tract, are extended by the present bill so that he is bound, not only for his own compliance with such representations and stipulations, but also for the compliance of his subcontractors. Even if the term "subcontractor" were used in its customary sense, the additional burden placed on the principal contractor would tend to discourage him from bidding on a contract subject to the act. But in section 7, as proposed to be amended, the word "subcontractor" is defined to

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.

The proposed amendment appears, in effect, to place upon the principal contractor, the burden of tracing the origin of all supplies (used in the broad sense as defined in the proposed amendment) which are used in any manner in the performance of the contract. The hazards, responsibility, and liability of the contractor are further increased by the fact that section 2 of the original act which now provides certain penalties for breach or violation of any of the representations or stipulations including certain liquidated damages for knowingly employing persons under the minimum wage prescribed by the act, would be amended by striking the word "knowingly". The principal contractor would therefore be required to act at his peril and with reference to matters of which he could not, in many cases, and without great expense, obtain information. The War Department is apprehensive lest the added burden on the contractor may deter bidding and result in increased costs to cover increased risks.

In connection with the matter just discussed, it is possible that the intention of the proposed amendment is to impose the statutory penalty on the subcontractor in case of breach or violation of a required representation or stipulation, involving him, of course. The opening provision of section 2 of the present act, the wording of which is not changed by the proposed amendment, reads:

That any breach or violation of any of the representations and stipulations in any contract for the purposes set forth in section 1 hereof shall render the party responsible therefor liable to the United States of America for liquidated damages, * * * [Italics supplied.]

With the extension of the act to include subcontractors, the words "party responsible therefor" becomes ambiguous. The question arises as to whether, in case of a violation by a subcontractor, the "party responsible therefor" is the subcontractor or the principal contractor. The present act applies to the principal contractor only. If it is now intended to hold subcontractors responsible, the bill presents a number of objections. To recover damages from a subcontractor (defined as any person who manufactures or furnishes supplies to or for the principal contractor, whether directly or through any middleman or broker), who is not privy to the principal contract, would appear to be most difficult. Nor are the penalties prescribed entirely appropriate to the case of a subcontractor. In addition to the difficulty of enforcing a contractual liability imposed by statute upon a person not privy to the original contract, the recourse of the Government to cancelation of the contract, to making open-market purchases charging additional costs to the original contractor, and to the withholding of money due, can have no application to subcontractors. It

is assumed, therefore, that the proposed act is intended to charge the principal contractor, at his peril, with all breaches or violations of representations and stipulations, whether caused by himself or by subcontractors, including material men. If such is the intent, and if, notwithstanding the likelihood of deterring bidders and increasing costs, in many cases, it is still considered desirable to hold the prime contractor liable for violations by subcontractors, it is suggested that the words "principal contractor" be substituted for the words "party responsible therefor".

The authority given to the Secretary of Labor, in section 1, page 2, lines 18-23, of the present bill to take into account, in the determination of the proper minimum wage, the reasonable cost to the employer of certain prequisites furnished the employee appear to be in the public interest, and the War Department sees no objection to that provision. So also does the establishment of a uniform minimum age of 16 years for male and female employees, making that provision uniform as to each sex, and the addition of a provision that no employee under the age of 18 years of age shall be employed in an occupation or industry deemed by the Secretary of Labor to be hazardous or injurious to health.

Section 2 of the bill provides, as does the present act, for the payment of liquidated damages of $10 per day for the breach of the representations or stipulations set forth in section 1 thereof and a sum equal to the amount of wages due to employee. However, the

bill goes on to provide:

* * * and for the second breach or violation double such amount due any employee, and for the subsequent breach or violation treble such amount; * ** The bill further provides that:

All sums withheld or recovered for underpayment of wages, including such double or treble damages as may be found due, shall be held in a special deposit account and shall be paid, on order of the Secretary of Labor, directly to the employees who have been paid less than the minimum rates of pay as set forth in such contracts and on whose account such sums were withheld or recovered:

* * *

Although no objection is seen to imposing additional liability as indicated, in case of second and subsequent violations respectively, no sound basis is seen for paying an employee who has been underpaid any amount in excess of the wages due him. Moreover, as now worded, the provisions for double and treble liability might lead to confusion in administration as it is not clear whether several underpayments on the same pay roll are to be regarded as one violation nor is it clear whether second and subsequent violations, in order to be made the basis for double and treble liability, must relate to the same employee.

I will amplify that by one illustration. Say that X, Y, and Z are three employees. On the same pay roll, wages are withheld from each one of those. Now whether that would involve one violation, so that a subsequent violation would allow double or treble damages as the case may be, is the question we have on that point. Also it perhaps should be made clear, as suggested here, whether a violation, a subsequent violation, in order to provide a basis for double or treble damages, should relate to the same employee as the first violation, or whether that would be entirely immaterial.

That is all, sir.

Senator WALSH. Thank you.

Who is here representing the Navy?

Captain FISHER. Captain Fisher and Commander Ring. Senator WALSH. All right, Captain, the committee would be pleased to receive your views.

Captain C. W. Fisher, Construction Corps, United States Navy. STATEMENT OF CAPT. C. W. FISHER, CONSTRUCTION CORPS, UNITED STATES NAVY

Captain FISHER. Mr. Chairman, any statements I may make are not to be construed as committing the program of the President. In view of the fact that I have just heard the testimony from a representative of the War Department, I would like to state that I concur in the remarks that I heard him make, in regard to S. 1032.

The Navy is obligated to expedite the naval shipbuilding program and at the same time to carry on the increasing work of maintaining the enlarged fleet. Its interest in legislation of the kind now before this committee is that there should be no interference with the accomplishment of these paramount duties of national defense.

Labor conditions may well need improving. But this proposed use of naval contracts as a means of improving labor conditions may result in hampering the procurement of essential elements of national defense. Such features as cancelation of contracts, blacklisting bidders, purchasing against the account of a contractor who violates the law, and so forth, result in restricted competition and interference with obtaining needed articles. To avoid these results it is urged that all such laws be so drawn that the stipulations and penalties for violation will operate to preserve needed competition and punish only the violators without thus penalizing the Navy as well. The amendments proposed by the bill S. 1032 to the so-called WalshHealey Public Contracts Act of June 30, 1936, would extend the scope of that act in the following important respects:

(a) Reduce the monetary limit of contracts subject to the act from $10,000 to $2,000.

(6) Broaden the act to include vessels (including floating equipment) and services in any form except professional which are required to be furnished under a contract or subcontract. (The WalshHealey Act was made applicable to naval vessels by the act of May 17, 1938 authorizing an enlarged Navy).

(c) Bring within its scope subcontractors when the subcontract exceeds $2,000.

Other proposed amendments of lesser importance involve the method of determining the minimum prevailing wages, lowering of the minimum age of employees, and the control of labor hazards.

Notwithstanding the worthy purpose of such a bill (S. 1032), the Navy Department is of the opinion that it should be so drawn as to avoid undue interference in the procurement of the supplies and materials needed by the agencies of the Government for the performance of their missions, particularly when unnecessary delays in the procurement of supplies brought about by restrictive legislation might lead to serious and irrecoverable delays in the prosecution of important projects and defeat the very purpose of the bill.

It might be assumed that the proposed extension of the scope of the act as proposed in S. 1032 would not be disturbing. It is not believed that this is a proper assumption. Contracts for $10,000 and over may attract individual producers within the industry or an industry as a whole, whereas contracts offered to advertisement as low as $2,000 might be passed over by both an industry and individuals within the industry without much consideration. It is very probable that the difficulties encountered in the execution of contracts ranging in amounts from $2,000 to $10,000 would present many more problems, and of more perplexity than those encountered in the administration of the original act.

There are many manufacturers who will not bid and take a contract subject to the Walsh-Healey Act and others who will accept all provisions except the minimum-wage determination. Comparatively few industries, for the Navy's purpose, have been the subject of a minimum-wage determination. The minimum-wage determination in the iron and steel industry practically eliminated competition in the industry while it was in effect. The bidding on steel, while the minimum-wage determination was in effect, was confined to two bidders agreeing to the stipulations, and as only one of these could produce steel within the whole range required, the bidding was limited on some items to one bid. Bidding is now normal due to the temporary court injunction suspending this wage determination.

Bidding fell off markedly after the Walsh-Healey Act went into effect, dropping from an average of 7.49 bids per lot in 1936 to 5.84 bids per lot in 1937, a drop of about 25 percent. The previous rate of bidding has not been regained. Many contracts run for a period of a year and some for as long as 2 or 3 years. There is a recognized risk in agreeing to pay fixed rates of wages over the distant future.

When

Contracts in excess of $10,000 are normally beyond the capacity of the dealer class, and generally are made with manufacturers. the monetary limit is dropped below $10,000, the dealers enter the field in much larger numbers. However, the representations and stipulations of the act may discourage dealer bidding, and as contracts less than $10,000 do not have the same attraction as the larger contracts, competition might be unduly limited on this class of contracts. The danger of the cancelation of the contract and the extent of the liability of the contractor would become a factor of much uncertainty in bidding if the act were extended to subcontractors. The bill would place liability on the primary contractor for the acts of his subcontractors. Primary contractors might not be willing to take the risk. Under Executive Order No. 6646, it was decided that it was too much to ask of the prime contractor to carry the responsibility for code compliance all the way down the line.

It is doubtful if contractors, particularly the smaller ones, who would be attracted by these $2,000 to $10,000 contracts would be willing to assume any liability for the acts of their subcontractors in the matter of compliance with wage and hour rules. The smaller concerns have more apprehension about taking Government contracts imposing uncertain liabilities upon them. They have not readily available legal advice, like that of larger corporations, and any provision imposing a penalty in their dealing with the Government is a matter of concern. The liability of the bondsmen would be increased by the added risk of the cancelation of a contract because of an act of the subcontractor.

It is a fair assumption that the added liability would increase the premium rates charged, which would be reflected in the prices bid for the materials.

When each proposal must show the minimum wage and maximum hours of the industries by geographical sections in the country to cover both contractors and subcontractors, invitations for bids and contracts may become books of contractual stipulations, with the primary object of the documents, that is, the specifications of a product, moved to relative obscurity.

We are making constant efforts to simplify and improve the Government purchase procedure so as to make it conform as nearly as possible to commercial purchasing methods. From a practical business standpoint, Government business should be as attractive or more attractive than commercial business. The specifications used by the Navy Department have been revised from time to time to harmonize as far as possible with standard commercial qualities. An effort is made to interest more and more manufacturers in supplying Government materials, not only with the object of carrying out the purpose and intent of the law requiring the widest possible competition, but to obtain the materials at the lowest costs.

However, the increasing number of laws peculiar to Government contracts tends to widen the gap between Government and commercial purchasing methods and procedure. There are in most cases approximately nine laws which now require stipulations in bids issued for Government supplies. While the stipulations required by each of the nine acts are not all applicable to the same materials, contracts for some materials often involve as many as four or five of these stipulations. As a law makes a distinction between Government and commercial business, Government contracts become less attractive.

The law known as the Fair Labor Standards Act of 1938, approved June 23, 1938, sets a floor under wages and a ceiling over hours of labor for uniform application throughout all industries. The WalshHealey Public Contracts Acts, approved June 30, 1936, sets a ceiling over hours of labor and authorizes the Department of Labor to determine the prevailing rates of wages and set a floor under wages for labor engaged in the performance of Government contracts.

The creation of two administrators, one for each act, with similar duties and objectives, but differing only as to methods, appears to be unbusinesslike and uneconomical. It results in two sets of rules and regulations governing the same phases of productive industries. The authority vested in either body, with minor legislative changes, would seem to be broad enough to administer the functions of both acts.

It is probable that reconciliation of the provisions of the two acts would prove more advantageous to labor in the long run, than the enactment of S. 1032, in that it would make for greater uniformity of business methods of procedure and simplify administrative routine. Summarizing the effect of S. 1032:

(a) It would bring but few industries not now reached by the act, within its scope.

(b) It would bring a number of dealers within the scope of the act. (c) It would increase the cost of administration.

(d) It would multiply the problems and increase their complexity in the procurement of supplies by the Government.