In the first place, it is very easy for a dealer to make a contract which he then turns over to a manufacturer, who, unless he ships directly to the Government, is completely outside our reach, and whose labor conditions may be, and frequently are, shockingly inadequate, and who may be causing considerable disruption in his industry, competitively, because of the low labor standards which he imposes. He is entirely beyond our reach and consequently the purpose of the Congress in trying to promote good labor standards on Government contracts, and equalize competition between bidders, has been very much thwarted because of this very easy legal dodge.

Now I would like to cite some instances of what I mean. I have in mind, among other situations, the cotton textile industry where it is customary for converters to bid on Government contracts and then have their contracts performed by some manufacturer who ships to their order somewhere, and then the converter, in turn, transships to the Government. In such case the manufacturer's operations are not subject to the provisions of the Walsh-Healey Act. This is not only unfortunate from the standpoint of the employees who are involved in the performance of that contract, but it is also distinctly unfair to the integrated textile mill who has to bid directly because that happens to be the way that it carries on its business, it doesn't deal through a New York converter, and who must therefore be subject to the provisions of the act.

It is competing, therefore, on business, with another manufacturer, perhaps a bleacher or a dyer, or a finisher, who happens to bid through a converter, either in order to defeat the jurisdiction, or because he has customarily carried on his business that way, the result being that it is very difficult for the so-called integrated textile mill to obtain business.

So that the effectiveness of the Walsh-Healey Act in the cotton textile industry has been very considerably minimized.

I have in mind a particular company which qualifies as a regular dealer in textile products, and has been awarded a large number of such contracts. It is his custom to have his textiles manufactured in one of the largest mills in the industry which ships the order to the dealer in care of a bonded warehouse, and then from that warehouse shipment is made in the name of the dealer to the Government.

Senator WALSH. Do you object to telling us what the commodity is?

Mr. WALLING. Cotton textiles.

Senator WALSH. What kind?

Mr. WALLING. Cloth.

The manufacturer in this case, prior to the enactment of the WalshHealey Act, had millions of dollars worth of Government contracts every year on which it was the direct bidder. Subsequent to the act not a single contract has been awarded directly to this manufacturer, making him subject to the provisions of the Walsh-Healey Act, but he has still continued to supply his usual large quantity through the medium of this dealer, by which he could evade jurisdiction.

Senator WALSH. I assume this dealer is also the lowest bidder? Mr. WALLING. Yes; and of course, under the existing provisions of the law, the contract must be awarded to him, and this is a perfectly legal evasion.

Senator WALSH. Is his bid very much lower than that of his competitors, do you know?

Mr. WALLING. Very often the bid is extremely close. On some items it may be as little as a fraction of a cent per unit lower. Senator WALSH. That is important.

Mr. WALLING. Very important.

I have in mind another textile concern, a converter, which purchases its greige goods woven in one mill, has them shipped to a bleachery, and then when the goods have been finished, they are moved to an adjoining building owned by the bleachery, but leased to the bidder dealer, who maintains one employee at the warehouse where the goods are stored, and that employee is, of course, subject to the provisions of the act, but all the employees engaged in the manufacturing and finishing and dying and bleaching of the goods are outside its provisions.

Then it has been very customary for companies to turn over their contract to another company. We have had instances of companies who were not qualified to bid under the provisions of the WalshHealey Act, who have been performing contracts because they made an arrangement with a qualified dealer who got the award and turned it over to them.

I can cite a great many instances of that, but I won't take the committee's time.

I would like to summarize by saying that this evasion is important, not only because it denies to the employees in these manufacturing establishments, protection which is given to their fellow workers in other establishments subject to the act, but also because it is promoting unfair competitive conditions between the bidders themselves, and I think you will find that there is considerable interest on the part of many employers in having the provisions equalized.

If they are going to be subject, there is no reason why their competitors should not be so subject.

I might say also, in connection with the subcontractual amendment, as I read it, that it does not bring under the jurisdiction of the act every subcontractor who supplies routine material, raw material, or partly processed material, or equipment, to the contractor, but it does provide that where the contractor turns over a part or all of his contract to a subcontractor, and has that subcontractor do work which he himself could and should perform under the contract, that that subcontractor will be brought in.

I think that the suggestion which was made that it would be extremely complex and administratively unworkable to make all the subcontractors, regardless of the proximity of their relation to the performance of the contract, subject to the act, is amply met by this more restricted coverage. And the contractor is merely required to obtain a certificate of compliance from the subcontractor to whom he is turning over a part or all of his contract, by which that subcontractor agrees to perform his contract or his part of the contract, whichever the case may be, in accordance with the provisions of the WalshHealey Act.

And there is one other comment that I should like to make on a provision which does not appear in S. 1032.

Senator WALSH. Would you read for the record, before we take that up, just the language in the act that deals with the subcontractor?

Mr. WALLING. I would have to read, Mr. Chairman, all of section 1, because it refers in every place to the contractor.

Senator WALSH. The definition is on page 5, section 7 (c):

(c) "Subcontractor" shall mean any person who manufactures or furnishes to or for the principal contractor, whether directly or through any middleman or broker, all or any part of the supplies which are required to be manufactured or furnished by the principal contractor pursuant to the Government contract: Provided, however, That the provisions of this act shall apply only to such subcontractors whose contracts exceed a total of $2,000.

Now that is to be read in connection with section 1?

Mr. WALLING. Yes. May I say in this connection that Mr. Reilly, the Solicitor of the Department of Labor, who I believe is going to testify this morning, has some technical suggestions which he would like to bring to the attention of the committee about how this might be clarified.

Senator WALSH. Then you need not discuss that.

Mr. WALLING. May I make just this one final suggestion, Mr. Chairman, about a matter which is not covered by any provision in the pending bill.

We have had considerable complaint that contracts have been awarded to firms which have not been engaging in collective bargaining with their employees, and we have had to say in all cases that there is no provision in the Walsh-Healey Act, or any other Government statute at the present time, which requires Govrenment contractors to bargain collectively, and makes it a condition of their contract or allows any contracting officer to cancel or refuse to award any contract to a violator, for instance, of the National Labor Relations Act.

It may be that the committee will want to repair that hole in the existing legislative machinery, and it may be that the Walsh-Healey Act is the logical place to do that. In any event, it does seem inconsistent that persistent violators of other statutes of the Government in the general field of labor control, are able to ignore such statutes and at the same time have Government contracts. I suggest that to the committee as a subject which it might want to discuss by way of amendment.

Senator WALSH. Has an amendment been prepared covering that subject?

Mr. WALLING. I don't know, I assume that perhaps representatives of labor organizations may have such an amendment that they wish to suggest.

Senator WALSH. Now I would like to ask you a question with reference to an amendment that some members of the committee are thinking of proposing:

Section 3 is hereby amended by adding at the end of the first sentence thereof the following clause:

"Provided further, That such list shall contain the names of all persons who shall be found in a final adjudication by the appropriate court to have interfered with, restrained, or coerced their employees in the exercise of their rights to selforganization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, or to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection.'

Mr. WALLING. That language would carry out the suggestion I just made.

Senator WALSH. And wasn't there somewhat similar language in the Senate bill of last year?

Mr. WALLING. Yes; although, as I recall it, there was no reference in that to the requirement of final adjudication.

Senator WALSH. Thank you, Mr. Walling. Major Watson, will you come forward? You are a major in the United States Army? Major WATSON. Yes, sir.

Senator WALSH. Representing the office of the Judge Advocate General of the War Department?

Major WATSON. Yes, sir; the War Department.
Senator WALSH. You may proceed, Major Watson.

STATEMENT OF MAJ. JOEL F. WATSON, OFFICE OF THE JUDGE ADVOCATE GENERAL, WAR DEPARTMENT

Major WATSON. With the permission of the committee I will read this statement which I have prepared. The subject is somewhat complex, but I will try to read it in such a manner that it will be readily understandable.

Senator WALSH. Very well.

Major WATSON. First, I would like to say that time has not permitted ascertaining from the Bureau of the Budget whether the proposed legislation is in accord with the President's program, and, of course, under those circumstances the statement I make involves no commitment with respect to that program.

The War Department is in entire sympathy with the purposes of the bill so far as it is intended to make more effective the act of June 30, 1936, in the elimination of child labor and the establishment of adequate scales of wages and reasonable hours of labor in industry.

However, two of the principal features of the proposed amendment have heretofore been considered by the War Department, first at the time the original bill was introduced in 1935 (H. R. 11554 and S. 3055, 74th Cong., 1st sess.), and again in 1937 when an amendment was introduced as S. 2165, Seventy-fifth Congress, first session. Those two features are: (1) A reduction in the amount below which a contract is exempt from the provisions of the act, and (2) the application of the provisions of the act to the procurement of services.

Section 1 of the proposed amendment changes the maximum amount for which contracts can be entered into by the Government, without application of the provisions of the act, from more than $10,000 to $2,000 or more. The same section substitutes the word "supplies" for the words "materials, supplies, articles, and equipment", but the application of the word "supplies" is extended by definition in section 7 "to include materials, articles, vessels, equipment (including floating equipment), and services of any form, excepting professional, which are required to be furnished under the contract or subcontract".

In letter dated February 23, 1938, from the Secretary of War to the Honorable Daniel W. Bell, Acting Director, Bureau of the Budget, in reference to similar proposed amendments embodied in S. 2165, Seventy-fifth Congress, first session, it was stated:

Section 1 of the act would be amended by reducing the amount which must be involved in a contract to bring it within the operation of the act from "any amount exceeding $10,000," to $2,500. This section also would be amended so as to bring within the operation of the act contracts for services. H. R. 11554, Seventyfourth Congress, second session, which after amendment was enacted on June 30, 1936, originally was drawn to cover contracts in any amount exceeding $2,000,

including contracts for services, but after extended hearings was amended and enacted so as to apply only to contracts in amounts exceeding $10,000, and to exclude contracts for services. In these two respects, therefore, the bill involves the return to substantially the same proposals which were considered and rejected by the Congress. The effect of these changes would be to increase considerably the number of contracts to which the act would apply. At the time the previous bill was under consideration a limit of $10,000 was considered by the War Department preferable to the lower limit then proposed, and consistent with the accomplishment of the purpose of the bill. The reason for this belief was that contracts involving less than $10,000 covered principally purchases from stocks on hand, and it was not considered either necessary or advisable to legislate with reference to such procurements. The War Department is not informed as to the reasons for now proposing the indicated reduction, and is still inclined to believe that the law as it now stands is preferable in this repsect.

H. R. 11554, mentioned above, and a like Senate bill (S. 3055, 74th Cong., 1st sess.), would have included contracts for services, "except professional services". In a letter to the chairman of the Committee on Education and Labor, United States Senate, dated July 18, 1935, the War Department expressed the opinion that there might be other than professional services as to which the application of the provisions of the bill would result in no benefit, and that by adding an additional exception, as to "personal" services, needless complications would be avoided. If, notwithstanding the previous determination to exclude contracts for services from the operation of the act, it is now considered necessary to bring contracts for services within its scope, it is the opinion of the War Department that contracts for both professional and personal services should be excluded.

I might interject here to say that the great volume of the contracts that involve services at all, that are entered into under the War Department's direction, are for what we call nonpersonal services, where the employment is by the job or for a certain thing to be done, without regard to the employment of a particular person or individual. Senator WALSH. Will you illustrate?

Major WATSON. Just such a contract as Mr. Walling referred to a minute ago, a contract for laundry services would be a contract for nonpersonal services, but the employment of a man by the day to work for you would, of course, be a contract for personal services, and it is that type of contract that we feel, in addition to the professional service contract, should be exempted from this act, this proposed act. Senator WALSH. Do you have occasion to employ persons for services of that character?

Major WATSON. Yes, sir; we have a good many laundry contracts, and various other nonpersonal services, such, perhaps, as installations of one type or another. We may buy certain equipment and perhaps by another contract, an independent contract, in some situations, have it installed. That would be, as we see it, a nonpersonal service. Senator WALSH. So you distinguish between a personal service and a nonpersonal service?

Major WATSON. Yes, sir; and of course professional services, as we understand it, are merely one phase of personal services.

In passing, it may be noted that the amendment to section 1 includes contracts of $2,000 or more, while the amendment to section 7 as to subcontractors provides that the act shall apply only to contracts which exceed a total of $2,000. It is suggested that for the sake of uniformity the same expression be used in both places.

A third consideration is the proposal to extend the provision of the act to supplies, including services, material, and labor furnished by subcontractors. The provisions of the act of June 30, 1936, which require that the principal contractor shall agree to certain representations and stipulations with reference to his performance of the con