Reform Labor Laws and Transform The Labor Department

Reform Labor Laws and Transform the Labor Department into an Efficient
Partner for Meeting Public Policy Goals

Background

Five labor laws are implemented through the federal procurement system.
They are:

-- The DavisBacon Act of 1931, which requires each contract for the
construction, alteration, or repair of public buildings or works in
excess of $2,000 to specify the minimum wages to be paid to various
classes of laborers and mechanics.1 The minimum wages, including fringe
benefits, are those the Secretary of Labor determines to be "prevailing"
for the laborers and mechanics employed on projects of a similar
character in the area in which the work is to be performed. The
requirements of the act are incorporated in more than 70 other statutes
that authorize federally assisted construction.

-- The Copeland AntiKickback Act of 1934, which regulates payroll
deductions on federal or federally assisted construction.2 This law
prohibits anyone, under penalty of fine and/or imprisonment, from
inducing an employee to give up any part of the compensation to which he
or she is entitled under his contract of employment and requires
contractors to submit a weekly statement of compliance to the agency
contracting officer.  Further, the act's implementing regulations
require contractors on federal projects to submit and certify weekly
payroll reports detailing daily hours worked, wage rates, total
earnings, and any deductions.

-- The Service Contract Act of 1965, which requires contractors on
covered contracts in excess of $2,500 to pay service employees the
minimum wage prevailing in the locality and provide specified minimum
fringe benefits. The act applies to federal contracts if the principal
purpose of the contract is to furnish services in the United States
through the use of service employees.3 It also prohibits employment
under hazardous or unsanitary conditions.

-- The WalshHealey Public Contracts Act, which requires contractors
manufacturing or furnishing materials, supplies, articles, and equipment
to the federal government under contracts that exceed $10,000 to qualify
as a manufacturer or regular dealer, pay all employees working under the
contract at least the minimum wage as determined by the Secretary of
Labor, agree that no employee will be required to work in excess of 40
hours a week unless paid overtime, avoid use of convict labor or persons
under 16 years of age, and agree that no part of the contract will be
performed in unsanitary, hazardous, or dangerous work places.4

-- The Contract Work Hours and Safety Standards Act, which requires that
certain contracts contain a clause specifying that no laborer or
mechanic doing any part of the work required by the contract be
permitted or required to work more than 40 hours in any workweek unless
paid for all such overtime hours at not less than 11_2 times the basic
rate of pay.5

These prevailing wage laws were enacted because the federal procurement
system generally required that contracts be awarded to the lowest
responsible and responsive bidder through a sealed bid process.
Unfortunately, in laborintensive industries, like construction and
service, the most expedient way to lower a bid may be to lower labor
costs. In recognition of the influence that the government's buying
power had on the economies of local areas, Congress enacted laws to
protect minimum wages and benefits. The objective was to require
contractors to compete by becoming more efficient, applying new
technologies, or using a more productive workforce instead of simply
lowering wages. With the enactment of the Competition in Contracting Act
in 1984, Congress shifted the focus away from the sealed bidding process
to the concept of providing full and open competition using the most
appropriate method of procurement. This change, however, did not
diminish the underlying purpose and need for prevailing wage laws. Even
though procuring agencies may have greater flexibility to consider other
factors in addition to price in selecting contractors, price remains a
principal selection criterion for almost all covered contracts, whereas
employee labor standards are not considered in the selection process.

In addition, Executive Order 11246, "Equal Employment Opportunity,"
requires federal contractors with contracts in excess of $10,000 to not
discriminate in employment because of race, creed, color, sex, or
national origin and to take affirmative steps to promote the employment
opportunities of these protected groups.6

Need for Change

The government and industry bear significant costs in implementing these
laws. These administrative costs need to be balanced against the
intended social benefits. Alternative methods should be explored for
achieving these benefits at lower cost. For example, savings from
amending the Copeland Act to modify the requirement for submission of
certified weekly payrolls alone would require 600 fewer federal
employees per year to fulfill the administrative requirements, thereby
saving the government $20 million per year. In addition, the
construction industry would benefit significantly. During fiscal year
1992, federal construction contracts over $100,000 totaled $11.1
billion. Modification of the weekly payroll requirement would eliminate
a great deal of paperwork burden for construction businesses and should
result in a 1 percent savings to these businessesor up to $111 million
in savings per yearthat could be passed onto the government and
taxpayer. Significant savings can also be expected from amending the
DavisBacon Act and the Service Contract Act.7

The following statutory and regulatory authorities must be reexamined.

DavisBacon Act and Copeland AntiKickback Act. The DavisBacon Act has
been a recurring public policy issue, as well as the subject of a number
of government and private studies. These studies have produced
recommendations ranging from repeal of the Act to amendments to
supplemental regulations. Some procurement experts contend that the
requirements of the DavisBacon and Copeland Acts for submission of
payrolls and statements of compliance are burdensome. Others argue that
both acts are impediments to small and minority business participation
in federal construction contracting. For example, the more than 1,600
delegates to the 1986 White House Conference on Small Business ranked
repealing the DavisBacon Act as their seventh most important
recommendation out of 60 reported to the President and Congress.

The 1992 Budget Resolution passed by the House of Representatives urged
the House Committee with jurisdiction over the DavisBacon Act to study
the potential for possible savings to the federal government from the
reform of the Act and report committee findings to the full House of
Representatives.8

Service Contract Act. The Service Contract Act places a fiveyear
limitation on the term of service contracts subject to the Act and
requires a new wage determination to be incorporated in multiyear
contracts at least every two years. The fiveyear limitation is
inconsistent with the government's need to enter into longterm
contracts.9 It is contrary to the objectives of the Act to limit the
term of contracts. As long as the Act requires the incorporation of a
new wage determination every two years, service employees' interests are
protected. Longerterm contracts provide more stable employment for
service employees.

WalshHealey Public Contracts Act. Over time, the protections provided by
the WalshHealey Public Contracts Act have been superseded or duplicated
by subsequent legislation and congressional action. The overtime pay
provisions are the same as those in the Fair Labor Standards Act (FLSA).
WalshHealey's minimum wage provisions are also essentially the same as
the FLSA because the Secretary of Labor has not issued a wage
determination since 1963. The act's prohibition against purchasing goods
made with child labor is duplicated by the FLSA, which prohibits
oppressive child labor in any facility that ships goods in interstate
commerce. The convict labor provisions are the only provisions that have
not been overtaken by events; these provisions could easily be
incorporated into the provisions of the existing executive order on
convict labor.

The Acquisition Law Advisory Panel to the United States Congress on
Streamlining Defense Acquisition Law (Section 800 Panel) recommended the
thresholds for application of the DavisBacon and Service Contract Acts
be increased to $100,000, the requirement for submission of weekly
payrolls be modified, the DavisBacon Act wage schedules be issued
annually per locality, and the WalshHealey Public Contracts Act be
repealed except for the provisions of the act dealing with convict
labor.10

Debarment Provisions. In addition to changes in labor laws, the
statutory provisions related to debarment need to be simplified.
Currently, the DavisBacon Act authorizes the Comptroller General to
debar contractors for violations and to disburse back wages to
employees. The Service Contract Act, the WalshHealey Act, and the
Contract Work Hours and Safety Standards Act require the Department of
Labor (DOL) to notify the Comptroller General when it debars a
contractor for violating the law. Under each statute, the Comptroller
General is required to prepare and distribute a list of the parties
debarred. Currently the Comptroller General distributes a list to
various government entities, including the General Services
Administration (GSA), so the information may be included on the List of
Parties Excluded from Federal Procurement or Nonprocurement Programs
that GSA maintains and distributes through the Superintendent of
Documents. The requirement to process recommendations for debarment
and/or notices of debarment to the Comptroller General for distribution
has become an unnecessary duplication of effort. The information should
be sent directly to GSA for inclusion on the List of Parties Excluded
from Federal Procurement or Nonprocurement Programs.

Use of Information Technology. Further, due to budget limitations, DOL
has not been able to maximize the use of information technology in
implementing the various labor laws.  For example, most wage
determinations under the DavisBacon Act are published, and contracting
officers select the one that applies to a particular construction
project if the cost is estimated to exceed $2,000. Improvements are also
needed in DOL regulations, especially those allowing interested parties
to challenge a wage determination issued under the Service Contract Act
as being at substantial variance with the wages prevailing in the
locality or regulations that do not provide time frames for resolving
cases. Wage determinations that are based on collective bargaining
agreements may also be challenged when there is a question of whether
the collective bargaining agreement was a product of arm'slength
negotiations. DOL's track record in terms of providing a timely hearing
and resolution of substantial variance cases is not good. For example,
some cases are dismissed as moot because the government contract
involved has already expired.11

Equal Employment Opportunity. Finally, regulations implementing the
executive order on equal employment opportunity (EEO) provide for a
paperintensive process that adds little or no value but delays contract
award. The regulations issued by DOL implementing the executive order
require contracting officers to request a preaward EEO compliance review
or clearance before awarding a contract in excess of $1 million.12
Contracting officers submit requests for preaward clearances to the
Office of Federal Contract Compliance Programs at DOL. DOL processes the
request and notifies the contracting officer in writing that the
clearance is granted or that a full review is scheduled. In either case,
the contract is awarded. During fiscal year 1992, approximately 23,000
requests were submitted but only 185 full reviews were conducted.13 (Due
to reduced staff and budget, most requests were automatically approved
because an onsite review could not be conducted within 30 days.)

The small number of full reviews conducted by DOL does not justify the
cost associated with processing every action over $1 million through
DOL. DOL can enhance enforcement of the executive order by using its
resources more effectively to conduct more onsite reviews.


Cross References to Other NPR Accompanying Reports

Reinventing Support Services, SUP03: Improve Distribution Systems to
Reduce Costly Inventories.

Department of Labor, DOL14: Apply Information Technology to Expedite
Wage Determinations for Federal Contracts.

Endnotes

1. DavisBacon Act, 40 U.S Code 276ab (March 3, 1931).

2. Copeland Act, as amended, 40 U.S.C. 276c (June 13, 1934).

3. Service Contract Act of 1965, 41 U.S.C., 351358.

4. WalshHealey Act, 41 U.S.C., 3445.

5. Contract Work Hours and Safety Standards Act, 40 U.S.C.  327333.

6. Executive Order 11246, "Equal Employment Opportunity," September 24,
1965.

7. See "PROC04: Establish New Simplified Acquisition Threshold and
Procedures" in this report.

8. See Reducing the Deficit: Spending and Revenue Options (Washington,
D.C., February 1992), p. 179.

9. See "PROC18: Authorize Multiyear Contracts" in this report.

10. Acquisition Law Advisory Panel to the United States Congress,
Streamlining Defense Acquisition Law (January 1993), pp. 425 463.

11. See Board of Service Contract Appeals, Case Number 9220, August 26,
1992, in the matter of Porshia Alexander of America, Inc.

12. 41 CFR 601 and 604.

13. Data as of July 1993 provided by the U.S. Department of Labor,
Office of Federal Contract Compliance Program.