Let me make this statement: I could just give it to the reporter, but I am not going to read my prepared statement exactly as written, but I am going to delete and change parts of it.

There is a real demand throughout the country for an amendment to this measure. Practically every State in the Union, in connection with its public works, has a requirement of two separate bonds on public works. There is a requirement for a bond for faithful performance and completion of the contract; and there is a separate bond running to the laborers, materialmen, and subcontractors who may furnish service or material to be used in a public struc

ture.

My bill provides for this second type of bond. The law as it stands provides for the bond for the faithful performance on the part of a contractor for the contract, and the materialmen come in secondarily if there is anything left out of that bond.

I will continue to read from my memorandum:

Under the California statute

and I will not recite it—

and under the laws of most of the other States, the fundamental requirement of a bond for laborers, subcontractors, and materialmen is that the bond shall be given to 50 percent of the contract price.

This bill that I introduced (H. R. 5054) requires a bond of at least 50 percent of the contract price, or not to exceed the full contract price.

Similar bond provisions you will also find in the various special assessment laws connected with special assessment districts organized under authority of the States. The surety companies writing those bonds charge premiums not upon the amount of the labor and material bond or the faithful performance bond, or both, but upon the contract price; and their premium rate is a certain percentage of the entire contract price, irrespective of whether there are separate bonds or one bond; they are a percentage of the amount of the contract price, either with respect to the faithful-performance bond or the labor and material bond, or both.

Legislative representatives of the surety companies in the State of California have advised me that this is the practice throughout the United States by the surety companies and therefore no difference in premium rate stated on Federal public works in the event the bond was split up as the bill I introduced has provided-in requiring bonds to be given for materialmen and labor, in respect to the amendment to the Heard Act.

My bill amends what is commonly known as the "Heard Act."

My bill (H. R. 5054), in substance, was introduced last year by Congressman Evans, of my State; and I understand that a similar bill in the Senate was introduced by Senator Logan; but his bill goes a little further than mine and contains further provisions which might make it difficult of passage by both Houses of Congress; it brings up other questions.

The Heard Act as it stands today permits very substantial injustices to be done to laborers, materialmen, and subcontractors. There is only one bond written under that act, and it enures, respectively, to the benefit of the Government, on the faithful performance of the

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contract, and to the benefit of the laborers and materialmen and subcontractors. But the right of the laborers, materialmen, and subcontractors is postponed to an unreasonable length of time. Action under it by the Federal Government must be awaited, on the faithful-performance bond, which action can be brought at any time within 6 months after the full and final completion of the contract; and only after the end of that time can labobers, subcontractors, and materialmen have any relief under the bond.

In view of the fact that no additional premium cost would be reflected in the cost of public works arising out of severing the two bonds and permitting a direct right of action by laborers, subcontractors, and materialmen at a much earlier date, there would seem to be no good reason, from the standpoint of the Government, for not following the practice of the various State acts affecting public works.

From the standpoint of laborers, subcontractors, and materialmen, they are compelled to wait unduly long; and should a contractor default, they are really denied substantial justice on account of this unreasonable delay.

All that the materialmen, subcontractors, and laborers desire is a separate and direct right of action upon a separate bond.

As an example of that, I may say that in the small island lighthouse job, just off the coast of California near Los Angeles, the contract for this public work was originally let to the Roth Construction Co. by the Department of Commerce, Lighthouse Service, sometime after 1930; and the bond given by the Roth Construction Co. was signed by the United States Fidelity & Guaranty Co. as surety.

The Roth Construction Co. got into difficulties. In January 1930 a contract was relet, for the purpose of completion, to Carpenter Bros., at an increased cost, and a bond was written by Carpenter Bros., with the Massachusetts Bonding Co. as surety.

The work was not completed by Carpenter Bros., aided by the Massachusetts Bonding Co., until June of 1931. The final settlement was not made by the General Accounting Office of the Government until March 15, 1932, and the laborers, subcontractors, and materialmen employed by Carpenter Bros. were finally paid by the Massachusetts Bonding Co., Carpenter Bros. having "gone broke " on the job-they were not finally paid until the fall of 1932.

Now, under the provisions of the Heard Act, no action could be maintained against the surety company on the Roth Construction Co. bond until Carpenter Bros. had completed their work-until final settlement was made by the Government and 6 months elapsed from that date.

All suits in the United States district courts against the surety of the Roth Construction Co. had to be postponed until the fall of 1932. Owing to the congestion in our Federal district court in Los Angeles, a speedy trial could not be obtained; and, as a result, the settlement of the claims on the Roth Construction Co. contract was postponed and was made in the latter part of the year 1934, although these men had done their work in 1930.

Included among the claims against the Roth Construction Co. were claims amounting to something over $3,000, of laborers, each of whom had a small amount due to him.

Such a situation should not be permitted to exist.

The bureau of labor statistics and law enforcement of the State of California was very much exercised on the subject, and Mr. Arthur Johnson, the attorney for that bureau, has been trying, largely because of his experience in this and other jobs, to obtain a legislative amendment of the Heard Act along the lines which are suggested in my bill.

If a direct right of action had existed against the United States Fidelity & Guaranty Co., under a separate bond for the benefit of laborers and materialmen, it is reasonable to believe that the claims on this job would have been paid long before the claims arising under the Carpenter Co. and Massachusetts Co. jobs were settled.

Certainly, the laborers should not be compelled to wait 4 years to obtain payment, when more than 2 years of that time was due to their inability to maintain their right of action against the surety, owing to the peculiar provision of the Heard Act.

I can say that similar experiences in connection with Federal works have been found to exist all over the United States by laborers, subcontractors, and materialmen who have claims against Government contractors.

I might refer especially to a case arising in our jurisdiction, the particulars of which you can find in the printed report of the decisions of the United States District Court for that district, in two cases entitled, respectively, " United States of America v. Roth Construction Co.," embraced in two separate suits, numbered, respectively, 5950-H and 5526-J.

It is a strange thing that, under one theory of the meaning of the Heard Act, the first suit that I have referred to has been held to be premature, and, under another interpretation, the second suit might have been too late. We know that one or the other was timely.

This uncertainty arises out of the uncertainty as to the meaning of the words used in the present Heard Act, which controls the time of commencement of litigation; those words are—

within 6 months from the complete and final settlement of such contract.

The contract referred to is the contract between the general contractor and the Government.

Now, Mr. Chairman and gentlemen, that is the extent of my statement. But I would like to leave with the subcommittee some additional letters that have come to me.

Mr. ROBSION. What language in your bill fixes the date from which you compute the time of commencement of the action?

Mr. DOCKWEILER. Well, of course, my bill provides for two bonds, one for faithful performance of the contract, running in favor of the Government, and one for the materialmen and subcontractors and those who furnish labor. Those are two distinct bonds. Under the provisions in my bill for a bond which runs in favor of the materialmen, their cause of action starts within 6 months.

Mr. ROBSION. It was said under the Heard Act that that was a simple act, but that was not very clear, and we clarified that. Mr. DOCKWEILER. On page 3 of my bill (H. R. 5054) it says. Where suit is instituted by any of such creditors on such bond, it shall not be commenced until ninety days after the complete performance of the contract under which said creditor furnished such labor and material and under which he claims payment has not been made.

Mr. ROBSION. Well, who is to determine when the contract is completed? Who fixes that?

Mr. DOCKWEILER. It reads similar to our State laws. It says:

In no event shall such action be commenced more than one year after the completion of said work or improvement.

Now, there are two kinds or characters of completion-actual completion and constructive completion. Constructive completion would be where there is an abandonment of the job for a period of 6 months, and then the time begins to run, or the statutory period begins to run. You see, on the next page of my bill it says:

That in the event performance by the original contractor of said contract for the construction of public works be abandoned by such original contractor, or such original contractor shall cease work thereon for any cause, or be removed therefrom by the United States, or any agency thereof, and work under such contract shall thereupon cease for a period of 6 months, then such cessation from labor upon said original contract shall, at the end of said 6 months' period, be the equivalent of complete performance of said contract.

Et cetera.

Mr. ROBSION. If a contractor should cease work under the contract for 5 months and 29 days, he could go on and do his work?

Mr. DOCKWEILER. We would revise the contract, I should say. Mr. ROBSION. Well, he could do that again, and that could go on indefinitely.

Mr. DOCKWEILER. Under our State laws and practice, where a contractor abandons a job, it is constructively considered that he has abandoned it completely if he abandons the job for a period of 6 months. Under the wording of the Heard Act, there is then a final settlement by the Government.

Now, under the law as construed in the lighthouse case to which I referred, the claims of those men could not be paid until it was finally settled, and neither the laboring men nor the materialmen could file their bills until that was done; demurrers could have been lodged against their cause of action.

Mr. MCLAUGHLIN. Under the provisions of the Heard law the bond has two conditions:

One is that the bond is conditioned upon the faithful performance of the contract.

Mr. DOCKWEILER. That is correct.

Mr. MCLAUGHLIN. And the second is that it is conditioned upon the payment of materialmen and laborers?

Mr. DOCKWEILER. That is true.

Mr. MCLAUGHLIN. Now, the penal sum of the bond is one figure— one amount?

Mr. DOCKWEILER. That is right.

Mr. MCLAUGHLIN. What is your notion as to the reason why the law provides that materialmen and laborers shall be required to wait until 6 months after the final settlement and completion and acceptance before he can begin action? What is your notion as to why that condition is imposed in the bond? Would it not be true that the purpose of that second condition, namely, the postponement of action by the materialmen and laborers until 6 months after the completion is to insure the Government receiving full payment for the job or, in other words, insure the completion of the work? Is that not true?

Mr. DOCKWEILER. Well, you refer to the language of the bond? Mr. MCLAUGHLIN. No; I am referring to the recent language. Mr. DOCKWEILER. I do not know what the language of the present bond is. I know what the language was that was written under the Heard Act, of course.

Mr. MCLAUGHLIN. Well, the statute should be read into that bond? Mr. DOCKWEILER. The statute should be read into that and no more. They have no right to exceed the language of the statute. Now, the statute says 6 months. But my bill says within 90 days of completion-and if there is an actual completion, that the laboring man or material man may bring suit in not to exceed 1 year. It is a matter of time.

Mr. MCLAUGHLIN. I do not know that it is so much a matter of time; but just to get this before the committee, I will say that I am wondering if the purpose of this double condition in the one bond, and especially the purpose of the postponement of the action by the laborers and material men until 6 months after a given time, namely, after the date of completion and acceptance, is not to insure that the Government will be protected first by the bond? Mr. DOCKWEILER. I see your point.

Mr. MCLAUGHLIN. Is that not correct?

Mr. DOCKWEILER. Well, that is possible.

Mr. MCLAUGHLIN. Let me go a little further

Mr. MILLER (interposing). That is, where they have only one bond?

Mr. DOCKWEILER. They have only one bond today.

Mr. MCLAUGHLIN. Now, if it requires the full amount of the bond to protect the Government, is there anything left for the material men, subcontractors, and labor?

Mr. DOCKWEILER. Not under the language of the Heard Act. The Government takes the amount of its debt, and whatever is left to these intervening creditors. They all intervene in the action. It is not only So-and-So, a laborer, or So-and-So, a material man; it is any of the creditors.

Mr. MCLAUGHLIN. Yes; I understand. Now, let me ask you this question: There is one penalty in the present bond. If that is $100,000, that $100,000 named in that bond inures first to the benefit of the Government of the United States?

Mr. DOCKWEILER. Yes; that is correct.

Mr. MCLAUGHLIN. And, secondly, it inures to the benefit of the material men and laborers and subcontractors?

Mr. DOCKWEILER. That is right.

Mr. MCLAUGHLIN. And a stated premium is charged for that protection?

Mr. DOCKWEILER. That is correct.

Mr. MCLAUGHLIN. Now, may I inquire about whether your bill would require the giving of two $100,000 bonds? In other words, if I understood you correctly, you would break this bond up into two bonds, a $100,000 bond conditioned for the faithful performance of the contract, which would run to the Government, and a second bond of $100,000, conditioned for the payment of material men, subcontractors, and laborers?

Mr. DOCKWEILER. Yes.