Construction Trades Department (AFL-CIO) signed a historic national Work Rules Agreement in April 1971. Agreements in several local areas have endorsed this agreement or used it as a model for local agreements. Moreover, the CISC has disapproved costly new work rules in various agreements where offsetting cost savings were not evident. Finally, the National Commission on Productivity and the Construction Industry Collective Bargaining Commission--both tripartite agencies with labor, management, and public representatives--are actively engaged in developing approaches to raise labor and management productivity in the construction industry. These efforts should also begin to pay off in the near future." The Department of Labor letter also requested that the following statement regarding the administration of the Davis-Bacon Act be included in our final report. "*** the Department of Labor agreed with the basic recommendations contained in the GAO 1971 report concerning the administration of the DavisBacon Act. Action has been taken on these recommendations and other changes have been made in policies and procedures. Of particular interest is the change in policy with respect to wage determinations issued for Government assisted residential construction. In late 1970 a decision was made to treat residential and commercial construction separately in making wage surveys and issuing wage determinations. The change now fully effective, was necessary because our studies showed that commercial construction wage rates generally do not prevail in residential construction. More importantly, the Department of Labor has decentralized to Regional Offices the functions of gathering and analyzing wage data for project wage determinations. The field staff of the Employment Standards Administration (over 900 Compliance Officers) has subsequently conducted hundreds of on-site wage surveys. Compliance Officers assigned to conduct such surveys have extensive knowledge of local wage practices and the wage surveys are conducted by direct 86-379 072-5 contact with builders, associations, labor organi- "Another important change has been to publish ment of Labor plans to increase the number of Building and Construction Trades The President, Building and Construction Trades Department, AFL-CIO, by letter dated October 11, 1972, raised objections to much of the information discussed in the draft report related to construction labor. Before the receipt of formal comments, we met with representatives of AFL-CIO to obtain their comments on the report and discuss any sugThe representatives of gestions they had for improving it. AFL-CIO disagreed with most of the information included in the report and it became clear that AFL-CIO's objections to the report could not be resolved unless the report was revised substantially as a result of the meeting disregarding much of the information obtained from contractors and union representatives during our study. We believe The AFL-CIO formal reply reiterated many of the objecCertain of the objections discussed during the meeting. tions dealt with the study approach, techniques used, and the professionalism applied during the study. that these matters are adequately discussed in the report and our discussion of AFL-CIO's comments has been limited technical information to those matters which deal with the presented in the report. AFL-CIO listed four "fundamental deficiencies" relative to the technical information in the report. The first im plied that costs should not be referred to as high, increased, or increasing, without assigning a standard for comparison or a time frame, when appropriate. The impact of the issues discussed in the report was characterized in these terms on the basis of statistical data and information obtained from studies, contractors, and union representatives. For example, wages have increased because they can be measured over a period of time by using available data on wage rates and average hourly earnings. (See pp. 75 to 78 of enc. A.) Second, AFL-CIO stated that we equated increases in the hourly wage rates of construction workers with increases in construction labor costs without knowing the actual labor costs involved in the construction of health facilities. As stated in the report and emphasized in our conclusions, many factors have contributed to the increase in the cost of construction labor. Wage increases certainly had a significant impact on construction labor costs, regardless of the type of building constructed. For example, the average annual increase in hourly earnings for contract construction workers (see p. 76 of enc. A) was 9.8 percent during the 4 years ended December 1971. Although it may not be possible to precisely equate this increase to building costs, the fact that building construction costs increased by about 10 percent during the same period cannot be ignored. Data on wage and fringe benefits increases for the six trades predominantly employed in hospital construction are shown on pages 77 and 78 of enclosure A. AFL-CIO cited a Department of Labor study published in 1971, "Labor and Material Requirements for Hospital and Nursing Home Construction," which reported that, because of decreasing man-hour requirements per hundred square feet of construction from 1960 to 1966, productivity had increased 7 percent. During our study we reviewed the Department of Labor study in some detail. While the study includes a substantial amount of useful information, we noted several matters relating to the computation of man-hour requirements which made the data questionable for inclusion in our report or as a measurement of productivity. First, the data in the study is old; man-hour requirements for hospital projects constructed in 1959 and 1960 were compared with man-hour requirements for hospital projects constructed in 1965 and 1966, a period before the large increase in construction costs. Second, the 1959-60 data was based on 32 new hospital projects and 14 projects involving hospital additions while the 1965-66 data was based on 26 new hospital projects and 35 projects involving additions. The differences in types of projects could provide the answer for changes in man-hour requirements. Further, the Department of Labor cited many reasons for the changes in man-hour requirements, including shifts in the relative importance of hospitals of different sizes, types, and locations and in materials used, as well as changes in productivity due to technological and related improvements. In a paper which discussed the study, prepared for the September 14, 1972, Conference on the Measurement of Productivity in the Construction Industry, Department of Labor officials pointed out that they had experienced considerable difficulty in matching projects' characteristics over two time periods. Because of the difficulty in providing matches for entire structures, the paper concluded that another approach was necessary. ་་ AFL-CIO stated also that the Department of Labor study showed that "on-site labor wages rose only 1.4 percent over a six-year period from 28.2 percent of construction costs to 29.6 percent of construction costs ***." The data presented in the study appears to have been somewhat misinterpreted by AFL-CIO. As used in the study, the 28.2 percent (based on 1959-60 data) and the 29.6 percent (based on 196566 data) represent a 1.4 percent increase in the percentage of hospital construction costs attributable to onsite labor wages. With regard to increased wages, the study stated that during the 6-year period, average hourly wages rose 22 percent and not 1.4 percent as stated by AFL-CIO. Although it is universally recognized that there are no reliable means of measuring productivity in the construction industry, the letter from AFL-CIO infers that we should use a figure released by the Price Commission that productivity in contract construction--nonresidential (except highways and sewers)--increased by 1.5 percent annually from 1958 to 1967. The percentage cited, along with other rates for numerous standard industrial classifications, was printed in the Federal Register (vol. 37, No. 86, May 3, 1972) as an amendment to regulations of the Price "*** to provide, in the case of manufacturers and construction contractors only, a formula for the calculation necessary to determine these productivity gains in cases involving price increases based in whole or in part on actual increases in allowable labor costs." Although the Price Commission uses the 1.5 percent as an average annual rate of productivity gain to reduce labor costs when they are used as the basis for a price increase, we do not believe any totally reliable figure exists to measure productivity change in the construction industry. Third, AFL-CIO stated that we did not properly correlate differences between health facility construction and other building construction or give full consideration to the more sophisticated requirements of hospitals. Our overall report discusses the many aspects of health facility construction. Specifically, in the area of construction labor, page 76 of enclosure A shows that more skilled workers are required for hospital construction than for other buildings because of complex equipment and sophisticated systems used in hospital construction. Also, as pointed out in the report, construction industry representatives assured us that the issues associated with the increase in labor costs are the same for health facility construction as for general building construction. These issues pertain to wage increases, productivity, restrictive work rules, jurisdictional disputes, availability of skilled workers, and the Federal requirements pertaining to construction labor discussed in the report. Fourth, AFL-CIO pointed out that we should have considered wages and salaries of architects and engineers, technical and administrative personnel, and supervisors in our discussion of labor costs. In our study we concentrated on those items which have the most significant impact on the cost of constructing a health facility. The previously cited Department of Labor study showed that 80 percent of hospital construction costs are for onsite wages and materials based on hospital projects constructed in 1965 and 1966. |