road if the Secretary finds that it should not be frozen 2 or 3 years down the road under a contract.

Mr. GRUNEWALD. Could I get a clarification of "freeze," sir?
The CHAIRMAN. Let's read the section. Here it is.

Section 2(a)1 of the Service Contract Act of 1965, as amended, by striking out all after "locality" and inserting in lieu thereof, the following:

Where a collective bargaining agreement covers any such service employees in accordance with the rates for such employees provided for in such agreement, including, if the Secretary elects, prospective increases provided for in such agreement as a result of arms' length negotiations.

Mr. ALBERT. Well, as I would interpret that language, Mr. Chairman, that would authorize the Secretary to do what the Comptroller General has now said he cannot do. He could take future increases into account, but it seems to go further. Rather than permitting to take that into account in determining what is the prevailing rate, it would authorize him to make that the wage which has to be paid, irrespective of the fact that it may represent only a small proportion of the workers in the community, in the locality.

That is the departure from prevailing wage in the locality concept, which this amendment introduces.

The CHAIRMAN. I read it that this gives the Secretary the latitude to keep from becoming frozen into a bad deal. You suggest that an outgoing contractor can arbitrarily raise, knowing he is going out, saying here, Government, I am going to stick you. The Government does not have to be stuck by this kind of act.

Mr. GRUNEWALD. The way this bill is written, the way that we interpret that is exactly what could happen.

The CHAIRMAN. That is not what we intended. The congressional intent does not say that the Government is going to get stuck by contractors who are going out and raising wages arbitrarily on their own unilaterally, not arm's length, which is what you suggest could happen, and the Government has to follow that.

Mr. GRUNEWALD. Is it not true, as we understand the bill, a new contractor would have to presume the same rates and benefits as the predecessor contractor, which does expose that possibility.

The CHAIRMAN. But the Secretary will have flexibility.

Thank you very much.

Our next witness is Mr. James C. McGahey, president, International Union of the United Plant Guard Workers of America, Detroit, Mich.; Jack Curran, legislative director, Laborers International Union of North America; Frances O'Connell, international executive council member, director of the legislative department; Frank Waldner, airline coordinator, International Association of Machinists. It seems that you have more people than I have named.

STATEMENT OF JAMES C. McGAHEY, PRESIDENT, INTERNATIONAL UNION OF THE UNITED PLANT GUARD WORKERS OF AMERICA, DETROIT, MICH., ACCOMPANIED BY JACK CURRAN, LEGISLATIVE DIRECTOR, LABORERS INTERNATIONAL UNION OF NORTH AMERICA; FRANCIS O'CONNELL, INTERNATIONAL EXECUTIVE COUNCIL MEMBER, DIRECTOR OF THE LEGISLATIVE DEPARTMENT, TRANSPORT WORKERS UNION OF AMERICA, AFL-CIO; FRANK WALDNER, AIRLINE COORDINATOR, INTERNATIONAL ASSOCIATION OF MACHINISTS

Mr. CURRAN. These are the four members representing four individual international unions.

The CHAIRMAN. I was wrong. I did introduce only four. There were nine of you in the testimony on the House side.

Mr. ČURRAN. Yes. We have cut it down to a much smaller group in order to expedite the hearings. We are resting on the hearings that were held before this Special Subcommittee on Labor on the House side; and so we have gotten together all of those who testified on the House side and decided we would keep the witness list as low as possible.