DEFENSE PRODUCTION ACT AMENDMENTS OF 1952

MONDAY, MAY 12, 1952

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to call at 10:30 a. m., room 301, Senate Office Building, Senator Burnet R. Maybank (chairman) presiding.

Present: Senators Maybank, Fulbright, Robertson, Frear, Moody, Capehart, Bricker, Ives, Schoeppel, and Dirksen.

The CHAIRMAN. The hearing will be in order.

The committee will hear testimony this morning on S. 2594, which has to do with certain amendments to the Defense Production Act of 1950 and the Housing and Rent Act of 1947 submitted by Senator Fulbright. Our first witness will be Maurice Tobin, Secretary of Labor.

Without objection, the amendments will appear in the record at this point.

(The amendments referred to are as follows.)

[S. 2594, 82d Cong., 2d sess.]

AMENDMENT Intended to be proposed by Mr. Fulbright to the bill (S. 2594) to extend the provisions of the Defense Production Act of 1950, as amended, and the Housing and Rent Act of 1947, as amended, viz: At the proper place insert the following new section:

SEC. (a) Subsection (b) of the first section of the Act entitled "An Act to provide conditions for the purchase of supplies and the making of contracts by the United States, and for other purposes", approved June 30, 1936 (41 U. S. Č. 35-45), is amended by striking out "locality in which the materials, supplies, articles, or equipment are to be manufactured or furnished under said contract;' and inserting in lieu thereof the following: "(1) city, town, village, or other civil subdivision in which the materials, supplies, articles, or equipment are to be manufactured or furnished under said contract; or (2) if manufacturing or furnishing under said contract is to involve more than one such locality, then in the respective cities, towns, villages, or other civil subdivisions in which particular materials, supplies, articles, or equipment are to be manufactured or furnished under said contract;".

(b) Section 9 of such Act is amended by striking out that portion of the first sentence thereof which precedes the semicolon and inserting in lieu thereof the following:

"This Act shall not apply to purchases of such materials, supplies, articles, or equipment of standard type and construction as are usually sold in the open market to purchasers generally, regardless of the method of procurement used by the Government".

(c) Such Act is further amended (1) by redesignating sections 10 and 11 as sections 11 and 12, respectively, and (2) by inserting immediately following section 9 a new section 10 as follows:

"SEC. 10. Notwithstanding any provision of section 4 of the Administrative Procedure Act, such Act shall be applicable in the administration of sections 1 to 5 and 7 to 9 of this Act. All orders, determinations, rules, and formal interpretations of general applicability under such sections shall be made on the record after opportunity for a hearing. An appeal from any such order, determination,

rule, or interpretation may be taken in the manner provided in section 10 of the Administrative Procedure Act by

"(1) any person adversely affected or aggrieved thereby;

"(2) any manufacturer of, or regular dealer in, materials, supplies, articles, or equipment purchased, or to be purchased, by the Government from any source; and

"(3) any of the employees of such manufacturer or regular dealer, or any labor organization recognized by such manufacturer or dealer, or duly certified by the National Labor Relations Board, as representing such employ

ees.

The CHAIRMAN. Also, without objection, let there appear at this point a statement by Senator Fulbright in explanation of his amend

ments.

FULBRIGHT AMENDMENTS

1. "LOCALITY" AMENDMENT

Under the existing statute Government contractors are required to pay the minimum wages

* * as determined by the Secretary of Labor to be the prevailing minimum wages for persons employed on similar work or in the particular or similar industries or groups of industries currently operating in the locality in which the materials, supplies, articles, or equipment are to be manufactured or furnished under said contract."

The proposed amendment defines "locality" to mean the city, town, village, or other civil subdivision in which the materials are to be manufactured.

Since the area of the locality mentioned in the statute was not defined, the Secretary of Labor has ruled that it means continental United States, and, with few exceptions, a single national minimum wage has been established for an industry. This minimum is then applicable everywhere regardless of the average wages being paid in the town where the particular plant is located.

A national average minimum wage which is substantially out of line with wages in the particular community

(a) Disrupts the economy of the community.

(b) Destroys other local businesses either through pirating its labor or unduly increasing its operating costs.

(c) Discourages development of new industry in areas distant from major markets by adding immediate high labor costs to high transportation costs. (d) Prevents small local businesses from accepting occasional Government contracts because it would permanently raise their labor rates.

(e) Unduly favors existing businesses whose rates were used to determine the national "prevailing minimum."

(f) Favors large efficient plants over smaller and, generally, less efficient

ones.

The proposed amendment will require the administration of the Public Contracts Act to be comparable to that of the Davis-Bacon Act under which the minimum wages of laborers and mechanics employed in the construction of public works and buildings continue to work at the prevailing wage being paid in that particular community.

I. OPEN-MARKET EXEMPTION AMENDMENT

According to section 9, the act shall not apply to "purchases of such materials, supplies, articles, or equipment as may usually be bought in the open market." The Secretary of Labor ruled: "However, the open-market purchase exemption in the Public Contracts Act (sec. 9) by its terms applies only to such purchases as the Government usually makes in the open market." Since practically all Government purchases are made on a bid basis, the Secretary of Labor has completely nullified the exemption expressly written in the act by Congress. The amendment would merely require that the exemption be applied to materials and supplies of standard types and construction as are usually sold generally in the open market, regardless of the method used for Government procurement.

The legislative history is absolutely clear that the Congress did not intend the Public Contracts Act to apply to standard commercial materials such as bolts, nails, wire, and other materials of the type generally available to the public as well as the Government in the open market (80 Congressional Record 10009-10 (1936)).

In effect, the Secretary of Labor's regulations and interpretations have rewritten the section 9 "open market" provision to exempt only "supplies" (stationary, etc.) and purchases which public procurement agents are authorized by general statute (41 U. S. C. A., sec. 5) to purchase without advertised bidding. At the time such standard materials are produced for the general market, the manufacturer seldom knows that some small part may be sold to the Government. Therefore, it is not possible for this type of business enterprise to accept Government orders unless it complies with the rulings of the Secretary of Labor at all times on all items produced.

3. PROCEDURE AMENDMENT

Under the Public Contract Act the Secretary of Labor issues orders, rules, and interpretations and makes determinations, investigations, and findings. The amendment provides that such actions shall be based upon hearings and decisions as provided in sections 7 and 8 of the Administrative Procedure Act and allows appeals therefrom to the courts for judicial review as provided in section 10 of the Administrative Procedure Act.

The Secretary of Labor has, by rules and interpretations, effectively rewritten sections of the act contrary to the congressional intent due to a lack of a judicial review provision.

"Congress submitted the administration of the act to the judgment of the Secretary of Labor, not to the judgment of the courts" (Endicott Johnson v. Perkins, 317 U. S. 501).

This, in effect, has left the Secretary free to adopt any construction of the statute, make any determination, and issue any regulations, however unreasonable, that he might choose depending upon pressures to which he may be subjected from time to time.

This amendment does not in any way impair the right of the Secretary of Labor to find and determine facts, or to otherwise administer the law. It only protects against arbitrary or capricious action or erroneous application of the law. Since the Secretary of Labor in administering the Public Contracts Act exercises sanctions and powers and issues orders, determinations and rules, this amendment will "improve the administration of justice by prescribing fair administrative procedure" as stated in the title of the Administrative Procedure Act. The CHAIRMAN. Mr. Secretary, will you proceed in your own way,

sir.

STATEMENT OF MAURICE TOBIN, SECRETARY; ACCOMPANIED BY WILLIAM R. McCOMB, ADMINISTRATOR, WAGE AND HOUR DIVISION; VERL E. ROBERTS, CHIEF, BRANCH OF WAGE DETERMINATIONS, WAGE AND HOUR DIVISION, AND JETER RAY, ACTING SOLICITOR, DEPARTMENT OF LABOR

Secretary TOBIN. Mr. Chairman and gentlemen of the committee, it is my feeling that the original Wagner Act and subsequently the Taft-Hartley Act, the minimum-wage law and the Walsh-Healey Act, and Davis-Bacon have been contributing factors toward stabilizing the economy of the United States.

Walsh-Healey is one of the proposals that has sustained the economy since the depression. The law was enacted in 1936 and it was for the purpose of protecting labor standards and to prevent them from being depressed by Government expenditures. It was also intended, as the Congressional Record will show of that day, to protect legitimate dealers in bidding on Government contracts from the competition of unscrupulous bid brokers and vest-pocket dealers.

I am quoting directly from the Congressional Record of 1936. Now, the proposed amendments will make the Walsh-Healey Act ineffective in any attempt to protect labor standards or to prevent

the unfair competition of unscrupulous bid brokers and vest-pocket dealers.

Now, under the law, under the amendments that have been proposed, I shall have to find the minimum wage in any city, town, or village. That will mean that the Government of the United States will probably be giving some contracts and probably many to the lowest wage paid by a given business concern in the lowest wage rate community in the whole of the United States.

Of course, that means that all protections for labor standards have practically been wiped out and protection for legitimate dealers will have been wiped out.

Senator FULBRIGHT. What does it repeal, the Fair Labor Standards Act?

Secretary TOBIN. It establishes a minimum for the whole of the Nation, regardless of industry.

Senator FULBRIGHT. You have the impression that this just takes away all protection on minimum wages. It does not in any way affect the application of the Fair Labor Standards Act, does it?

Secretary TOBIN. The Fair Labor Standards Act is certainly not going to be any protection for a legitimate dealer or legitimate manufacturer where the prevailing minimum throughout the country is probably double that.

Senator ROBERTSON. What the Senator from Arkansas has in mind is the protection of these little plants of 50 or 100 men.

I would like you to explain your claim that in a $46 billion or $50 billion defense program, what a plant using 50 men could do to prevent fair employment in the remainder of a $46 or $50 billion program if they got a $100,000 order.

Secretary TOBIN. If they got a $100,000 order and we did not have the Walsh-Healy Act to operate, this is the dangerous situation that will develop: To begin with, it will be administratively impossible for me to make determinations in all the cities, towns, and villages of the United States.

Senator ROBERTSON. Are you acting on the assumption that no worker or group of workers in the United States know anything about their own rates and that you have to protect them all by telling them what they ought to charge?

Secretary TOBIN. I do think that we ought to have the business of the United States go to concerns that pay at least the prevailing minimum. The changes that have occurred in the economy in the last 20 years, I think, have been very helpful to strengthen the privateenterprise system of this country.

I might say, gentlemen, that I think three of the greatest props to help us avoid depression before the Korean situation developed were the Labor Management Relations Act, the Fair Labor Standards Law, and the Walsh-Healy Act.

Senator ROBERTSON. Mr. Secretary, we have had pending in Norfolk for 2 or 3 months, a critical defense area needing from eight to ten thousand new units. As you know, there is a great shortage of plumbers all along the Atlantic coast. They are holding up the work at the Savannah River plant because they cannot get enough plumbers and steamfitters and they are raiding other areas, including the Norfolk area, by offering bonus wages.

The builders at Norfolk could not get enough plumbers and asked your agency to give them a rate. They did not say what rate, but a rate, on plumbers' helpers. But because no labor union down there has requested a rate on plumbers' helpers, you will not give it to them. Now, do you think that is helping private enterprise and do you think that is helping to build homes in a critical defense area?

Secretary TOBIN. Senator, I will be glad to discuss that with you later, or now, if you wish, but that is Davis-Bacon, which is completely beyond this law.

You see, Walsh-Healey has only to do with items other than building construction. Davis-Bacon handles that and that matter is not under consideration before the committee.

Senator ROBERTSON. What law are the Hill-Burton hospitals under? Secretary TOBIN. That would be the Hospital Act with provisions that are much similar to the Davis-Bacon requiring the payment of the prevailing minimum wage for the various classifications of building mechanics.

Senator ROBERTSON. We have run up against the problem in Lexington in the building of the Lexington Memorial Hospital. They could not let bids because they could not get any rates on plumbers, steamfitters, and two or three other classes of workers. They furnished your agency with prevailing rates in the three surrounding cities: Lynchburg, a city of some 70,000, 50 miles away; Roanoke, a city of 85,000, 50 miles away; Staunton, a city of fifteen or eighteen thousand, 36 miles away. They offered to take the prevailing wage in any one. of those cities.

The union wage, the union shop, anything, just to get a price, so that the contractors could bid. They were held up on it until I said, "Why can't you give us a wage on that?"

"Well," they said, "we will." And they did, but they waited until about 10 days before bids would be opened.

Now, you say you are trying to protect private enterprise and promote private enterprise. The fact is that everyone must get their information from you on what the fair labor rate is.

Secretary TOBIN. As soon as I return to the office, I shall have your request checked.

Senator ROBERTSON. What I would like to know is, why can we not get a wage on a plumber's helper, when there are not enough plumbers down there to do the work in building these homes?

Secretary TоBIN. I will have it checked. I am not familiar with the facts, Senator. We have thousands of determinations on DavisBacon and it is extremely difficult to know the posture of each one of the many decisions that have to be made in the course of a year.

I could only point out that the delay in Davis-Bacon would be the exact same problem that we in the Department of Labor will be up against administratively if this law is enacted in its present form.

Now, for example, in making cotton textile determinations, there were four thousand cotton textile plants in the United States that will be covered. I have not had an opportunity to count the number of communities in which they are located, but I think it is a conservative estimate to say that it would be in excess of 1,500 to 2,000, and I know that I am conservative because the Solicitor, at my right, has whispered to me three thousand communities.