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VIOLATES BASIC LAW PROVIDING THAT GOVERNMENT CONTRACTS SHOULD BE AWARDED THE LOWEST BIDDER

The requirements of the bidder which this measure contemplates are not only unconstitutional, as pointed out above, but violates the fundamental legal principle underlying the granting of Government contracts. The basic law covering Government contracts requires in general that purchases shall be made through competitive bids and that awards be made to the lowest bidder. Conformity to this well-established principle in connection with Government contracts will be impossible in many instances if this measure is adopted.

THE MEASURE IS UNNECESSARY

The great majority of employers are entirely willing to conform to a proper standard of wages and hours without the necessity of Government compulsion. However, there is a material difference between wages and hours which are predicated upon sound economic considerations and the inflexible, rigid, and arbitrarily arrived-at wages and hours which will probably prevail on Government work if this measure is adopted. Conditions vary in various lines of business. Geographic conditions, competitive conditions, and many other factors enter into the proper determination of wage and hour standards. What would be fair, economic, and sound minimum wage and suitable hour schedule for one industry might be unreasonable and confiscatory in a case of another industry situated in a different areà and operating under different competitive conditions.

WOULD MATERIALLY INCREASE TAXES

The money used to pay for Government projects and purchases necessarily comes from the taxpayer. This effort to enforce conformity to uneconomic and arbitrarily arrived at standards on Government contracts will necessarily cause a substantial increase in the tax burden which is already stifling productive enterprise.

The adoption of this measure would eventually result in the imposition of serious and unwarranted burdens on employers, workers, and the general public; and we accordingly respectfully urge that it be rejected.

Mr. HEALEY. We shall now hear from Mr. Smith. What is your full name, Mr. Smith?

STATEMENT OF H. GERRISH SMITH, PRESIDENT, NATIONAL COUNCIL OF AMERICAN SHIPBUILDERS

Mr. SMITH. H. Gerrish Smith.

Mr. HEALEY. Whom do you represent?

Mr. SMITH. I am president of the National Council of American Shipbuilders.

Mr. Chairman, I appear in behalf of the shipbuilding interests of the United States through the National Council of American Shipbuilders, which represents fully 90 percent of the shipbuilding capacity and the ship-repairing capacity of the United States. I appear in opposition to this bill, for the reasons which I will very briefly

state.

The shipbuilding industry is one of those industries that is very largely interested in Government contracts, and it has on hand at the present time probably $100,000,000 worth of naval contracts, and it has some contracts of smaller size for other branches of the Government.

I have a statement which I would like to file with the committee. I would like to read it in part and comment as I go along with reference to certain features of the statement that I have prepared.

Mr. HEALEY. You may proceed in your own way, Mr. Smith.

Mr. SMITH. The shipbuilding industry is one of the durable-goods industries of the United States. Shipyards engaged in the construction and repair of vessels, both for Government and private account, are located on the Atlantic and Pacific coasts, the Gulf, and Great Lakes regions and on the principal rivers. Craftsmen of upwards of 30 trades are employed in ship construction and repair and practically every State in the Union contributes, in the way of materials, toward the building of vessels.

Every shipyard has a list of several hundred subcontractors who supply equipment or materials used in shipbuilding and ship repairing. At times the larger shipyards employ several thousand employees in the building of vessels. The maintenance of that force is contingent upon the ability to plan the work and proceed with it in a systematic order.

In a statement that was presented to this committee on Monday, there appeared certain figures as to violation of the code, hours and wages in various industries. The only reference to shipbuilding that I can find in that record was one covering 6 industries and 2,292 employees. The report made indicated that only 3 of the firms employing 639 men were conforming to code hours and minimum wages while the remainder were violators. (This report does not cover 5 percent of the industry and any conclusion drawn on this small number of employees is wholly misleading. My information is to the effect that all members of the industry engaged in the construction of Government vessels have adhered strictly to code hours and minimum wages.)

Now, there are employed in the industry at the present time approximately 40,000 men. Two thousand two hundred and ninetytwo employees represents an extremely small part of the total employment in the private industry alone and it cannot, in any sense, be representative of the situation as to hours and wages prevailing in the industry since the codes went out.

Our building program required 36 hours-32 hours at the start— and that has been maintained. At the present time, in all of those yards that are engaged on naval work, notwithstanding the fact that the Government itself works 40 hours, and notwithstanding the fact that the Government has been very anxious that private yards should likewise work 40 hours, it has maintained its 36-hour standard, as under the code, in those yards that are engaged on naval contracts, and so far as I can find, they were maintaining those hours very closely.

In the commercial yards, though, in the repair yards, while there was a 36-hour limit over a 6-month period, 40 hours was granted under the code, per week.

I have no confidence whatever, therefore, in the statistical figures as representing the shipbuilding industry, that have been presented to your committee, because I do not believe they are in any sense representative of what has occurred, and I think that the records, as published by the United States Department of Labor for shipbuilding in December, as compared with what they were in May, are of themselves a good indication of the fact that the shipbuilding industry has maintained hours and wage rates.

The only minimums in the code in the shipbuilding industry was a broad minimum of 40 cents an hour in the North and 35 cents an

hour in the South. There were certain exceptions that did not come under that classification.

Now, I find this, taken from the Department of Labor's own records, that shipbuilding employment is now rated at 82.9 against 76.4 in May.

I am reading from the last record that was available, which was the December report of the Department of Labor. The pay roll is 77.2 against 65.7; the average weekly earnings are $26.84 as against $24.88; that the average hours worked are 34.3 as against 33.1; that the average hourly earnings at the present time are 77.4 against 75.

I think those records are more reliable than any others that could be taken on a survey of a small number of units of the industry. Mr. RAMSAY. That figure of 74-is that a decrease?

Mr. SMITH. No, sir; it is an increase. The 77 and a fraction is the average at the present time.

Mr. RAMSAY. You mean that wages have increased?

Mr. SMITH. The average wage per hour shows a substantial increase over what it was in May of 1935. Furthermore, the average hourly rate in the shipbuilding industry, year in and year out, is the highest average rate in any durable-goods industry.

Mr. WALTER. Mr. Smith, is it not a fact that the hours are shorter and the wages higher in private yards than in the Government yards, and have been since 1914?

Mr. SMITH. No, sir; the hours are not shorter. The hours are shorter since the code went into effect, and the wages are somewhat lower in the private yards, and always have been, than in the Government yards. But the hours have not been shorter or had not been shorter until they were restricted under the code, and the expectation was that the Government would work on the same hours as the private shipbuilding industry.

Mr. HEALEY. Did you say that wages are lower in the private yards than in the Government?

Mr. SMITH. They are somewhat lower in the private yards than they are in the Government navy yards, but they are the highest wage that prevails in any durable-goods industry in the United States.

Before I proceed to discuss the provisions of the bill and the effect that it will have on the industry which I represent, I desire to give you a picture of the details involved in the preparation of a bid for the construction of a Government vessel so that you may appreciate the uncertainties and delays that would be imposed on the shipbuilders if the bill were enacted and the impracticability of complying with its provisions so far as it applies either to the main contractor or subcontractors involved.

The specifications for the building of any ship are elaborate and are set forth in great detail. A shipbuilder, in preparing his bid, must study these specifications and the general arrangement plans which accompany them.

This involves an assembling of information as to the materials and equipment needed and the obtaining of preliminary prices from subcontractors and material-supply companies upon which the bid for a vessel is prepared. A shipbuilder is under pressure in the preparation of bids, as a definite time limit, usually of short duration, is

allowed from the time that the invitations to bid are sent out and the day on which the bids are to be opened. Subcontractors from whom prices have been obtained may not be those from whom material and equipment are subsequently ordered.

You obtain the best price that you can to be used in your bid, to be followed up when a contract is taken by negotiations with your subcontractor, as to the final price to be quoted for the material upon which he has given you a premilinary figure. There is difficulty, therefore, in determining in advance the status of a subcontractor under the legislation and whether, in the opinion of the shipbuilder, he would be in a position to abide by the requirements if a contract is placed with him. The result is that it delays the preparation of the bid.

The complications that I see from my many years of experience in building ships is that you are going to have an inevitable slowingdown in the process of submitting your bids and an inevitable slowing-down in the process of obtaining firm figures and carrying on the work under your contract, with a longer time of completion; and, during this period and for some time to come, a slowing down in the employment of the industry as the work proceeds. That I will touch upon a little further in a moment.

This situation involves uncertainties and delays in the preparation of bids and inevitable delays in complying with the specifications. The bill would require the Department of Labor to specify the minimum wages and maximum hours required or referred to in any proposal or contract, to be determined by the Secretary of Labor. In this connection, it should be pointed out that bids for the construction of vessels are received from shipyards having varying wage rates due to different geographical location on either the east or west coast and in some cases as between the coastal yards, the Gulf, the Great Lakes, or the great rivers, therefore making it impossible to embody in the specifications a uniform wage on which to base a bid.

The wage structure is not uniform throughout the country and it would be impossible, therefore, to establish a fixed wage scale in advance of the opening of bids as it is not known who might be the successful bidder. The impracticability of this is shown by conditions which developed in connection with the Heard Act, Public. No. 403, Seventy-fourth Congress, which extended a prevailing wage provision to the Bacon-Davis Act of March 3, 1931.

The Department of Labor made the following announcement in connection with this matter:

Contracts outside the act. The requirement of wage predetermination, however, has no application to-

(a) The construction or repair of ships or other movables where the place of performance of the contract cannot be ascertained in advance of the bidding.

The Treasury Department promulgated this ruling of the Labor Department in its circular letter no. 126 of October 7, 1935.

The enactment of the bill would continue the unsatisfactory conditions that prevailed in the shipbuilding and ship-repairing industry under the National Industrial Recovery Act. Such, for instance, is the conflict that still prevails between the number of hours worked in the navy yards and the private shipyards on Government work.

It certainly is a most unsatisfactory condition when navy yards were and still are permitted to work 40 hours per week while the private shipyards were restricted during the first 8 months under its code to 32 hours a week and later to 36 hours per week. Notwithstanding this most unsatisfactory condition, the 36-hour week still prevails on unfinished naval contracts in private shipyards.

The restriction of hours in the private shipyards resulted in a decrease rather than an increase in employment. That may sound strange to you, but I want to mention that as bearing distinctly upon this particular problem that confronts you under this bill.

A large number of different trades are involved. There are something like 25 trades that employ a large number of men and it is what may be called a step-to-step process. Your second trade is dependent upon the first; your third upon the second; your fourth upon the third, and so forth, and each and every trade has key positions, and there is a point from which, if your hours are too short, that you are delaying the work of a second group of men.

One trade, as I say, is dependent upon the other all the way through. And that is exactly what has happened under the code, and I think that those who had the administration of the code recognized it too late. They fixed upon us hours that slowed down the whole building program from 1933 to date. There would be more progress, more employment on a 40-hour basis than on a 36hour basis.

Mr. HEALEY. You are not compelled by any Government regulations to maintain a 36-hour week now, are you?

Mr. SMITH. Yes, sir; it is still written in our contracts of 1933 and 1934.

Mr. HEALEY. Oh, you are working on contracts which were entered into during the time when the codes prevailed.

Mr. SMITH. We are working on the contracts that were entered into under the code provisions.

Mr. HEALEY. And you feel that the stipulations that were written into your contracts at that time are binding on you now?

Mr. SMITH. We feel that there is uncertainty about it, and we have not as yet been able to get any definite agreement to release us from 36 hours.

Mr. HEALEY. How about the new contracts that were entered into since the Schechter decision?

Mr. SMITH. You cannot work two sets of hours in the same yard without seriously disturbing your whole program of work. That is the difficulty. There is no possibility while the contracts are not written with a 36-hour limitation-that is the last contract-of working two sets of hours with men working perhaps today on one contract and tomorrow on another, or perhaps this morning on one and this afternoon on another.

Mr. HEALEY. Of course, you know, as a matter of fact, that there are no hour or wage stipulations written into your new contracts. Mr. SMITH. Yes.

Mr. HEALEY. There is no authority for the Government to require that.

Mr. SMITH. You are exactly right. But you establish the wage scale and the hour scale.

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